Archive for 2023

Why I’m An Evangelist…. For Outside Accounting Firms in MCA

David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.

For over a decade, since the explosion of the merchant cash advance industry in the United States, my team and I at Better Accounting Solutions have been working with a growing number of people and businesses involved in the industry, including brokers, funders, syndicators and investors. We’ve spent time meeting and mingling with you at industry events like Broker Fair and spent more hours talking on the phone advising you than we can bill for.

All this experience has led me to one conclusion, one reinforced the longer we work together with many of you: to thrive and be successful in the merchant cash advance industry, you need a third-party independent financial expert embedded in your business and books.

To declare the obvious context and biases up front: yes, this benefits businesses like mine and yes, I know this from working with many of you. But people become knowledgeable and experts in their own field that they’ve spent years studying and developing, which is why I feel qualified to discuss this.

In the ever-evolving world of merchant cash advance and its challenging relationship with transparency and ethics, trust with your business partners is a must.

Having independent third-party financial experts that report to both parties-for example between a funder and their syndicators- is the only way to ensure complete transparency without bias or conflict. It eliminates the possibility of the funder misappropriating the syndicator’s investment and skimming off what the investors are owed. Firms like ours excel in tracking the numbers to see the deals that are working and the ones that aren’t, and can demonstrate what is trending down to stop a bad deal from spiraling into a company-killing problem.

People often choose to rely on a single in-house accountant to manage their books because they want exclusive focus, but there are plenty of downsides to that as well. Not only are accountants hired from another corporate job rarely equipped to accurately track deals in the complicated world of cash advance, but they are also incentivized to make their reports as favorable as they can to their own company, which may scare syndicators and investors whom they have no obligations to. By outsourcing these critical functions to a specialized firm, MCA funders send a clear message to investors and syndicators: they take financial accountability seriously and they are a trustworthy and transparent business to work with, with open books for their partners to peer in.

Industry scandals that bring our profession into disrepute- such as the collapses of MJ Capital Funding, LLC and 1 Global Capital– were able to happen because the investors pouring money into what they thought were legitimate MCA businesses weren’t given access to the companies books until it was too late and hundreds of millions of dollars were forever lost.

Obviously, you should be wise about people’s motives, even mine as the author of this article, but you should also take every piece of advice into consideration, particularly one that objectively suggests measures that fosters and promote trust and better business growth practices.

Remember, in the world of finance, trust is the most valuable asset of all.

Tips From Tibbs: Vendor Marketing Guide

The fine line between being successful and being stagnant in the equipment finance industry can easily be determined by vendor relationships. Cheryl Tibbs (CEO/Owner at Equipment Lease Co.), a veteran in the field, recently released her Vendor Marketing Guide this past October. The ten-chapter booklet covers various aspects, including vendor marketing, contact building, crafting value propositions, and more.

Vendors are businesses authorized to sell equipment to end-users, Tibbs explains, and establishing a relationship with them can take a broker that is used to hunting for individual deals to instead being the recipient of multiple deals per week. But how to get that business is where most brokers get stuck.

“I think a lot of brokers get stuck with, ‘Well, how do I find vendors and what exactly is a vendor?’” she told deBanked. “I think that chapter three sticks out in particular, just making contact, knowing how to find a vendor, what to say when you get a vendor on the hook, and how to engage with that vendor.”

Tibbs said that brokers often assume that vendors already have a bank in-house when that is not always the case. This thinking might also lead them to shoot too low even when they do solicit them.

“A lot of equipment brokers they market to vendors and say, ‘Hey, send me the stuff that your people won’t finance’ and I think if you ask for trash, you’re going to get trash,” said Tibbs. If a relationship is built properly, a broker can get the vendor’s A-paper clients, she added.

Not only does the guide breakdown vendor relationships but also provides examples of how to pursue them, whether it be email, in-person, etc. The guide is not where education ends for brokers, however. Tibbs believes it’s an on-going learning experience.

“I think if you’re making money and you’re building these relationships, that’s motivation in and of itself, to continue to sharpen your knowledge with regard to this,” she said.

Back to Business Lending in Canada

“There’s a need for products and services like ours across all cycles,” said Cato Pastoll, CEO of Loop, on the small business lending panel held at the Lenders Summit this week in Toronto.

It’s unclear what cycle the industry is in exactly. The Lenders Summit, put on every year by the Canadian Lenders Association, was not only sold out but packed wall to wall with more than 500 attendees. The tone was relatively upbeat despite Canada’s key interest rate holding steady at 5% and economic headwinds blowing in the background.

OnDeck Canada COO Harley Greenspoon said that his company just had their best October in four years and that they’ve returned back to pre-pandemic growth. “Demand is actually not the issue at all,” Greenspoon said.

Not only is the demand for business loans there but OnDeck Canada has not had to pass on the rising costs of capital thanks to greater efficiencies unlocked by reducing headcount and increasing automation.

Lauren Thompson, VP of Specialty Finance for Peoples Group, whose organization partners with fintechs and lenders, said that from a bird’s-eye view banks would probably continue to restrict capital being loaned to small businesses for the foreseeable future. “I don’t think that small businesses are best served through the traditional banking system,” said Thompson.

Pastoll of Loop pointed out an irony with this, that banks tend to under serve the underserved when they actually need it most. “90% of the private sector workforce is employed by small businesses so if you want to stimulate the economy, we as fintechs can do it faster…” Pastoll said.

Thompson explained that the traditional financial system can be hamstrung by reviewing data that is already stale such as financial reports that reflect a moment in time six months ago while a fintech lender has more of a live pulse on what’s going on.

Greenspoon of OnDeck Canada, for example, could rattle off the top of his head industries that are experiencing challenges, the most notable being transportation.

Finally, Pastoll was asked if Loop had contemplated ever having to deal with a high interest rate environment back when he founded the company almost nine years ago. Pastoll explained that his whole inspiration for founding Loop in the first place was to help small business owners precisely during difficult times. Both of his parents were small business owners and he had watched firsthand how hard it was to find financing.

“Again, I just think about what my parents had to go through,” he said.

Originations Increased, Losses Decreased for Shopify Capital

Shopify Capital is still experiencing an increase in business loan and merchant cash advance originations, according to the company’s latest Q3 earnings report. The company recently stopped disclosing precisely how much it is they are originating, however. It used to give precise numbers but starting this year Shopify now only cites its loans and merchant cash advance receivables balance.

“Transaction and loan losses decreased for the three months ended September 30, 2023 compared to the same period in 2022, primarily due to a decrease in losses related to Shopify Capital.”

So funding is up, losses are down, which is precisely the opposite situation that is going on at rival PayPal.

Shopify somewhat skimmed over its Shopify Capital business in its Q3 earnings announcements and on its official call except to state that it’s a strong segment that is growing.