Articles by John Tucker
OPINIONS ARE LIKE A-HOLES RIGHT?
We all know what they say about “opinions” right? They (opinions) are basically like a-holes and everybody has one. I’ve stated a lot of opinions here on deBanked over the last couple of months, while some might agree and others disagree, I always try to provide educated opinions to separate commentary from the generic pack of people blurting out comments across industry forums and media publications that might not have firsthand experience on the front lines.
With that being said, it’s in my sole opinion that every funder/lender should offer their independent brokers lifetime renewal compensation despite new deal volume.
BROKER AGREEMENTS SEEM TO CHANGE ON A WHIM
I’ve been reselling the merchant cash advance and alternative business loan products since November 2009, however, the current program structures/agreements of my funders and lenders look totally different today than they did in the beginning.
It’s almost as if a new agreement is created every 12 – 18 months with similar conditions, but certain terms might have changed, including the compensation of renewals.
Some funders and lenders will start without any provisions related to renewals, basically as long as the client continues to renew, then you will be allowed to collect commissions off the client. But later on down the line, some funders and lenders will change provisions and require certain levels of new deal volume in order to be compensated on renewals going forward. Most broker agreements have terminology listed that states that the funder/lender can change the program at their discretion, however, I believe that at no point in time (other than for particular circumstances of fraud or ethics violations) should a funder take away a broker’s renewal compensation as whatever “good” it’s supposed to be doing (which I still can’t think of any), I believe it does far more damage in return.
YOU CAN’T CLOSE WHAT YOU CAN’T GET APPROVED
Sometimes a broker doesn’t fund a deal within 3 – 12 months because the funder can’t approve any of the submitted deals. If the broker is like myself, I’m going to pre-screen all new applications to see if it fits the underwriting criteria before submitting it, as submitting applications that are outside the criteria does nothing but waste valuable underwriting resources. If they are a somewhat conservative funder, a lot of times a broker just might get too few applicants to fit the box.
WHAT DID YOU ACTUALLY SPEND ON MARKETING?
Funders and lenders receive free marketing from brokers because they bring them the deals, so what is the big deal about continuing to pay renewal compensation despite new deal volume? They don’t have to worry about taking the risk of putting marketing capital up on the table with a potential of no return. The person who puts up the capital is the broker, and they should be compensated for the lifetime of the client regardless of new deal volume.
As an independent broker, the individual is a part of the Mom and Pop Network, which is just a group of random brokers who resell for free (100% commission). Not only are funders/lenders receiving the free marketing from the resellers, but they are also receiving free data to utilize in any potential “big data” valuations for sell-off, or “big data” analysis for better market segmentation. In addition, if the broker’s portfolio of merchants (even if it’s just one merchant) didn’t default or the default rate is very low, what is the justification for cutting off the broker just because there was no new deal funded?
RENEWALS ARE THE LIFEBLOOD OF THE BROKER’S INCOME
Once upon a time, during the very early days of MCA, the product was pretty much a one-off project. A merchant had an emergency, they sold off a percentage of their future credit card receivables in exchange for some upfront cash today, and used the cash to address whatever emergency they were facing. If the merchant renewed, it was usually one time (twice if you were lucky) and that was it. Today, it’s a different situation if you set up your merchant based on their proper Paper Grade. Merchants are renewing back-to-back, a lot of times for 3 to 5 years (or more) in a row, which means that the product is becoming more of an integrated portion of their business (similar to the MCA’s Kin A/R Factoring) rather than a one-off occurrence. This means for a broker, there’s a lot of money to be made off of their MCA portfolio going forward and the entire point is to build your portfolio up to a particular size, where you can just “sit back” and solely manage the renewals of the portfolio without being required to continually produce new deals by spending more on marketing.
Take a broker with a portfolio of 25 merchants who renew just about every 6 months (twice a year) with an average funding of $75,000 with 5 points commission per deal. That alone is $3.75 million a year in funding volume and almost $100,000 per year in income, solely off the renewal portfolio. If the broker maintains this portfolio for 10 years in a row, that’s almost $38 million in funding volume and close to $1 million in income. Why on Earth would you want to even threaten to cancel a broker out of the deal when again, it was their ingenuity, rapport building skills and sales skills that are the foundation of the clients coming to the funder to begin with, as well as continuing to renew back-to-back?
YOU ARE ASKING FOR YOUR MERCHANTS TO BE FLIPPED OR STACKED
The broker is the one who has the original relationship with the merchant, thus, the merchant more than likely has more rapport with the broker than they have with anyone in the funder’s organization. Thus, cutting off the broker from the renewal compensation might do nothing but just cause the merchant(s) to be stacked or flipped to another funder/lender.
TELL ME WHICH BROKER IS MORE VALUABLE? BROKER A OR BROKER B?
Okay, so tell me which Broker is more valuable? Is it Broker A or Broker B?
– Broker A: Over the course of one year, Broker A brings in 15 new merchants, with only 4 of those merchants renewing once because the broker didn’t price the merchants in their proper Paper Grade and thus, a competitor stole them away at renewal. This produces a total of 19 advances (new/renewal) and let’s say with the average funding being $50,000 you are looking at volume of $950,000.
– Broker B: Over the course of one year, Broker B brings you only 8 new merchants, but 3 of them renew 4 times back-to-back (12 additional advances), 2 of them renew 3 times back-to-back (6 additional advances), 2 of them renew 2 times back-to-back (4 additional advances), and 1 of them renew only once, for a total of 31 advances (new/renewal). Keeping the average funding at $50,000 you are looking at volume of $1,550,000.
Broker B supplied fewer new deals than Broker A, but Broker B provided an overall higher level of production based on the rapport and proper structure they established with their clients that produced more renewals and advances in total for the funder. Seeing as though in our industry, when funders count their “total volume funded” they include both new and renewal volumes, how can it be that Broker B is not more valuable to a funder than Broker A is? Not saying that Broker A isn’t valuable, but based on potentially cutting off renewal compensation due to a lower amount of new deal volume, they would potentially be cutting off the Broker that offers more value over time.
THE FINAL WORD
Why on Earth would a funder or lender want to kick out a competent broker by cutting off their renewal portfolio? What does it solve to cut off a competent broker, with a low (or no) default rate, just because they didn’t bring in newly funded deals during the previous 3 – 12 months? What does that solve? Does cutting them off somehow produce more margin for the funders? More market share? Savings in some sort of area? As mentioned, the broker is likely to flip the merchants or stack the merchants when this happens, which again, does nothing for the funder in terms of providing any type of benefits or value.
The only justification for cutting off a broker is when they are engaged in unscrupulous acts. But cutting off competent brokers just because they didn’t fulfill some insane new deal volume policy, makes absolutely no sense because at the end of the day, cutting off the brokers will be like cutting off the funder’s relationship with the merchants as well. With the parade of new funders looking to grab market share, what better way to gain it than to partner with competent but dejected brokers, who just got their renewal compensation cut off for not fulfilling some insane new deal policy?
YOU WRITE THE END OF THE STORY AT THE BEGINNING OF THE PROCESS
As an adolescent, I had a dream of becoming an actor. There was no true purpose, direction or vision behind the dream, the dream was based mainly on the fact that I had seen a lot of A-list celebrities on television and they always seemed to have had the world in the palm of their hands. During my time studying and performing as an actor, I also learned a little bit about the sequence involved in writing a screenplay. It was peculiar to me at the time to note that a lot of the best writers would always write the end of the story at the beginning of the process. At the time, I thought to myself: “How can you establish an ending without first establishing a beginning?”
IT DAWNED ON ME
As I grew older I changed my dream from becoming an actor to becoming a successful B2B sales rep. As I got deeper into my commercial finance B2B sales role, it finally dawned on me as to why those screenwriters wrote the end at the beginning, and it was because the engagement of any process is the journey to the destination, not the destination itself. However, for the journey to be engaging, we must first establish a destination for which the journey is based upon, then fill the journey with a variety of ups, downs, twists, turns and character growth as we arrive at the end.
B2B SALES IS SIMILAR
The profession of B2B sales is similar, especially when it comes to the selling of financing, whereas discussion and debate over how the ending should look, should be done with the merchant upfront (during the pre-qualification stage) as well as discussion on the journey (underwriting process) to the destination.
When it comes to B2B sales, especially the selling of commercial financing, I believe you “close” at the beginning, that is, I believe you write the end of the story at the beginning of the process, not at the end. If I cannot come to an agreement with the merchant on the “ending,” such as the realistic potential terms (even if it’s just a range), then the sales and underwriting process should never begin, and we both walk away.
STOP WASTING RESOURCES
Some brokers choose to keep the potential terms a secret until the end, and hope that the deal doesn’t fall apart when the time comes to finalize everything. Why keep the potential terms a secret and have the merchant fill out apps, fax over statements, have my funder key in the data, spit out approvals, only for the merchant to eventually tell you that the numbers aren’t what they had in mind? That makes absolutely no sense.
I believe that by the time I submit the deal to my funder, it should be already closed with the merchant, and all I have to do at that point is close the funder in approving the deal I proposed to the merchant from the beginning.
Someone once asked the question of, “To love or not to love?” But I believe soon every broker will have to ask the question of, “To participate or not to participate?” Is it time we all get into the game?
THE YEAR OF THE BROKER OR THE YEAR OF ROSY PROMISES?
Debanked writers such as Sean Murray, Ed McKinley and myself, referred to 2015 as the Year of The Broker, as a stream of new brokers continued to rush into our space to take advantage of the perceived opportunities.
THE YEAR OF PARTICIPATION?
For experienced brokers, I’ve written two pieces so far here on deBanked in relation to the broker’s future. I’ve talked about how I believe the future of our industry will be dominated by Strategic Networks and those who utilize these networks efficiently will not just be the dominant players going forward, but they will be pretty much the only “real” players going forward. I also talked about how success in our industry is based mainly on leveraged resources and networks, rather than having some sort of “superior” selling capability.
But with that being said, I wanted to use this article as a way to add to this discussion of the future by outlining my recommendation that experienced brokers “get into the game” when it comes to syndication and deal participation. DeBanked reported back in April of 2015 about how Strategic Funding Source’s syndication network of over 200 partners (at the time) invested over $260 million of their own capital into funded deals. This level of investment, according to the reporting, helped amass significant wealth for the 200 syndication partners that participated. If 2015 was the Year of The Broker, could 2016 be the Year of Participation?
IT’S NOT THE SAME ANYMORE
It’s no longer 2000 – 2013, when quite frankly a broker could amass great income by just strategically utilizing the Uniform Commercial Code (UCC) as a marketing model. But pretty soon the word got out and everybody rushed in to duplicate the methodology. What was once a great idea became a complete waste of marketing dollars.
UCCs are so bad today, that when you call a merchant and just mention the fact that you are from a funding company, they immediately hang up the telephone. Sometimes, I would call and before I would even have the chance to say a word, the staff member on the telephone would ask, “Are you calling about a cash advance?” Once I would reluctantly answer in the affirmative, they would of course immediately inform me to put them on the do not call list, never call again, and either in nice language or a language full of swearing, they would inform me that they aren’t interested and how I’m the 19th guy that has called them this week. This is the result of a merchant getting 20 calls a week from 20 different companies, about 20 different merchant cash advance products.
