cash advance stores, anyone know anything?

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eric281

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Jan 7, 2008
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The company that I work for owns a small chain of cash advance stores, but due to to horrible management on the corporate level, they have decided to get out of the business and focus on the main business. They are very desperate to sell, and therefore selling off the business extremely cheap from what I can tell. A friend and I are interested in buying it, either to run or to hold and take our time selling it. Problem is, I don't know a ton about the industry. The regional manager for the chain is a very good friend of mine and does a very good job running the individual stores, which on their own are profitable. All the lost money came from a corporate office with 3 full time employees in a nice big building with big fancy desks etc. We would be able to retain him and my employees to run the store, but need to learn (very quickly) how the industry works.

Hoping someone here knows something about the industry, or is able to point me at some reading. Thanks for any advice/help. I'm off to google for info.
 


Can't say I know much about it specifically -- but:

Economy is going down the tubes, job growth is anemic. Meaning business is likely to pick up as long as your state doesn't legislate against payday loans (happening some places).

It also means that you're probably going to have a much higher than average bad debt expense.

Also I would guess the secondary market for these loans is non-existent today so you may be saddled with handling collections or at least carrying the bad loans until the secondary market picks up again. That could cause capitalization problems and prevent you from getting funding for expansion or even operating expenses if business takes a dip.

Just my immediate thoughts. If they are profitable *today* and your manager friend can give you the low-down on the business model and day to day needs of operations, it's worth a look. But consider it pretty risky.
 
* Keep in mind I am talking US, and Cash Advance here*

Brooklyn is correct. Before you could loan out money, and if it was not paid you could quickly flip these none paying loans to collection agencies that would pay you something for the loans. These cash advance places could remain small and with very little or no collection departments. Also more people could pay there loans because they could refinance their homes, or borrow on other credit. That has been drastically cut back in the US. Now these people are over extended, and have no where to go. Cash advance is one of the last hopes.

Now just like any business your gains have to outweigh your losses. The bank will not lend them the money, their credit lines are maxed out, and they do not have someone who will loan them the money.
This means these people have to get these loans paid off quick, or my guess is that heavy interest starts accumilating. Then collections should immedietly kick in. Well collection costs money, and even a good agency can only recover so much.

Long story short if you are going to get into this business I would prepare to have a strong plan for the loans going bad, because you are going to have allot of them. That plan should include a strong inhouse collection team.
 
Oh I'm sure it's very risky, but we're not talking big money here. It's 3 stores, one of which would just be erased, maybe two. Those two are basically brand new, with only 3k in outstanding loans. The store that we're actually interested in has about 12-15k in active recurring loans, and 4-5k defaulted that hasn't been sold to debt collections or anything yet. This basically amounts to a monthly average of $4500 in revenue. That's not super promising either, we're only talking about 4 months of history there. The location is great though, apartment buildings on all 4 sides, and the rent is cheap, only $850/month. Software, computers, furniture, file cabinets, safe, all paid for and in place. They want out by the end of the week, and initially told me $15,000 takes everything. I was too busy to even think about it, but I got an email this morning from my old boss (one of the guys running it) that the only other potential buyer is not interested, and that they were "desperate to work out a deal and would entertain just about any offer, including some sort of payment plan". So, I'm thinking that the whole shebang could probably be picked up for $10k, and even that could probably be done over a year. So, generally, I'd buy any business that I could afford that is being sold for less than 3 months revenue, especially since they've done 0 advertising and all the business has just been organic walk-ins. I don't know about this business though, because I don't know what laws/restrictions there are. I'm trying to learn more about it, but it's hard to dig through google with ALL OF YOU FUCKING PEOPLE PROMOTING CPA OFFERS (GJ by the way).
 
Yeah it sounds like a steal if talking pure numbers.

But that also makes me suspicious. Why are they so desperate to sell a self-sustaining business for a song by the end of the week?

Maybe there is something they're not telling you -- legal action on the horizon, partnered with a super shady collections agency, lease is getting yanked, the city is gonna tear down the section 8 building across the street... who knows.

