Fast Cash: Accel invests $ 30 million in Capital Access Network
Shelling out cash to small businesses that need it fast– or just don’t qualify for bank loans– has become a $600 million annual business for New York-based Capital Access Network. Now, Accel Partners is betting $30 million that the combination of risk-averse banks and cash-starved businesses will help CAN grow even bigger.
CAN offers small and medium businesses cash advances and loans based on its proprietary scoring system, where factors like how fast a business is growing count a lot more than collateral or the business owner’s credit score.
“The banks never were very good lending money to this segment,” said Kevin Efrusy, the partner at Accel who arranged the deal and who is taking a seat on CAN’s board. “Especially after 2008, it’s completely dried up.” A typical CAN transaction is in the $30,000-$1.5 million range.
The funds will help CAN aggressively target online-based businesses as well as expand its business overseas through working with partner organizations, said chief executive Glenn Goldman. It expects to provide businesses with $600 million in capital this year, compared to $450 million last year. The company’s write-off rate– or the percentage of outstanding capital that doesn’t get paid back– is about 5 percent, Goldman said.
The bulk of CAN’s business comes from advances rather than loans, and businesses pay a pretty penny for them. A typical advance of $30,000 might take a year to pay back and would likely cost the business around $6,000 in fees.
CAN says it is worth it because it makes decisions within 48 hours, compared to perhaps a few weeks or more for banks, allowing businesses to move fast on fleeting opportunities such as the opportunity to buy inventory at a cut price. By April, CAN will launch a new website that will offer same-day decisions, said Goldman.
The business pays back the cash via automatic dockings of its credit-card or PayPal receipts from customers. Instead of paying back a set amount each month, the business forks over a percentage of revenue as it comes in.
Taking the payments on a when-money-comes-in basis gives CAN a peek at the business’s daily sales receipts, allowing CAN to finetune its lending models for other similar businesses that might apply for cash down the road. Typical CAN customers include restaurants and small online vendors; Goldman said he had just signed up a small violin maker.
The investment could benefit Accel in more ways than one–vendors and small businesses that sell their wares on Etsy, the online crafts marketplace, or that market through Facebook are a prime target for CAN advances, note Efrusy and Goldman. Etsy and social-network Facebook are both in Accel’s investment portfolio.
Once again, connections count. “We might offer special rates as a result of the relationship,” Goldman said.