Financing Business Startups: What ISOs Should KnowDecember 22, 2010 | By: Sean Murray
This is the exact title of an article published in December’s issue of The Green Sheet. It informs the merchant processing industry that businesses have several financing options available to them and wait for it…. wait for it….. it talks all about bank loans. Thank you Green Sheet for neglecting to state the most feasible, obvious solution for both businesses and merchant processing reps, Merchant Cash Advance (MCA).
The author advises that ISOs should partner up with bankers to help their merchants obtain loans and then contradicts his argument by saying that partnering up with banks is a far fetched idea that isn’t likely to work. An excerpt: “One of the best contacts you can cultivate as an ISO or MLS is a local lender who specializes in Small Business Administration financing. Generally, this will be a “community bank,” typically a small, local financial institution. A small business will almost always start at a community bank and only graduate to a larger bank because it needs a line of credit that is bigger than the bank’s legal lending limit. But even a community bank SBA officer may not be able to make a loan happen…”
So what is a processing rep to do? The article reads; “Find one that does these loans – and does them well. The bank has to “sell” loans to the nearest SBA district office, and banks get a semi-permanent reputation there for either understanding or not understanding credit risk. Required documents include a written document stating the reason for the loan request, history of the business, lease agreements, percentage ownership breakdown, estimated profits and cash flows, and projected opening day balance sheet. An existing small business applying for an SBA loan needs to include three years’ financials, aging of accounts receivable and accounts payable, and debt schedules. Keep in mind that most small businesses do not want to pay taxes, so they minimize profit – not good when you are applying for a loan. For the same reason, they will not have audited financials.”
That can be summarized as “Go find someone who can help and helps you well.” Not very informative, nor does the rest of the paragraph inspire any confidence in being able help solidify financing for your merchant.
The Green Sheet is very familiar with the MCA Industry. Therefore the idea that MCA would be left out of a small business funding discussion for processing reps was hopefully an intentional omission. The article seems to be one overextended segue to promote “The Receivables Exchange,” a live online marketplace for Accounts Receivable factoring. Not that we have anything against it, but if the article is going to be titled What ISOs Should Know, then they Should Know that MCA is the the easiest, fastest, and most flexible financing product you can offer to a merchant.
A relationship with a community bank is great but if you can’t leverage that relationship to actually get your client the capital, you’re not adding any value. A MCA carries no fixed payment terms or collateral. The underwriting process is quick and credit is not a major factor.
You may now think that our long winded bashing of The Green Sheet article was just a segue to promote the Merchant Cash Advance industry. Ironically you’re right, but then again if you’re in the merchant processing industry and need to know about financing young businesses, then MCA is What ISOs Should Know.
http://debanked.comLast modified: September 15, 2015
Sean Murray is the founder of deBanked, an 11-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper note investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.