As a result, brokers are going to have to specialize in the Strategic Networks and leveraged resources that I have been discussing for nearly a year now on Debanked. We will also have to juggle the rising marketing costs and increasing pressures on pricing as our industry goes more mainstream. You might not want to operate as a full-fledged direct funder, as I understand that the investment outlay for such a task is significant. But I believe going forward, you aren’t going to be able to “make it” like you used to by solely relying on commissions from brokering deals. You are going to have to get into the game and put some money in deals not just to sustain the amount of income you were making in commissions historically, but to potentially make more money than you ever made before.
A SHOUT OUT TO WBL
Also back in April of 2015, there was a pretty popular online discussion that discussed World Business Lenders’ (WBL) new ISO/Broker acquisition program. I had a conversation by telephone with Lenny Steigman from WBL on April 21st of last year to discuss the program in detail.
One of the things that Lenny mentioned on that call was the notion of the broker’s office requiring a shift in structure in order to survive in the upcoming future. Lenny discussed that brokers who chose to continue to operate on the sidelines relying solely on commissions from brokering deals, without getting involved in some sort of equity or syndication participation, might find the future of their involvement in our space limited as continued growth through strategic networks drive the progression of the industry. I could not agree more with Lenny Steigman. It’s certainly time for a shift and one of those shifts I believe will require more experienced brokers to become syndication partners through putting up a portion of the capital to fund the merchants that they service.
GET YOUR DUCKS IN ORDER
As you prepare for this shift and look to get into the game, make sure that you have your ducks in order:
Legal Representation: This is important, you need an attorney to review your syndication agreements as well as review the legal structure of the funder you are partnering with, to make sure that all of the legal terminologies are outlined properly.
Understand The Deals You Are Funding: Know the type of client you are funding, such as if they are A Paper, B Paper, C Paper, D Paper or E Paper. Your level of risk on the deal in terms of default increases when you get into the higher risk paper grades, thus, make sure you are getting a significant enough “return” on said deals to accommodate the risk you are tolerating.
Examine Your Funder’s Finances: By syndicating, you are doing more than just investing in the merchants that you serve, you are also investing in the financial soundness of the funder you are syndicating with. Make sure your funder is not on the verge of bankruptcy, profitable, and will actually be around a year from now.
Examine Your Funder’s Operational Structure: I’ve talked about the importance of making sure you vet who you partner with in relation to being a broker. Now that you are syndicating, you most definitely make sure you are dealing with a funder that’s “proven.” The funder should have at least 2 years in business, have funded in the eight digits in terms of volume, have a proven and profitable underwriting formula, have an office full of employees, not have a significant amount of bad reviews, be in good standing with the BBB, having an actual online presence, and they should be running a professional and competent organization overall.
Round Up Your Capital: The secret of many of the wealthy has always been their unique ability to utilize the money of other people for their business investments. They find equity investors seeking a return on their capital, invest said capital with a high return and collect a management fee off of the transaction. Or, they borrow money from a creditor at a particular interest rate, invest the monies for a higher rate of return, then pay off the loan with interest and pocket the profits. Whichever way you prefer, how about you utilize OPM (other people’s money) to your advantage (leverage) as well for your participation efforts?
TO PARTICIPATE OR NOT TO PARTICIPATE?
I believe we might be entering the year of participation, which means it’s time for the experienced brokers to join in on the strategic networks which will dominate our space going forward. New entrants who don’t know the space and still can’t spell “merchant cash advance” will be in for a bumpy ride going forward, but those with the experience, it’s time to add to your industry influence by coming off of the sidelines as brokers solely, and becoming broker/syndicates in the truest form.
LIFE DOESN’T PLAY FAIR AND NEITHER DOES YOUR COMPETITORS
Let’s face it, a big part of our job is customer service. As a direct funder or lender, or as a large or small brokerage, a big part of our job is to service our existing customers, partners, vendors and suppliers with the utmost integrity, efficiency and ethics. But even the best of customer service intentions can become scarred when those who compete against you, choose to compete unfairly through vile fabrications, defamations and falsehoods.
MORE MONEY, MORE PROBLEMS
Not many people (including myself) are too fond of hip hop music as most of the time the lyrics are questionable, but in 1997, everybody agreed with The Notorious B.I.G. when he touched on the concept of making more money and having to subsequently deal with new problems.
The bigger and more exposed you get, the higher the probability that you’ll have a run-in with dissatisfied merchants, partners, vendors and suppliers. This is common knowledge, as many of the largest ISO/MSPs and MCA firms are all over the ripoff reports in one form or fashion, with current and prior customers blasting the companies over sometimes legit issues, and other times issues of a petty nature that could have been resolved in means of a lesser depiction. But continuing on, the bigger you get, the bigger your “haters” will get as well. The rise of the internet has multiplied the presence of haters and trolls to a population standing taller than ever before. These haters love to use online discussion boards, social media, blogs, and review sites to spread their lies, hatred and vile.
JUST BECAUSE YOU SMELL SMOKE, THAT DOESN’T MEAN THERE’S A FIRE BURNING
I’m not sure who the author of this quote is, but it says the following: People will question all the good things they hear about you, but believe the bad without a second thought. Haters know this quote to be true and are quick to spread their venom knowing that if it’s coming from multiple sources, then far too many people will take them at their word using the flawed logic of “where there’s smoke, there must be fire.”
Well, I say just because you smell smoke, that doesn’t mean there’s a fire burning. Instead, you could more than likely have a group of haters who have perfected the art of blowing smoke, which is to make unfounded or exaggerated claims. As a result, you need to protect your brand against haters. There are those of you who believe that if you just ignore them then they will go away. Well, I disagree with that notion and so does Motorhead’s Lemmy Kilmister. “I don’t understand people who believe that if you ignore something, it’ll go away,” he was once quoted as saying “That’s completely wrong because if it’s ignored, then it gathers strength. Europe ignored Hitler for twenty years, as a result he slaughtered a quarter of the world!”
LOOK AT DONALD J. TRUMP
If he wins the candidacy or not, Donald Trump will go down as perhaps the most fiery presidential candidate of all time. When Trump believes something, he says it, without filter and without care of political expediency. When Trump is “attacked” by the media or one of his fellow GOP opponents, he fires back. On the O’Reilly Factor after the final GOP debate of 2015, Trump clarified that if the media or one of his GOP opponents makes a valid criticism about him, he’s perfectly fine with that, but what he has a problem with is when they flat out lie about something he’s said, done or believes in.
While I’m an Independent and not sure who I will support for the 2016 Presidential election, I find myself in agreement with Trump on a number of things, including how Trumps responds to “haters.” My stance is that if you have a valid criticism about something I’ve said, done or believe in, then I’m all ears! But when you flat out lie about me, now you are going to tick me off.
GET MAD, GET MAD!
One of the reasons for Trump’s surge in the polls is the fact that a lot of people are angry at leaders in Washington and aren’t going to “take it” anymore. Trump’s fiery persona attracts people to the real estate tycoon, causing him to have a massive lead in the Republican race. Like Trump, you should get mad as well if you have worked to build your brand, resumé and marketplace standing, and then all of a sudden here comes some anonymous troll spitting out all types of defamations across the internet:
- Don’t work with XYZ Company, they are a scam!
- XYZ Company stole my money!
- XYZ Company’s President is a criminal!
- XYZ Company backdoors deals!
The definition of libel is to write something about an individual or a company that is defamatory, which is a statement that is false but written in a way to convince the public that it’s true. The internet has increased the presence of libel so much, that insurance companies market their personal umbrella policies as a form of insurance in case you are sued for libel. Some people don’t realize that typing something on the internet can get you in trouble if you are lying about the person or the company in question. Now, I’m not advising you to run out and sue everybody who lies about you online, as that would be very costly, however, I am advising you to get mad by fighting back and doing some of the following to protect your brand.
FLOOD THE MARKET WITH TESTIMONIALS
Begin to flood the market with positivity. When a prospective client searches for your company in Google and finds the negative reviews, they can also see the various videos, blogs and review sites where your customers, partners and vendors are praising you. You can always say: Look at the many customer testimonials that we have and look at the size of our customer portfolio, clearly more people are satisfied with us than dissatisfied.
THE BETTER BUSINESS BUREAU
The BBB will provide you an “A+” or “A” rating as long as you respond to any complaints filed in a timely manner. You can use your “A” rating status in marketing and in response to prospective clients inquiring about negative reviews. You can always say: We have an A+ rating with the BBB, we must be doing something right.
A lot of direct funders and large brokerages have large sources of operating capital to play with, so why not hire a PR Team? Have a PR Team speak with the media often to generate as much positive press as possible to help balance out the negative press. In addition, have the company CEO and other high ranking officials do various forms of PR when available.
TAKE THE FIGHT TO THE TROLLS
Go to the discussion board, social media post, blog post, vlog post, or website, and directly respond to the person creating the negative press. Debate your points, prove them to be wrong, show them to be a liar, and encourage your employees, vendors and partners to join in on the fight. Silence can be taken in one of two ways, either people will think you are “too big” for this petty non-sense, or they will think that you are silent because you are guilty. I say take the fight to the trolls, debate your points and then move on after you’ve put the verifiable truth on the table.
THE FINAL WORD
Some people will already know something is a lie, but choose to believe it anyway because they want it to be true regardless. Sean Parker’s character from the Social Network said that, “even if you’ve managed to live your life like the Dalai Lama, they’ll still make things up because they don’t want you, they want your idea.” The honest truth is that most of your haters are just jealous of you because, you have something that they want but don’t have. So, don’t allow them to throw you off your game.
As a quote I read the other day from some unknown source said, “you should never hate people who are jealous of you, but instead respect their jealousy as they are the people who think that you’re better than them.” Having haters is a sign that you’re doing something right. Your prospective customers and partners with good judgment should be able to read between the lines to see the truth, and for those that can’t, well, maybe they are too gullible (and stupid) to be doing business with anyway.
IMITATION IS THE BEST FORM OF FLATTERY
You know they say that the imitation is the best form of flattery, the only problem is that flattery is insincere praise, or praise only given to further one’s own selfish interests.
Surely new funders and lenders in our space are looking to further their own selfish interests by stealing away market share from existing players, which is perfectly fine seeing as though we operate in a free market society. However, what doesn’t make sense to me is thinking that you can steal away a competitor’s clientele by looking, sounding, and behaving exactly like he does.
THEY ALL SOUND THE SAME
I have no idea how many direct funders are present in our space today, but from what I’ve heard it’s well into the hundreds, and I receive recruiting emails along with invites on LinkedIn from these new players all of the time. What’s strange about just about all of these new players is that they all sound, specialize in, and operate the same as my current funders, leaving me scratching my head wondering why in the hell should I bring my volume over to you, if you do nothing different? I can hear them now:
– “John, we can consolidate your merchant’s balances as long as they net 50%!” (This isn’t anything new, the 50% net rule has been around for 17 years.)