I would definitely dig deeper. If it's sounds too good...

Also try to model out the finances a bit more rigorously. If you have a college around, I'm sure you could get a finance or accounting student to help walk through whipping up some pro formas for $50 or so. This would help too if you wanted a bank loan to finance the purchase.
 
I cannot tell you about the lending laws specifically beacuse I am not an attorney. I would start with reading about money lending laws in general. Try FDIC: Guidelines For Payday Lending. For this line of business I would also consult an attorney. What you could do is forget the brick and morter. Setup a website instead. Give them an offer to just buy all of their loans, then setup a drop box for the payments. Companies do it all the time. It is cheaper to just buy their accounts, then to move in to their location that is not making any more money.This will get you into the business as cheap as possible. If they really have people paying consistantly then they should be able to continue at least those 3 months, and then you are in the green. You can then find someone who has done collections before to help you out when people stop paying. Their is collection laws so make sure you trust the person helping you out, or you become familar with the laws also. Try offering a quick settlement for customers to get out of their loans if they start struggling with the payments. This way you can get quick money, and not have to spend time waiting and calling them. If you want to really grow the business, then start promoting your money lending business through all of the regular affiliates.
 
If you straight out buy their assets this may help you later if they have a pending lawsuit. Unless the lawsuit is a contract issue. Again an attorney is important. They can research any pending or past issues with the company, lawsuits, etc.
 
Also sounds fishy to me that they'd want to sell off that quickly for such a low price.

Generally if you're buying a business you can expect introductions to the workings of it from the seller.

Are you sure that the "3 full time employees in a nice big building with big fancy desks" aren't actually needed for the operation of the business?

Ask for details and possible training. If these issues are settled talk to a lawyer to make sure that you aren't getting ripped off.
 
BrooklynBlue said:
Yeah it sounds like a steal if talking pure numbers.

But that also makes me suspicious. Why are they so desperate to sell a self-sustaining business for a song by the end of the week?

Maybe there is something they're not telling you -- legal action on the horizon, partnered with a super shady collections agency, lease is getting yanked, the city is gonna tear down the section 8 building across the street... who knows.

I would definitely dig deeper. If it's sounds too good...
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The reason they are selling it is because they are blowing insane money on the management level. 6-7 months before they opened the first store, they leased a corporate office in a nice building, moved one of the VP's of the parent company over there to run it (100k salary), hired a "consultant/market analyst/general manager" (80k salary) and then hired a full time accountant (60k salary). The initial business plan was for them to open 3 stores after 3 months, and then 2 stores a month past that for the next 12 months. The GM guy was pretty useless and moved extremely slow in picking locations, mainly because they were only looking for locations that would give them month to month. It took 6 months for the first store to open and another 3 for the next 2. In the original plan they would have had around 10 stores open for December which is the busiest time of the year, and they obviously missed that. So now, the owner is frustrated by a management team and this huge corporate overhead (we're talking 300k/year at least) and he just didn't feel like screwing with it. Our parent company had 60 million in revenue last year, so a couple grand a month isn't worth trying to salvage, and he doesn't really care if he sells it. So, they are shutting down the stores tonight, so they don't have to pay rent tomorrow.

We are presenting an initial offer of 7500 at lunch today, and willing to go up to 10k if needed. As far as how we'd change things, we have a new employee ready to start Friday, and the old regional manager is actually going to be in on the ownership, so he's going to be there tomorrow to train the new guy. The new guy is a long time friend. trustworthy, and willing to work for a base salary of $19280 with incentives for generating new business, which is 5k less than the employee that was already in place.

I think the plan is also to immediately put the business up for sale. The current owners put no effort into trying to sell it, basically deciding last Saturday to not pay rent for February. I'll be sure to update everyone on how it goes. Could be fun, and if it all goes wrong, my max exposure's only 5k, which is really nothing when you think about it.
 