– “John, we can approve some of your merchants for as low as a 1.12!” (This isn’t anything new, A+ and A Paper merchants have been receiving proper risk based pricing for years now.)
– “John, you will receive a dedicated account manager!” (This isn’t anything new, funders and lenders have been providing their broker houses with dedicated ISO Managers for around 17 years.)
– “John, we can fund just about every deal if the deal makes sense!” (This could be a new concept, the problem is that I have heard this before, only to submit a “restricted industry” merchant and it be declined just like it’s declined everywhere else.)
– “John, we fund deals as small as $5,000 to as high as $5 million!” (This isn’t anything new, this has been the standard funding range for years now. Plus, it’s rare that a broker in our space would get a merchant that needs $5 million, as those merchants would usually rely on the traditional lending system.)
– “John, we get deals done fast!” (Everybody says this, the reality is that unless a lender has automated the majority of their closing process as well as eliminated many portions of said closing process, then that means they are still doing a good chunk of it “manually”, which means it will always take 2 – 10 business days to complete everything.)
NOT EVERY “DIRECT FUNDER” IS A “DIRECT FUNDER”
There are a number of small firms that might market themselves as a direct funder, but the reality is that all they do is fund their deals through some type of syndication platform. My definition of a direct funder or lender is one that has built their own underwriting platforms and produced their own formulas to complete merchant cash advance transactions or alternative business loans. Thus, to be a direct funder (based on my definition), it’s going to “cost you something” in terms of real investment in your infrastructure, your people, as well as needing to raise millions of dollars in lending capital.
OUR TRUE PURPOSE IS DISRUPTION
Understand that our true purpose here on the alternative side of the debt financing space is to innovate how financing is underwritten, approved and delivered, seeking to steal market share away from traditional lending systems. The media calls this process “disruption.” Our system is so efficient, that with one of our industry’s most popular platforms, a small business owner can go online at 11:30 a.m. to apply for a loan, get an approval by 12:15 p.m., then complete their entire closing process online by 12:25 p.m. Within 60 minutes, a small business can start, sign for, and close their small business loan application for amounts including $25k, $75k, $150k, $200k, etc., and receive the funds in their bank accounts the next morning. The traditional lending system cannot underwrite, approve and deliver financing with this amount of efficiency, speed and proficiency.
IF YOU ARE GOING TO BE A DIRECT FUNDER, WHY NOT CONTRIBUTE TO CHANGING THE GAME?
Various reports on marketplace lending have estimated that the global lending size of our space is near $60 billion per the end of 2015, but it’s also estimated that by 2020 we will be near $300 billion of the total global lending market (includes lending on the consumer and commercial sides). Understanding this, what baffles me with new funders and lenders, is why in the hell are you going through the hassles of setting up your own platform, raising millions of dollars in lending capital, and setting up an experienced underwriting team, only to come into the market and do absolutely nothing different?
That makes absolutely no sense. You have the technology, the people, the capital and the formula behind you, so please add a unique contribution to our space to assist our industry as a whole (consumer and commercial side) in growing to this $300 billion in global lending metric by around 2020.
When you enter the market and send brokers information on your program, it should be clear what separates you from everybody else and what your unique role will be going forward in helping our space achieve this $300 billion in global lending metric. Here are a couple of recommendations off the top of my head that you could utilize for specialization:
#1.) A True High Risk Funder/Lender
How about actually funding industries that nobody else will fund? I’ve seen this promoted before but I’m talking about going all the way by taking a look at our market’s standard underwriting practices across the board, then asking the question of, “What merchants are being pushed out and why? How can we start saying YES to these merchants rather than saying NO like everybody else is doing?” You could begin by putting together a list of industries on just about every funder or lender’s restricted list, then trying to figure out how to fund these categories with risk based pricing.
#2.) Bring Efficiency To Global Lending
How about funding in countries that other funders aren’t funding in? Basically, bringing the efficiency of the US market to the global markets in a way that currently is lacking? It’s hot over here in the US market with many players and competitors, but what about in the UK, Australia, China, etc.?
#3.) A Completely New Product
How about creating a new alternative working capital product that we’ve never heard of before?
#4.) Further Lowering Of Pricing
How about find a way to continue bringing down your cost of operations, administration and lending, so that brokers are able to have lower base pricing to increase profitability on lending to merchants, even those in A+ and A Paper categories? This can also help open up the market to attract higher credit grade merchants due to the lower pricing available, but still with “liberal” underwriting procedures.
#5.) A More Efficient Alternative Asset Based Lending Product
How about creating a more efficient alternative asset based lending product, that competes with the current crop of alternative asset based lenders? The current crop that we have today has a lot of inefficiencies within their product, such as having the merchant put up luxury items or even their house to obtain approval, but still charging the merchant rates that resemble traditional merchant cash advance factor rates or even higher. Shouldn’t the fact that a merchant is putting up tangible collateral lower the risk on the deal, which should also lower the pricing and extend the term? So I say, how about some innovation be done in this area so more of these products could be sold?
#6.) Innovation in Factoring, Purchase Order Financing and Equipment Leasing
How about providing accounts receivable factoring, purchasing order financing and equipment leasing, but finding a way to provide such services in an innovative fashion that’s different than the current crop of funders or lenders offering said services?
#7.) A Real Alternative Based Line Of Credit
There are certainly alternative line of credit programs out in our market today, but they are not as efficient as they should be. How about you create a real alternative based line of credit that would resemble something similar to a credit card line of credit, where the merchant can take it out and have it on the side, without it interfering with that of other financing programs such as a merchant cash advance or an alternative business loan?
#8.) Innovation In Consumer Lending
I know that regulations are much higher on this side, but could it be possible for you to find a way to create some innovative consumer lending products as well?
THE FINAL WORD
You have the technology, the people, the capital and the formula, so why in the world do you want to copy a current player instead of doing something different?
While I’m not saying that you shouldn’t also offer said programs of the current players to steal market share away from them, it’s just my opinion that the biggest opportunity today for new funders and lenders is to specialize in other niche areas that aren’t being catered to by our current market players.
Doing so should allow you to come in, specialize, make a name for yourself, and brand your organization as the “go to” funder/lender for (insert innovative concept here) for years to come. It might take you some time to “perfect” your unique brand and approach, but as long as you have investors that believe in your concept, you should be able to survive through the growing pains. To quote Herman Melville, always remember the following: It is better to fail in originality than to succeed in imitation.
A LOOK BACK AT A CULT CLASSIC
The 1992 film, Glengarry Glen Ross, is a cult classic and one of my favorite movies of all time, with excellent writing, storyline and acting work done on behalf of the stars. In my opinion, the best part of the film was the beginning, when Blake (played by Alec Baldwin) was sent in from Mitch & Murray to fire up three of the office’s sales reps who were “low on the board” in terms of their sales performance. Blake’s “always be closing” speech has been glorified and imitated in sales offices across the United States since the movie’s release on Friday, October 2nd, 1992. I can hear the conversation between Blake and the late Jack Lemmon’s character, Shelley “The Machine” Levene, right now:
Blake: You laughing now? You got leads, Mitch & Murray paid good money, so get their names to sell them! You can’t close the leads you’re given?! If you can’t close sh*t, then you are sh*t! Hit the bricks pal and beat it because you are going OUT!
Shelley “The Machine” Levene: The leads…are weak.
Blake: The leads are weak?! F**king leads are weak?! You’re weak!
Blake was sent in to “fire up” The Machine as well as Dave Moss (played by Ed Harris) and George Aaronow (played by Alan Arkin), who were all struggling to meet sales numbers due to what they believed to be mainly their Office Manager’s fault (John Williamson who was played by Kevin Spacey) for supplying them bad, outdated and dead leads. The main character of the film was Ricky Roma (played by Al Pacino) and Roma wasn’t having the same struggles as his three counterparts, as he received the “premium leads” from Williamson for being number one on the board in terms of sales performance.
WAS ROMA’S SUCCESS MORE OF A RESULT OF HIS PERSONALITY OR THE GOOD LEADS?
Could Roma’s sales success have been based on the fact that he was just a “tad bit” more charismatic than The Machine, Moss and Aaronow? Or, could the bulk of Roma’s success be tied to the fact that he wasn’t sent out to sell to dead leads? Were the reps weak, or were the leads weak?
Moss believed it was all about the leads, even suggesting to Aaronow during the film that they start their own agency. Towards the end, Roma himself revealed that he believed it was all about the leads as well, as once someone broke into the office to steal the premium Glengarry leads out of Williamson’s office (which was later revealed to be The Machine and Moss), Roma was offered some of Williamson’s “dead leads” and Roma quickly rejected them, throwing them back into Williamson’s face and stating that he wasn’t going out until he got the Glengarry leads.
As mentioned, this movie is a cult classic, but often art imitates life as this movie displays one of the fundamental problems of the sales profession today as a whole, and it’s the fact that most Sales Managers are completely out of touch. As a result, for this article let’s take a deeper look into this topic to determine if you’re weak, or if the territory, market and leads you are being asked to “sell” or “sell into” are weak.
IT’S TIME TO DO AWAY WITH MOST SALES MANAGERS (THEY ARE USELESS)
As globalization and technology automation in the 21st century surely replaces the jobs of many retail salespeople, customer service agents, and low level brokers, what I’m really hoping for is that someway and somehow, we can get rid of most Sales Managers. They are one of the biggest problems in the sales profession today because:
- They are completely out of touch
- They promote sales strategies that don’t work
- They teach their reps to read off “scripts”
- They don’t equip their reps with research, trends and ground breaking solutions
- They don’t train their reps to become component professionals who can critically think
- They instead train their reps to become a robotic, script reading, mindless drone
On top of all of this, most Sales Managers do not understand the B2B Sales cycle, as they “train” their reps as if they are selling a box of girl scout cookies or a new music album, focusing on over the top personalities, how cute someone is or their level of charisma. Instead, they should be focusing on providing knowledge, research, trends and other information to build a competent critically thinking professional, to implement market solutions that fulfill unmet market demand.
The majority of Sales Managers need to be done away with. These incompetent fools believe that it’s mainly the personality of the sales rep that makes them successful, thus, they will throw their reps out in a bad territory, a bad market, and calling on dead leads because in their mind a “good sales rep” has the “personality” to sell fire to Hell. As a result, their belief is that the quality of the market, the territory, the leads, nor the competitiveness of the products they sell don’t matter!
DO NOT WORK UNDER A SALES MANAGER
I usually recommend that B2B sales professionals work on an independent basis so that they don’t have to be subjected to an out of touch Sales Manager, which does nothing but stop your career progression and limit your earning potential. This is especially true when these out of touch Sales Managers provide you with their “leads”, as a vast majority of the time, their “leads” are inefficient.
THEIR LEADS ARE REALLY JUST DATA RECORDS (BUT THEY DON’T KNOW THAT)
Most of the time the leads aren’t leads, they are data records. You are going to have a much lower conversion rate on data records than you would leads, but the out of touch Sales Manager (who thinks he just gave you “leads”) will think that your conversion should be a lot higher and thus, he might “inform you” that you just aren’t cut out for this business.
THEIR LEADS ARE OLD AS HELL AND THE SALES CYCLE IS OVER (BUT THEY DON’T KNOW THAT)
Or, they might supply leads that are aged, sometimes from 90 days ago or more, thinking that the sales cycle is still active with these leads when the fact is that for the vast majority of them, the sales cycle was over months ago. Aged leads are usually leads where a merchant requested financing, but there’s usually one of three issues with these types of “leads”. Number one, the merchant either received the funding they wanted two months ago, or number two, they were declined by everybody and gave up on speaking with anybody else about the topic. Or number three, it could have been the case where the merchant wasn’t truly serious about getting funded anyway, deciding not to move forward with anybody. The few leads that you do convert, because your Sales Manager believes these were “hot leads”, he will end up scolding you over the low conversion numbers.
THEY USE THE GLENGARRY GLEN ROSS MODEL (WHICH REVEALS HOW INSANE THEY ARE)
This is the biggest pet peeve right here, they might use the Glengarry Glen Ross model, which makes absolutely no sense. So here’s what they would do.
They would spend a lot of money on a marketing budget to produce a good stream of leads of merchants looking for financing assistance from an alternative basis. However, instead of dishing them out to their sales reps in equal number, they will give the majority of them to the reps “already high up on the board” and give hardly any of them to the reps at the lower end of the stick. All this does is causes the “rich to get richer” in that the reps getting the hot leads will just continue to stay up high on the board while those at the bottom can never move up.
What I don’t get is this, if you don’t believe in the reps at the bottom of the board, why not terminate them? Why the hell would you keep them on your staff, if you no longer believe in their abilities to perform and thus, aren’t going to provide them with the resources needed to move up on the board?
ARE THE LEADS WEAK, OR ARE YOU WEAK?
The truth is that in professional sales, it’s all about supply, demand, and solving complex problems with innovative solutions. It takes research, strategic planning and strategic market segmentation in terms of who we target, as the target of our prospecting has to be someone who is currently in a situation to utilize our services. This means that 90% of the job is that of finding the right territory, market and/or leads to sell to. Now, there are a lot of incompetent salespeople in the world, and you could equip them with the resources needed to succeed and they still fail to execute. That would indeed make those reps “weak” rather than the leads being weak. But in my opinion, far too often are competent salespeople at the mercy of a weak Sales Manager that provides them with weak training, weak products, weak markets, a weak territory, and weak leads. It’s based on this that my opinion stands, in that most of the time it’s the leads that are weak, rather than the competency of the sales professional.
I hate new year’s resolutions, as most of the time the people making them on January 1st have already broken them by the time January 10th comes around. The reason they’re broken quick and easy is because they aren’t goals, but rather wishful thinking. A goal is something that should fit within the S.M.A.R.T criteria, which is a goal that fits five general metrics:
- It must be specific
- It must be measurable
- It must be attainable
- It must be realistic
- It must be time-bound, or have some sort of deadline established
In other words, you don’t just randomly set goals, a goal has to first be done based upon critical thought, research, opportunity analysis and an examination of realistic outcomes, from there you set your objectives along with the step-by-step procedures to achieve them. Once this is done, you slap a deadline on each step-by-step procedure and continue to track your progression along the way.
I don’t set new year’s resolutions, I set new year goals and objectives. My goals and objectives for 2016 (in relation to our industry), will be based upon my predictions for the following 12 months. What do I see in my crystal ball for the year of 2016? This article will pinpoint my forecasts for our landscape this year. Some of you might agree and some of you might disagree, but nevertheless, these predictions ought to create a lot of quality discussion and debate.
“THE BIGGEST” WILL CONTINUE TO BE “THE BADDEST”
I’ve talked about the future of our industry before, with the belief that Strategic Networks will be the key going forward in terms of market dominance. These networks include the Center of Influence Network, the Mom and Pop Network and the Online Network. The Center of Influence Network includes other professionals such as banks, credit unions, merchant processors, etc., who have direct access to the prospective clients. The Mom and Pop Network is just a collection of random brokers from across the country that resell on a 100% commission basis. The Online Network is that of technology automation, especially the internet and how it will shape the market going forward in terms of communications, new lead generation, and more.
Well, the biggest funders on deBanked’s Official Business Financing Leaderboard will continue to dominate the industry in 2016, taking more market share and growing the market in general, based on their efficient utilization of Strategic Networks.
PRICING PRESSURE WILL INCREASE AND COMMISSIONS WILL DECREASE, ACROSS THE BOARD
For higher paper grade deals, I believe that the pressure on pricing for A+ Paper, A Paper and B Paper clients will continue to increase, which will cause many funders and lenders to just stop competing for them (due to no longer being able to compete), while others will find innovative ways to reduce their operational costs so they can reduce down their buy rates, passing the lower costs onto these clients to compete against alternatives from the traditional lending system or P2P lenders. This entire process might also cause the commissions for these higher paper grade deals to decrease as well.
C Paper, D Paper and E Paper commissions will go down as well, as most of the new funders and lenders will target these paper grades due to not being able to compete in the high paper grade markets. Due to the increased amount of players, this will put pressure on pricing which will have brokers slicing their commissions even for the lower credit graded merchants.
TO HELP COMBAT PRICING PRESSURES, MORE PRIVATE FUNDERS WILL WELCOME SYNDICATES
More private funders and lenders will offer syndication programs for their brokers, and do so in a much more efficient, streamlined and transparent way than most of the other syndication partners are doing currently. This will help reduce the risk for a lot of these private funders and lenders, which would assist in bringing down their pricing across the board, helping them stay competitive in a marketplace where new competitors will cause merchants to put more pressure on pricing.
MORE FUNDERS WILL RESTRICT BROKER ACCESS
You will see more funders and lenders start to restrict their working relationship with new brokers. Basically, instead of just signing up anybody with a pulse, I believe more funders and lenders will actually vet new brokers they are considering partnering with. This will come as a result of the funders getting fed up of dealing with unscrupulous acts, fraud and other actions from these new and/or rogue brokers, which does nothing but hurt their brand and online reputation.
FUNDERS AND LENDERS WILL FIGHT BACK AGAINST STACKING
More funders and lenders will fight back against stacking by doing as I suggested before, which is to add a page to their Funding Agreement that says if the merchant stacks, then the merchant is liable for additional fee such as $5,000 or $10,000 per stack. This is similar to how on the merchant services side, early termination fees (ETFs) are used so merchants stop switching their merchant accounts over every month to try and save “$5.” In addition, I believe more funders and lenders will just stop filing UCCs altogether unless they are filed only on merchants that breach their contracts. This means that those new funders who specialize in “stacking”, might have to come up with a new model, as these updated practices will make it so that they will have a difficult time finding new “clients” to market to.
THE MAJORITY OF NEW ENTRANTS WILL BE SLAUGHTERED
You will continue to see new brokers, funders and lenders enter the market, with many of the funders/lenders being nothing but brokers in secret who seek to backdoor deals. Nevertheless, most of these new entrants will be slaughtered in terms of burning through their savings and capital on outdated marketing strategies or trying to compete within Strategic Networks that are already dominated by the biggest funders/lenders/brokers in the marketplace. Most of these companies will be fly-by-night companies, exiting the market as fast as they came running in.
UCC RECORDS WILL STILL BE POUNDED
I believe the UCC as a marketing tool will continue to be utilized by most of the newer entrants, despite the fact that the UCC Boom is Over.
BACK-DOORING WILL SIGNIFICANTLY DECREASE
Back-dooring will decrease significantly as brokers smarten up by researching the partners they decide to work with beforehand, and not just sending over ISO Agreements to “anybody” that calls them up and says they might be able to do something for their deals that other funders can’t do. Also, brokers will stop functioning as a sub-broker as well, which makes no sense, and this will also assist with bringing down the back-dooring issue. The heart of the back-dooring issue is the broker’s laziness, it is their laziness in properly vetting the partners they choose to work with, as well as deciding to sub-broker on a deal instead of researching the players in the marketplace on their own so they have adequate platforms available for any type of merchant they receive.
INDUSTRY WIDE REGULATION WILL GET CLOSER
While we can pinpoint that this is already going on in California, I believe you will continue to see some type of industry wide regulation that will restrict access to new brokers and seek certain levels of ethics from current brokers. This might be from within the industry itself, or it might be forced upon us from some type of regulatory agency. I’m hoping we can do this ourselves and not bring in the Government.
MARKETPLACE LENDING AS A WHOLE WILL CONTINUE TO GROW
It’s been estimated that we will see over $100 billion globally in marketplace lending (consumer and commercial side) in 2016, and I agree with this metric. I believe our products will gain more mainstream attention and be accepted more as the “standard” rather than an “alternative”, based on the efficiency of how we deliver capital, versus the extensive and inefficient process of the traditional lending system.
Prior to daily fixed payment business loans, there was the traditional merchant cash advance (MCA). The MCA, being the only option, required merchants to tie their need for working capital to that of their merchant accounts, either directly or indirectly, through the use of either split-funding or a lockbox account.
DIRECT OR INDIRECT?
Split-funding is a direct method that requires the merchant to convert their merchant account over to a chosen Independent Sales Organization (ISO), you could also refer to the ISO as a Merchant Service Provider (MSP). The MCA company contracts with an ISO/MSP who then manages the flow of the merchant’s daily credit card processing volume. A percentage is withheld and forwarded to the buyer of those receivables.
The lockbox is an indirect method to manage the flow of funds. Rather than withhold funds from the ISO/MSP, a separate FDIC insured account is established on the side for all credit card processing receipts to settle into initially, with a percentage of that volume going to the buyer and the remaining amount “swept” into the merchant’s operating account.
Nevertheless, whether directly or indirectly, the merchant account of the business owner was the foundation of the MCA approval and facilitation. Because many MCA companies also offer alternative business loans today with fixed payments, a lot of the new broker entrants do not believe that learning about the field of merchant processing is as important today as it was years ago. However, I disagree with this notion, as the purpose of our industry is the long term relationship with the client, and in many ways the traditional MCA product provides more “benefits and value” to the merchant over time than today’s business loan. Just as new broker entrants get to know all about the MCA, they should also get to know all about merchant processing.
OVER TIME, CAN THE MCA BE THE BETTER CHOICE?
The alternative business loan requires no merchant account conversion as it doesn’t tie the merchant account to the facilitation of the working capital transaction. With these loans, a percentage of gross revenues are approved with fixed terms up to 36 months on daily or weekly payments. The main benefit of this product over the MCA is the awareness of payment frequency and quantity upfront, thus, enabling the merchant to better allocate their cash flow.
However, while the traditional merchant cash advance requires the tie-in of the merchant account, there’s no fixed terms nor fixed payments as it correlates with the merchant’s sales cycle, where they deliver more during busy times, less during slow times.