My buddy who owns about 10 gas statiosn around town recently started adding more and more cash advance addons to each gas station. He said he doesn't even bother with the default loans. He lets his daughter collect them and keep the money she gets. Apparently he makes enough money off them to not care.

I think it might be a good market here for some reason or another. We have cash advance places here on every corner. Title loans next to them. I am just waiting for a new mall to open up and just be full of cash advance places
 
Sounds like you've done your homework and limited your exposure. Good luck with it, not a business I'd want to be in (stupid morals grr)
 
better do your research first. I heard the cash advance store industry is going down and becoming illegal. Coincidently large banks are now starting to offer "quick loans" You don't compete with banks and get away with it.

My town used to be riddled with cash advanced stores, there isn't a single one left
 
Deliguy said:
better do your research first. I heard the cash advance store industry is going down and becoming illegal. Coincidently large banks are now starting to offer "quick loans" You don't compete with banks and get away with it.

My town used to be riddled with cash advanced stores, there isn't a single one left
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Very true to a point. It will depend on the state. I've spoken with a couple high-level Dems who have been involved with the industry on both sides, neither of whom expect action to be taken on the federal level.

Providing credit to a very high-risk clientele isn't illegal in and of itself, but the way most cash advance operations work is super sketchy and/or completely preying on very vulnerable demographics, which of course will draw the ire of regulators.
 
As far as the industry being cracked down on, it really does depend on your state. Some states are shutting them down, and some are opening it up. My state just passed laws to open it all up in the past couple years, so the market isn't completely flooded (close to it though) and our rates are still 50% higher than mature markets.

I spent all day running in and out of meetings and we've managed to chop the operations costs down quite a bit. They were spending $300/month on 2 phone lines, upgraded dsl and website hosting. We dumped the extra phone line, and are moving to cable internet at a promo rate of $65/mo. I can clearly handle the hosting. The employees were being overpaid, so we were able to cut $500/mo there. We renegotiated the rent/utilities down $100 also. They also pay $100ish a month for software support, and we are going to see about new software either our own or outsourcing someone to do something for us, but $100 isn't really that bad either. Our lawyer is looking over their certificate of good faith right now, and we should be running it by tomorrow.
 
I am partners in a few "small loan" stores. Outstanding is approx. $150k in each. We do unsecured small loans but they work almost the same way as the "pay-day" loans. Here are a few of my suggestions:

1) keep collections in-house. Give incentives to employees for levels of performance. Have employees vist homes and jobs of deliquent accounts. Call every number on every deliquent account everyday. MOST IMPORTANT - hire some hard ass collectors that will not take "no" for an answer. Pay them well with incentives and your deliquency will be small.

2) Sue everyone that defaults in small claims. Do not hire an attorney to do this. I have $8 an hour employees that do all of this

3) Audit the offices once a month "at least". I have been stolen from many, many times. Don't trust anyone! I have had little old lady church goers take me for 30k before. Audit the deposits and bank balance, verfify new loans and count down employees drawers as regualr basis as possible.
 
Good luck. I know a guy here in Tampa Bay that cashed out for the last 10-15 years opening cash advance stores, running them for a year and selling the business - he signed a non-compete for 6-12mo per sale and opened the next as soon as that expired. He did great for himself, but he rants that the greed of most of the cash advance stores is whats going to kill the industry. He always made good money with his stores undercutting the big chains in terms of rates. Always made it work and work well without charging super-excessive amounts.

Like the above guy mentioned, he also had employees stealing from his stores regularly. Audit often and screen your hires very well.
 
We're doing an asset sale and buying the corps they already have setup, so we dont have to refile for all of that shit.
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What!?

No, if you are buying their corp(s) then that is a stock or ownership sale which you do NOT want. If you take over their corporation(s), then you will be liable for any screw-ups they may have done in the past, any loans that were made by the corporation, etc. You get their corps with their LIABILITY.

It sounds like you're too cheap to talk to a real attorney but I would recommend you setup new corps. Your corporation then buys their assets and transfer the lease. That is why its called an ASSET sale. Legalzoom can get you the paperwork for cheap.
 
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