When selling the merchant the long term aspects of the MCA, why not seek to get their MCA funded using the split-funding method rather than a lockbox? Doing so would provide an additional revenue stream within your client portfolio. To properly seek out this opportunity and be able to consult, convince and convert the merchant over to your MCA firm’s ISO/MSP Partner, you want to fully understand what merchant processing is all about.
WHAT IS MERCHANT PROCESSING?
A merchant account is an unsecured line of credit provided to a business from a registered ISO/MSP. The credit line enables the business to benefit from accepting Visa and MasterCard (V/MC) along with other major bankcards from their customer base, to experience the benefits of acceptance which includes better fraud management, higher average tickets, customer loyalty due to convenience, and more. V/MC are just registered card brands that manage a group of banks called “member banks”, which are banks apart of a listing of V/MC bank associations. The member banks pay V/MC dues and assessments to market their brands. You have different types of member banks, you have the Issuing Banks and then you have the ISO/MSP along with the Sponsoring Banks.
The Issuing Banks issue credit cards with credit limits to consumers after they meet credit criteria. On the processing side, you have the registered ISO/MSP and Sponsor Banks, which approve a merchant for a merchant account and process payments through a front-end authorization network, then settles them through a back-end network.
During the processing of a credit card transaction, there’s a couple of different fees that are charged. Interchange is one of the fees charged, which is how the Issuing Banks are paid. These are wholesale prices for every type of card that a merchant could potentially run at the point of sale, with new interchange pricing charts released in April and October of every year. The ISO/MSPs are paid when they mark-up interchange as well as through fees such as an annual fee, statement fee and batch fee.
WHY IS MERCHANT PROCESSING A UNSECURED LINE OF CREDIT?
The merchant account is indeed an unsecured line of credit, because when a merchant’s customer runs an order on their credit card for $500, the merchant would rather have that entire $500 upfront rather than waiting for the customer to pay off their credit card balance in full, which could potentially take years. As a result, the ISO/MSP deposits the amount in their bank account within 48 hours rather than having the merchant wait until their customer pays their credit card balance in full.
Now, if the merchant’s customer initiates a chargeback of the $500 transaction and the merchant loses the case, the $500 would have to be refunded by the merchant plus the costs of the chargeback which includes a chargeback fee and retrieval fee. If the ISO/MSP goes to get the $500 from the merchant and there’s no money in their account (let’s say the merchant has gone out of business), then the ISO/MSP who underwrote the merchant account is on the hook for the charge.
WHY SHOULD YOU SELL MERCHANT PROCESSING?
When using split funding for a merchant cash advance deal, if you switch over their processing to an ISO/MSP that your MCA firm currently split funds with, you are looking at collecting the long term residuals from the processing and the compensation from future merchant cash advance renewals. In addition, split funding is much more efficient than using a lockbox, as a lockbox usually adds 1-2 business days to the settlement process for everyone involved. Withsplit funding, the merchant can continue to receive their processing deposits as normal.
There are different types of payment processing technologies depending on what the merchant needs, if they need a stand-alone solution then that’s available in the form of a landline terminal, wireless terminal, computer software or virtual terminal. If the merchant needs a comprehensive solution then that’s also available in the form of point-of-sale systems or operational management technologies, both of which integrate merchant processing into the system and other operational aspects such as accounting, payroll, human resources, etc.
Why not just have the merchant switch over their processing to an ISO/MSP that your MCA firm currently split funds with, and collect recurring merchant processing residuals along with recurring income from merchant cash advance renewals? After all, recurring income is the lifeblood of our business.
THE NEW THOUGHT MOVEMENT HAS TAKEN OVER THE SALES PROFESSION
Somewhere between the 19th and the current 21st century, the profession of sales as a whole integrated the concepts of the New Thought Movement, going so far as to actually shape the mantras, slogans and thought processes of salespeople everywhere.
In my opinion, the New Thought Movement has the potential to do far more harm than good, because it does not emphasize the importance of individuals learning how to critically think. It has an over-reliance on positive thinking and positive faith, with a complete disregard for critical thought and analysis. When a person fails to critically think, they can easily fall prey to scams, manipulation, brain-washing, etc. and even mismanage their finances through various forms of impulse (emotional-based) spending. As a result, for whatever amount of good that the movement does, in my opinion, it has the potential to do far more damage, such as the damage that I believe it has done to the sales profession.
THE HISTORY OF THE NEW THOUGHT MOVEMENT
It started in the 19th century with the promotion of ideals by philosophers such as Napoleon Hill, that life begins in the mind and that the quality of your life would be based on your level of positive thinking and positive faith. The mantra of the movement is that if you maintain the right level of positive thought processes as well as keep high levels of positive faith, then you can “attract” to you whatever you desire, which usually centers around materialistic items like fancy cars, shallow things like very attractive mates, significant wealth, or good health and wellness.
By the 20th century, the movement would eventually spread to various religious denominations in the form of the prosperity gospel (the word of faith movement), promoted through television evangelists and the vast majority of mega churches throughout the country.
By the 21st century, the movement would spread to even more authors and even film producers with the 2006 film “The Secret” which also included a book version of the ideals promoted during the film.
It was also by the 21st century that the movement had been fully ingrained into the vast majority of sales training material, which would serve as the foundation for a lot of what I deem to be “issues” of the sales profession today. These being the utter lack of critical thinking and critical analysis which leaves too many sales people as mindless, robotic, and routine order-takers, rather than strategic thinkers, innovators, and business developers.
NEW ENTRANTS TO THIS INDUSTRY ARE INSPIRED BY TECHNIQUES FROM THE NEW THOUGHT MOVEMENT
Since this year’s March/April edition of deBanked Magazine, we have talked about the Year of The Broker as it relates to the surge of new brokers coming into the space. These new entrants are inspired by funders, lenders and large brokerages using techniques from the New Thought Movement.
The rah-rah sales motivational speech that’s provided to these new brokers is founded mainly on the New Thought Movement. The people recruiting these new brokers into the space get them to dream about:
- Getting out of debt
- Moving out of their mother’s basement
- Living in a big/fancy house
- Having a very attractive mate on their arm
- Driving a Mercedes Benz S-Class
- Making $25k, $40k, or $50k per month
- Being “the man” in the nightclub, buying up all of the drinks and being the life of the party
They would sum up their rah-rah sales motivational speech with simply, “As you think, so shall you become,” quoting the great Bruce Lee.
Thoughts that arise of a critical nature that look for more market research, market planning, trends, innovative solutions, ROI analysis, and other forms of foresight are either quickly shunned as “over-thinking” or “negative thinking”. You might flat out be kicked out of the room where the rah-rah sales motivational speech is being conducted, with accusations of having “stinking thinking.”
THIS ISN’T ROCKET SCIENCE, IT’S CRITICAL THINKING
The New Thought Movement’s over-reliance on positive thinking and positive faith can be detrimental to personal growth. Being a part of the Mom and Pop Network isn’t necessarily a bad thing, as I have operated within the Mom and Pop Network, but what’s shortsighted is not giving brokers all the tools they need to think critically and truly be successful.
For you to survive, you are going to need to have resources that the vast majority of other brokers don’t have access to. Relying on UCC records and Aged Leads (that every other broker is calling on), isn’t going to cut it. You are going to need resources that provide you with a significant market competitive advantage which includes but isn’t limited to: having better data so you can produce your own exclusive internal leads, having “center of influence” partnerships with banks, credit unions, and other professionals, having access to creative financing in the form of either equity or debt, among other advantages. These advantages will not just give you a leg up over other brokers in the market, but they are truly the key to your long term survival.
A FINAL WORD
In my opinion, The New Thought Movement does more harm than good, by not emphasizing the importance for individuals to learn how to critically think.
We are living in the day and age where to survive in any professional sales environment, you are going to have to be more of a critical thinker and do things outside of “the box”, versus being the stereotypical smiley faced, overly optimistic, robotic, sales guy, that’s incapable of true “independent thought.” You want to be the sales guy that thinks and operates outside of the box, which is basically this bubble in which everybody else is operating and thinking within. You can’t achieve this unless you first embrace cynicism by taking a long hard look at this box, poke holes in it, discover new ways to profit, and then blaze your own trail.
Being cynical, pessimistic and “negative” are the first steps towards becoming an excellent critical thinker, even though they will not make you feel as “good” as compared to that of being optimistic and positive. But in that regard, I must quote Dave Ramsey in that: Children do what feels good. Adults make a plan and follow it.
Critical thinking doesn’t feel good, but you can’t properly plan without it.
WE HAVE NO “MINIMUM” GUARANTEE
The debate to increase the minimum wage across the board in the US to $15 per hour has been going on for quite some time now, with marches in the street from fast food workers, people protesting by walking off the job, and strong political debate with passionate views on both sides.
What’s been strange to me about this debate, in relation to the argument of those that are in favor of increasing the minimum wage, is their reference to workers being “slave labor” by working excessively hard and long, but not making enough in a lot of cases to support a household. The reason this has been strange to me is because for close to 9 years, I operated on a 1099, independent, 100% commission basis, as a solopreneur managing my own one man show sales office. I received no salary, base pay, hourly pay, “floor”, nor company benefits (even though I am fully insured individually). The Harvard Business School report from July 2014 by Karen Gordon Mills and Brayden McCarthy, said that there’s 23 million businesses in the country that do not have any employees and are classified as Solopreneurs.
So, should myself and the other 23 million Solopreneurs in this country all be marching and protesting as well? And if so, marching and protesting against who? I work for 1ST Capital Loans, LLC, but I’m also the sole managing director, member and employee of said entity, so as a result, I should be marching and protesting against myself? We as independent brokers have no minimum guarantee or minimum wage, which not only makes the minimum wage debate strange, but it also points to another reality in that adding a family to our chaotic situation might not be optimal at this time.
RUNNING YOUR OWN SHOP IS VERY DIFFICULT
Running your own show is probably the hardest job you will ever have in your life. Having to juggle the various components of it with no established “minimum wage” just chokes out far too many independent brokers. Some of those various components include but surely aren’t limited to:
- Having to manage regulations, laws and other legal aspects
- Having to manage accounting, insurance and tax related aspects
- Having to design your own business plan and ROI formulas
- Having to come up with your own way of creative financing
- Having to manage your vendor, supplier along with partner negotiations and agreements
- Having to design your market strategy, solutions and spend time actually selling them
On top of this, you might have to deal with pet peeves of your Funder and Lender Partners, which could include them cheating you out of commissions, clawing back commissions after 45 days, cutting you off from your renewal and residual portfolios, among other things. These things rob you out of the hard earned commissions for deals that you fought for in one of the most competitive markets in the country (using your own capital, creativity, time and energy) to win.
MAKE A FAMILY NOW, OR DELAY DOING SO JUST A LITTLE BIT LONGER?
With all of the aspects of building your broker office that must be managed on your own, with no minimum guaranteed wage, benefits or true assistance, the next question becomes, how do you manage a family through the very early stages of all of this chaos? The reality is that there’s only so much time in the day. If you are just starting out your own shop and if you don’t currently have a present family to take care of, putting the creation of a family on hold might be your best bet. I once expressed that it was okay to be a piker, then I expressed that it was okay to be a minimalist, today I’m telling you that it’s okay to delay starting a family.
THE MILLENNIAL GENERATION FACES A LOT OF STRUCTURAL CHALLENGES
It seems as though most of the newer brokers in our space are a part of the Millennial Generation.
Generation Y (The Millennial Generation) begins usually around 1981 and lasts until about 1995, the Generation that follows (Generation Z) are those that were born just after 1995. Being a Millennial myself, I tend to keep abreast of many of the issues facing my generation, and while I currently do not have a family that I’m responsible for, I believe that many Millennials would agree that it’s seemingly more difficult today than ever before to manage a family:
- We Are Over-Educated and Under-Employed: We are in fact the most educated Generation, but some reports state that over 50% of us are under-employed, which means we are mainly a Generation of the over-educated and under-employed, saddled with student loan debt.
- Lack Of Security and Stability: Prior Generations had the luxury of working for one company, in one location and in one city, for the vast majority of their working career, and be able to retire with a pension, 401k, and strong retirement benefits from Social Security. Our Generation has no such securities, as many of us will have to change careers and work locations often during our working career, making it nearly impossible to seemingly ever purchase a home because purchasing a home only makes sense when you can estimate “staying put” in one area for at least 10 years. Also the lack of pensions, strong 401k plans, and the fact that we might not receive strong Social Security benefits further complicates the security issue.
- Our Cost Of Living Continues To Sky Rocket: From food to energy, from property taxes to rent, from insurance premiums to healthcare costs, from college tuition to day care expenses, our cost of living continues to skyrocket.
- Our Opportunities Are Being Stolen Away: Wages and business opportunities are either stagnant or flat out decreasing due to the rise of global competitive forces and IT/robotic automation stealing away our opportunities for income advancement.
So while you are trying to juggle the issues of building your broker office, you are also having to deal with competitive global forces and IT automation, along with the rising cost of living, along with deficiencies in job/income security and stability. So how in the world do you add a family of let’s say two kids on top of this chaos? Regardless of whether or not you are married or a single parent, the costs and risks of managing a family within this chaotic situation are significant.
IT’S OKAY TO DELAY STARTING A FAMILY
If you already have a family, obviously you can’t “give them back” and start over, so if you are seeking to enter this space and build your broker office, you are just going to have to find a way to juggle all of the chaos that’s present. However, if you are like me (a Millennial and Broker within this space), that hasn’t yet created a family, if you are still in the early stages of constructing your office, renewal and residual portfolios, then I would say that it’s “okay” to delay starting a family considering all of the chaotic issues that you would be facing today.
How long to delay such a very important choice is a personal one that you would have to manage, but for some of us, the choice might come down to opting out of creating a family altogether.
I HATE SALES
I have always hated “sales”, which is funny seeing as though I have been in what most would call a “sales position” within our industry since January 2007, all on an independent (100% commission) basis as a one man show, with merchant services direct sales from 01/2007 – 04/2009 and merchant cash advance direct sales from 11/2009 – 09/2015. As a one man show, I did pretty good, getting myself into the middle class with a great net worth for my age, with an average monthly funding of $200k per month for the 70 months I sold the MCA product, while building a processing portfolio on the side on track to hit $200 million in total volume processed.
But nevertheless, I hate “sales”.
While most would consider my place in this industry (nearly 9 years) as a “sales” role, I would vehemently disagree, as I believe my role has been that of business development, not “sales.” I was an entrepreneur (or solopreneur due to being a one man show) and my focus was on building strategic relationships with merchants, vendors, and partners, with a clear-cut focus on creating long-term sustained value.
WHAT DO I REFER TO AS SALES?
I believe there are different variations of salespeople, from the cashier at the grocery store, to the person at the fast food drive-thru window, to the waiter, to most of the inside sales people across the country. I believe the majority of salespeople are simply order-takers.
- An order-taker is not a strategic thinker, innovator, researcher, nor creator. They are not seeking to solve complex problems by creating complex solutions, with complex pricing and implementation procedures, which simultaneously include complex supporting functions.
- An order-taker is someone that usually performs a routine task of helping a customer find a particular item or purchase a particular item. The order-taker’s knowledge of the business, the industry, and the customer is very limited. The order-taker is very robotic and nothing more than a regurgitator of information taken from people within the organization who have been given the “liberty” to think, innovate, research and create.
In a corporation, the individuals who are given the liberties to think and innovate are usually the CEO, CFO, or members of the marketing department, all of which are responsible for the strategic direction of the organization in terms of markets targeted, driving in prospective customers, creating the products to push to said prospective customers, how to manage the process of turning them from a prospective client to a current client, and all of the follow-up procedures that are a result. You can sum up the actions and responsibilities of these individuals into two words: business development.
SALESPEOPLE WILL BE REPLACED BY ROBOTS AND TECHNOLOGY
As we progress through the 21ST Century, developments in technology will in fact replace salespeople (order-takers). Their duties are so routine and robotic, that it’s much more efficient in a number of cases to just implement a robot instead, and save on the higher costs of labor. Or to put up an efficient website and allow the website to navigate the customers rather than a salesperson.
But those in business development can never be replaced by a robot.
WHAT IS BUSINESS DEVELOPMENT?
Those that are in Business Development are responsible for the building of strategic relationships with merchants, vendors, and partners, with a clear-cut focus on creating long-term sustained value. Long-term sustained value always comes in the form of new markets, new products and new processes, which manifests itself in the strategic role of CEO, CFO and Marketing Departments in corporations, but in smaller companies, this manifests itself in one word: entrepreneurship.
Entrepreneurship is all about taking a look at what’s currently happening and asking, how can this be done better? What segment of this market isn’t being catered to? How are the current solutions and products being pushed to this market inefficient? And how can I create better ones? How can I acquire new clients more profitably than competitors are?
That’s business development, which is different from being in “sales.”
BUSINESS DEVELOPMENT IS WHAT I DID
I often debate other professionals in our industry on commission points, as it comes up often today on how one should be making “8 – 10 points per deal” and if you aren’t making such level of points, they believe that you are doing something wrong.
My strategy was different, when I started selling the MCA product in very late 2009, my focus was solely on targeting A and B-Paper clients, which at the time there weren’t any pricing distinctions between low risk and high risk merchants. A merchant approved for an advance in general, was given the same high cost product, whether they had a 700 FICO or a 520 FICO.
My objective was to sell a more efficiently priced product to higher quality merchants, with great supporting functions in place to produce significantly low default rates, and a much higher than normal renewal rate. This strategy was completely different at the time than what the industry as a whole was doing in terms of the merchant cash advance product.
Over on the merchant processing side, my focus was to target higher risk merchants, which were more difficult to board and service, rather than targeting the same Card-Present mom/pop shops that everybody else was doing at the time who quite frankly, had no real needs for merchant processing nor the related technologies and value-added services associated as they already were “set.”
BUSINESS DEVELOPMENT IS WHAT YOU SHOULD DO
Some of you might not have the luxuries to think, innovate, and create, as you might be on a W-2 structure which puts you at the mercy of a “sales manager” who more than likely is using outdated marketing tactics (such as UCCs and Aged Leads) and encouraging you to sell a product that is not always the right fit.
Of course if you don’t achieve the established quotas, the sales manager will scold you by saying that you don’t belong in this industry, rather than looking at the main source of the problem, which is their outdated marketing tactics and uncompetitive solutions.
But for those of you who have such luxuries, I invite you to think, innovate and create. Be different. Be bold. Go after markets not talked about and solve the pain of others that have yet to be analyzed. Market different. Brand different. Sell solutions that others have yet to hear about.
Your bank account and career longevity will thank you later.
During the holidays we get together with our family to reminisce on the good times, celebrate achievements, and be thankful for life’s fortunate moments. Most of the brokers within our space have families of their own to tend to during the holidays, which might include a large family gathering with relatives flying in from outside of the area, or it might just include a peaceful dinner with a small assembly.
But this has surely been the Year of the Broker, and what many of these new entrants might not realize is that the product we sell all year round (the merchant cash advance) has a family as well. While the MCA doesn’t exchange “gifts” with its kin, it sure does have a lineage that dates back to the 1600s, which makes the product something born out of a family of products, rather than something that seemingly just sprung up out of nowhere one day in 1998, by a company formerly known as AdvanceMe.
ALTERNATIVE FINANCE AND PURCHASING REVENUES HAVE BEEN AROUND A LONG TIME
- (The 1600s): The product is nothing but a purchase of future revenues or receivables, where a merchant is going to sell their receivables or future revenues to a purchaser, with a particular factor rate or “discount rate” applied to the transaction. This act is nothing new at all, as it has been around since the 1600s but didn’t become more common practice until around the 1800s in terms of the United States.
- (The Middle Of The 20th Century): The MCA is an alternative finance option from more boutique/niche firms, compared to the traditional products of terms loans and lines of credit from retail banks and credit unions. Alternative finance as a “comprehensive term” has been used in a mainstream fashion since the middle of the 20TH century, so this “act” is nothing new.
- (The Newborn): In other words, the merchant cash advance product is just the most recent “birth child” from a long and storied “family dynasty” of alternative financial services and revenue purchasers.
The “family members” of the merchant cash advance include a variety of alternative financing vehicles that are popular and not as popular as others. For this article in particular, I wanted to discuss some of the more popular “family members” which include A/R Factoring, A/R Financing, P/O Financing, Equipment Leasing, Asset Based Lending and the Alternative Business Loan. This article will provide a general overview of each “family member”, which will serve as an introduction to a future article where I will go into specific sales strategies for many of the listings.
ACCOUNTS RECEIVABLE FACTORING
This product is based on a merchant having outstanding commercial receivables that are aged less than 60 – 90 days. With Factoring, the factor (buyer) is going to purchase the outstanding receivables from the merchant (seller), taking them off of the merchant’s balance sheet as an asset and onto the balance sheet of the factor. During the purchase, the factor advances about 80% of the amount purchased upfront to the merchant, with the remaining 20% coming after the merchant’s client base completes payment within 30 – 90 days, minus a discount fee of anywhere from 1% – 5%. Non-recourse factoring transfers the risk of the clients not paying the balances in full to the factor, while recourse factoring keeps the risk contained to the merchant.
ACCOUNTS RECEIVABLE FINANCING
This product is also based on a merchant having outstanding commercial receivables similar to Factoring, however unlike Factoring, there will be no purchase of the outstanding receivables but instead they will just be used as security/collateral for a financing arrangement.
PURCHASE ORDER FINANCING
This product is based on a merchant having outstanding purchase orders where a lender provides funds so a merchant can order materials to fulfill orders. Then once the orders are fulfilled, the lender collects a fee for service. This can also be done in the form of a vendor line of credit, where the lender opens a credit line with the vendor to allow the business to get materials needed to fulfill upcoming orders.
This product basically allows a merchant in need of commercial equipment, technology, machinery, vehicles, tools, and furniture, to lease it rather than buying, as certain pieces go obsolete rather quickly and wouldn’t make sense for purchasing. The merchants are provided lease factor rates based on A-D credit grades, with options at the end of the lease to buy the unit(s) for $1.00, give them back, or start another lease period.
ASSET BASED LENDING
This product is based on a merchant having a particular type of pre-owned asset of appraised value, that could be used as security/collateral for a financing arrangement. The aforementioned Accounts Receivable Financing product can also be considered an asset based lending product, but also included are pre-owned pieces of equipment which could be used for sale-leasebacks or other items such as luxury vehicles, real estate, precious antiques and jewelry.
ALTERNATIVE BUSINESS LOAN
This product is similar to the merchant cash advance, as it’s based on a merchant having a particular consistent amount of monthly revenue, and approved as a percentage of annual gross revenue. The product can come from lenders that also offer merchant cash advance products or lenders who solely specialize in this alone.
AS A FINAL NOTE, MAKE SURE TO REMEMBER THE MCA’S VALUE
While the MCA is the baby in the family, don’t let its “youth” undermine its value. An MCA could potentially cost more than a loan, but a merchant might not be eligible for a loan or a loan might not be available fast enough to take advantage of a market opportunity. Merchants might not have assets available for collateral, eligible accounts receivable, and they might not issue invoices to customers on terms. That means merchants might have better luck with some family members than others just based on their business model or circumstances.
THE ROBOTS ARE COMING
Merriam-Webster and Dictionary.com both agree, that a “robot” is a machine that is created to do the work of a person, carrying out a complex series of actions automatically, all controlled by a computer. Sometimes a robot can resemble a human being in likeness, but often times a robot is simply a piece of software, a piece of hardware, a piece of machinery, or a cloud based infrastructure called the internet (online networks). Professor Kaku is a futurist from City College of New York, a futurist is someone who makes what one would consider “fairly accurate” predictions about what the future holds and how these future events might emerge from present day events. Professor Kaku believes the following:
The job market of the future will consist of those jobs that robots cannot perform. Our blue-collar work is pattern recognition, making sense of what you see. Gardeners will still have jobs because every garden is different. The same goes for construction workers. The losers are white-collar workers, low-level accountants, brokers, and agents.
A RECAP OF PART ONE
Back in June 2015, I did an article for deBanked about the Broker’s Future, speculating if the good times were indeed over for the brokers as it pertains to their level of profitability and survivability going forward.
- I examined the 2000 – 2007 and 2008 – 2013 time periods, speculating that the “Era of the Broker” was indeed between the 2000 – 2013 period.
- Then, I examined the current time period which begins around the middle of 2014, that is seeing so much of a mass new entrance of brokers into the space, that deBanked had to compose a cover story on the phenomenon for the March/April edition of deBanked Magazine. The only issue with this current time period is that, in my sole objective opinion, we are in the “Era of the Strategic Networks”, and no longer in the “Era of the Broker.”
- I concluded the article in June with the following: those just now trying to come in and ride the wave will soon discover that just like with the Stock Market, the real money has already been made and most of the future returns are already capitalized.
AN INTRODUCTION TO PART TWO
My analysis shows that the current time period is all about Strategic Networks, which are mainly three networks to be exact, which include the following, all designed to produce competitive market advantages, positioning, strategies, qualified leads, etc:
- The Center Of Influence Network: this includes entities such as banks, credit unions, processors, accountants, VCs, credit bureaus, etc., that allow access to exclusive leads, exclusive data, equity financing, debt financing, mergers, etc.
- The Mom and Pop Network of random independent agents across the country who resell on a 100% commission basis, providing free marketing in a way that collectively they produce a significant amount of volume (even though individually most of the agents cannot make a living from this activity).
- The Online Network with exclusivity on the growing online marketplace of merchants seeking financing, education and options via the internet.
For Part Two Of The Broker’s Future, I want to focus in on The Online Network, which in my opinion will be one of the main destroyers of opportunities in our space for the majority of brokers going forward.
DEATH OF A B2B SALESMAN
For about $499, you can read a very comprehensive report from Forrester on the death of B2B salespeople. Forrester predicts that by 2020, over 1 million B2B salespeople will lose their jobs to the growing force of IT/Robotics, which includes various forms of technology, automation and of course the internet in general through E-commerce.
In relation to our industry of merchant services, merchant cash advance and alternative business loans, I don’t believe that we have to wait until 2020 to see significant changes, I believe these changes are already in full effect and the major players within our space are the ones that are truly capitalizing on The Online Network, giving them major exclusivity on the growing online marketplace of merchants seeking financing, education and options via the internet.
MERCHANT SERVICES HAS BEEN AFFECTED
The Online Network phenomenon has totally destroyed the feet on the street MLS (merchant level salespeople) over on the merchant services side. Before the rise of the Online Network, MLS were valuable to merchants as information on merchant processing, interchange, how the bankcard transactional process worked, etc., were not readily available and most banks did not handle direct sales of the service. So the MLS would park their car down the street, randomly walk into merchant locations, and provide the education via brochures, terminal samples, etc.
They would explain how the merchant processing process works, how accepting credit cards could boost sales through more impulse purchases and consumer convenience, and more. The MLS would then go over the different options of payment processing technology, commit the merchant to a 24 – 48 month lease of the technology, and make his/her commission off the leasing sales and eventually also off the residuals. However, the rise of the Online Network completely shattered this business model:
- The Online Network now allows the merchant to comprehend merchant services on his own, without the help of the MLS, by researching interchange and conducting his own “rate analysis”. The merchant can also now see the true cost of the processing equipment, thus to no longer sign up for leases for $100 a month for 24 months ($2,400) for a $350 terminal at best.
As a result, the MLS can no longer prospect on “rate savings” nor prospect based on the equipment such as through leases or even through free terminals anymore, due to the merchant’s knowledge that the terminal is worth $350 at best. As a result, the direct sales of merchant services has become a value-add to other services, requiring yesterday’s MLS to transform into something totally different such as a financing or payroll specialist, trying to convert merchant accounts over on the side, as part of the sale.
ALTERNATIVE LENDING HAS BEEN AFFECTED
The merchant cash advance and alternative business loan products are more popular today than they have ever been before, due mainly to the massive media attention that they have received with companies going public, CEOs landing interviews on major media outlets, talking heads debating the products across a number of media mediums, and more. 7 – 15 years ago (2000 – 2008), if you were to look up a product online called “merchant cash advance”, you would not have produced many search results. As a result, to inform and educate the merchant on the product, you needed an actual human being (a broker) to sit down and explain the nuances of said services referred to as “split funding”, “revenue purchases”, and “holdback percentages.”
Compare this to today, where a simple search for “merchant cash advances” gives you pages upon pages of articles, promotional ads that follow you across the internet, company websites, press releases, and more. The merchant can easily learn about the merchant cash advance as well as other new forms of alternative financing by going online and scrolling through the vast amount of information. They can educate themselves on the products, companies, and payback procedures. They can fill out a form and get 10 quotes from 10 companies within a couple of hours and in a lot of cases, receive funding from one of the companies by the next business day. The phenomenon is so big that companies in our space are now just referred to as “Online Lenders,” totally shunning the fact that many operate with traditional brick and mortar locations and still employ brokers to still resell the products like they did “in the old days”.
Based on my sole objective analysis, The Future is going to be all about the three networks of Strategic Partnerships, which includes The Online Network. Without a shadow of a doubt, those that control these networks will be the major players going forward, as they will have the leveraged resources, knowledge, experience, financing, and connections that the newer market entrants just do not have.
The 80/20 dynamic will continue, where 20% of the players produce 80% (or more) of the production, and the other 80% of the players will fight over the remaining 20% (or less) of the production, which just will not be enough to sustain profitability going forward.
As fast as these new entrants rush in, will be as fast as they burn out. Burning through their savings and retirement funds, and/or running up the utilization rate on their credit cards, trying to take advantage of a “market opportunity” that they “heard about”, but is pretty much already capitalized on, by those who have been here long before they came on the scene.
I probed the audience here on deBanked a couple of times this year. Back in June 2015, I wanted to know if you knew what you were selling when it came to the merchant cash advance product? In October 2015, I wanted to know if you knew what you were buying when it came to leads versus data? So as we close out 2015 here in December, I wanted to probe the audience of deBanked once more, this time asking: do you know your partner?
THERE’S NO SLOW DOWN COMING (THE NEW ENTRANTS WILL CONTINUE TO RUSH IN)
I’ve been asked by individuals within the industry and those outside of it, on my opinion of when the mass rush of new entrants into the market will slow down. In my opinion, the Year of the Broker will not stop in 2015, but will continue into 2016 and most likely into 2017, when the chickens finally come home to roost for the new entrants, who mostly lack the leveraged networks needed to survive and thrive, and instead are relying on one or more of the following strategies which will no longer be efficient going forward:
- Aged Leads
- Random SIC listing calls
- Random Yellow page calls
- Parking your car down the street and randomly walking into merchant shops
- Stacking behind a 2nd position
Those who are leveraged with quality strategic partnerships, networks and access to exclusive data records, will be the ones that control the market going forward, while others will fail to remain profitable in this ever changing, integrating and evolving marketplace that we all fight tooth and nail in.
But I must ask you if you know your Partner, as this mass new entrance of players have created many documented cases of brokers having deals stolen, back-doored, commissions not paid, renewal commissions cut-off, and other unscrupulous acts. The vast majority of these documented cases are coming from broker-to-broker relationships, with one broker submitting a file to another broker, but being totally unaware of the fact that they are not working with a “direct” funder or lender.
As we go forward through our changing marketplace, where profits will get tighter, strategic partnerships will be your driving competitive advantage and where access to merchants in general from a “cold-calling” perspective will get more restrictive, you just can no longer afford to be the victim of an unscrupulous act and lose commissions. As a result, going forward, you must indeed know your partner.
The following are the seven ways that one could participate in our space:
The Referral: They are not involved in the actual sales process at all, which includes selling rates, collecting paperwork, signatures, etc. All they do is refer a person’s name, telephone number and email address, and might collect an upfront referral fee for doing so. These are usually members of a strategic partnership such as a bank, credit union, credit card processor, accounting firm, insurance firm, etc.
The Sub-Broker: They work as a broker-to-a-broker, going out and doing all of the activity involved with the sales process and submitting the package to a broker, who will then submit it to a couple of funders to “close” the deal. They would then be paid a portion of the commission that the broker gets from the funder or lender once the deal funds, so if the broker gets 6 points, the sub-broker might get 2 or 3 points. Sometimes these individuals (sub-brokers) are willingly signing up for this arrangement, and sometimes they are unwillingly signing up by believing the broker is an actual direct funder or lender, when they are not. This leads to a majority of the issues I’ve identified such as having deals stolen, deals back-doored, commissions not paid, renewal commissions cut-off, and other unscrupulous acts.
The Broker: They go out and do all of the activity involved with the sales process and submit the package to a funder or lender, then manages certain aspects of the closing process such as getting additional signatures, questions answered, stips collected, etc. They would then be paid the commission they set on the deal by marking up the funder or lender’s buy-rate. So if the buy-rate is a 1.12 for a 6 month period, and they marked it up to 1.18, they would be paid 6 points on the deal.
The Syndicate: They would basically do everything a Broker would do, but for some deals they will put some of their own capital resources on the line through syndication, it might be their own equity sources or they might use debt sources such as those from credit card no interest promo deals. The syndication process just allows them to take more money home on the deal.
The Direct Funder/Lender: They have built their own underwriting platform and formulas to lend out either merchant cash advances and/or alternative business loans with a focus on a certain level of profitability and to maintain a certain default rate threshold.
The All-In-One: This is a firm that basically is structured as a direct funder/lender, but they also broker out some deals and on those deals that are brokered out, some of them include the firm syndicating to increase their take home revenue on the deal in particular.
The Investor: This is an equity or debt source that invests capital into a direct funder/lender’s underwriting platform and formula, seeking to capitalize on the high profits that result from a merchant successfully paying back either a merchant cash advance or an alternative business loan.
KNOW A DIRECT FUNDER/LENDER WHEN YOU SEE ONE
When I first started reselling the merchant cash advance and alternative business loan products in late 2009, I noticed that one of the ways to differentiate yourself in the market was to say that you were a “direct funder”, apparently the mentality was that merchants only wanted to talk to the people who could actually do the lending.
Well, I preferred to just admit upfront to merchants that I was a broker, but just explain that the industry is complicated in terms of the pricing models that are present. If you qualify for A+ Paper pricing, you want to make sure you are submitting your package to an A+ Paper lender, otherwise, you might be a merchant with a 700 FICO, clean banks, no liens, and other A+ Paper like qualifications, but might be submitting your package to a funder that will only spit out 6 month offers at 1.35 factor rates. So if you are seeking to work with a direct funder/lender (even if they also syndicate or broker on the side), you just have to know one when you see one, by using some of the following rules of thumb:
- Licensure: Look for some type of state licensure or registration. You can usually find this out by asking the firm their corporate legal name and research this in the state database of where they are incorporated or other states of where they do business.
- Track Record: Look for a proven track record, which means they should have funded at least $10 million in volume and have in business at least 12 – 24 months.
- Fully Staffed: Look for a full office staff, by the firm being very small, this is how your deals end up getting lost, stolen, or the underwriting process drags on for seemingly forever.
- Online Identity: Look for a professionally designed website with a business email address. In addition, look for some type of online press release about the shop opening, a media interview, or news release about an equity or debt financing round. Look up the principals on LinkedIn, and the company should come up on Google as well as other online directory listings including the Better Business Bureau. If you can’t find anything about the company or the principals online in some sort of professional listing and/or publicity based format, I would move on.
THE FINAL WORD
I don’t think there’s a worse feeling one can have, to have gone through the process of spending money to generate a qualified lead, to “close” that lead by getting them to send you an application package, and then to submit the package to your supposed “funder”, only to have the deal stolen and back-doored because your supposed “funder” was nothing but an unscrupulous broker the entire time.
Making sure you select good partners is vital to your survival on this battlefield called “alternative lending”, a battlefield that we fight, scratch, and claw on daily to feed ourselves, our families, and help make the lives of small business owners more efficient than before we got here.
In an industry with increasing competitive forces putting downward pressures on offer pricing, while simultaneously driving up demand for particular marketing channels (like SEO and quality data) which increases marketing costs, we are seeing massive downward pressures on profits. With this phenomenon occurring, you would have to wonder why in the world would anyone continually operate as a sub-broker today (willingly)? Are there any particular benefits to this, or is it just flat out non-sense? I wanted to explore this topic head on as we wrap up The Year Of The Broker.
THE VAST MAJORITY OF THE TIME, IT MAKES LITERALLY NO SENSE
There are times when I believe being a sub-broker makes some level of sense, but in my opinion those times (looking at our industry specifically) are very rare and most of the time being a sub-broker makes literally no sense based on the setup. The usual setup for a sub-broker is the same as a broker, which means you are going to be required to go out and spend money on marketing or other forms of lead generation to attract applicants.
Once you get those applications, you would forward them to the brokerage house so they can “close” the deal. A lot of sub-brokers believe this is some sort of grandiose deal, allowing them to as they say “free up time” to do other things. But this line of thinking makes literally no sense, because you have already done 98% of the work, which in our industry is just the consistent generation of high quality leads. Once you have done that and are doing that consistently, emailing the package over to a funder and chasing paperwork is the easiest part.
Why would you take only 25% – 50% of the commission structured on a deal, as well as most likely lose your ongoing renewal compensation, when you can instead take 100% of the commission, control your renewal portfolio and make renewal compensation going forward, which is the lifeblood of our industry?
LIES, LIES AND MORE LIES
Sub-brokers need to stop falling for the lies of larger brokerage houses which include the following:
“We are closers, you aren’t a closer, so let us handle it!”
This is rubbish. In our industry we don’t close, we are match-makers. The merchant comes to us looking for working capital, we pre-qualify their current standing and recommend a potential solution. If the merchant disagrees with the potential solution and we have nothing else that would work, the discussion ends. If the merchant agrees to the estimates and the product overview, we collect an application package to submit it to the funder that we believe can do an appropriately-priced deal. As long as we can get approval inline with expectations, everything moves forward on its own accord.
“We have access to special underwriting, platforms and pricing that you don’t have access to!”
More rubbish. When lenders get an A-paper deal, they give you A-paper quotes. When they get a B/C-paper deal, you get B/C-paper quotes. Look to establish a good relationship with a funder/lender. Let them know upfront that you are a small office so a smaller amount of volume will be coming through you. As long as you don’t have a high default rate, you will have access to the same systems, underwriters, base pricing, and innovative products of the funder/lender that the larger brokerage House has.
“We have access to special industry knowledge that you don’t have access to!”
More rubbish. With sources like deBanked and other popular forums, the industry has been exposed. Everything you need to know, learn and be trained on has been covered. Also the assortment of direct funder and lender blogs/websites, media publications, and all of the like covering the industry, there’s no special industry knowledge that you can’t go out and attain on your own.
YOU MIGHT NOT EVEN GET PAID
Being a sub-broker might put you in a position of not even getting paid on new deal revenue as promised, as the large (or more experienced) brokerage is fully aware of your inability to truly challenge them legally or professionally.
- Sue If You Want, It Won’t Make A Difference: You can sue the broker for the $5,000 or so that they didn’t pay you on a couple new deals in Small Claims Court. But even though you can obtain a judgment, collecting on that judgment will be nearly impossible.
- Complain Online If You Want, It Won’t Make A Difference: You can also choose to damage their reputation online through posting various negative reviews, but do you think they will care? Go on the RipOffReport all you want, the largest merchant processing ISOs are all over those reports and that doesn’t do anything to stop their growth. The organizations getting these negative reviews will just say, “we serve thousands of clients and when you are as large as us, you are bound to have unhappy customers.” And that’s exactly what the brokerage house will say to their prospective merchants who bring up these negative review listings that you made.
BUT DOES BEING A SUB-BROKER “SOMETIMES” MAKE SENSE?
On very rare occasions do I believe being a sub-broker makes sense, and it includes if there’s some sort of initial training period and if the larger brokerage has significant marketing competitive advantages.
So if you have zero experience, can’t spell Merchant Cash Advance, and believe you could benefit from a 6 month period with an established broker to show you the ropes, then being a sub-broker for a short period of time could make sense. However, I still believe that with the industry being exposed the way it is, you can train yourself and have to deal with insane non-compete agreements.
Marketing Competitive Advantages
So as a small shop, your marketing budget might be limited to $1k a month, whereas the larger brokerage is spending $20k a month and in a perfect world, might give you a deal where you can work with them without being required to generate your own leads.
They’ll claim to supply everything in terms of your dialer and warm leads, with funder networks already established. So all you have to do is come in, sit down, pick up the telephone, and sell all day to the warm leads coming in from their $20k in marketing. You don’t have to do any cold-calling. So you might be getting 50 leads a week that you convert to 12 applications, which you then convert to 4 new deals. If the average funding is $30k, then that’s $120k in funding with let’s say an average 6% commission that you would split 50/50 (3%/3%), giving you $3,600 per week which is $14,400 per month.
But we don’t live in a perfect world, now do we? Do you honestly believe the structure will be established as promoted? Such as more and more of the 50 leads you receive per week turn into mainly start-ups that don’t qualify for anything. Or, most weeks you don’t receive any warm leads at all, and are required to call UCCs, aged leads, or random listings out of the Yellow Pages, which are all horrible marketing mediums.
EITHER YOU GET IN ALL OF THE WAY, OR MAYBE YOU SHOULD GET OUT
If you are going to be in this industry, then properly set up your office, marketing plan, business plan, funder network and work your own deals. Get 100% of commission structured on new deals and control your renewal portfolio (the lifeblood of our business). If you are going to operate as a sub-broker, for the most part you are going to get a raw deal as we don’t live in a perfect world. We live in a world full of inefficiencies, “rah-rah” sales motivational speeches, and promises that don’t get kept.
To this day, I still have no idea who The National Sales Executive Association is, such as what they do, where they’re located and how long they have been in existence (if they even exist at all). But a couple of years ago, I read a quote that was supposedly from this organization, that went as follows:
- 48% of sales people never follow up with a prospect after the first attempt
- 25% of sales people make two attempts with a prospect and stop
- 12% of sales people make three attempts with a prospect and stop
- 10% of sales people make more than three attempts with a prospect
When Sales Are Made
- 2% of sales are made on the first call
- 3% of sales are made on the second call
- 5% of sales are made on the third call
- 10% of sales are made on the fourth call
- 80% of sales are made on the fifth – twelfth calls
From these statistics, we could conclude that 10% of sales people pick up 80% of the sales, due largely to the fact that they initiate five or more call attempts to the prospective client in particular.
While I have no idea who The National Sales Executive Association is, over my time in B2B sales, I can surely say that giving the merchant more time to respond to you surely works. Matter of fact, 2% is very generous, I think that less than 1% of my “closes” have been on the first call attempt and over 90% of my “closes” have come from making at least 5 attempts through either telephone or email.
OUT OF TOUCH SALES MANAGERS
One of the main reasons I have only participated in the profession of Sales on an independent basis, is mainly so that I can contain 100% creative, strategic and operational control, and not be subject to out of touch Sales Managers.
The fact is that far too many Sales Managers are just out of touch, either they will have their team using outdated marketing tactics such as calling UCCs, Aged Leads, or random listings out of the Yellow Pages, or they might have their team selling inefficient products. In terms of inefficient products, they might have their reps trying to push 1.30 factored rated advances on A Paper clients in the age of Lending Club and other A Paper lenders filling up the merchant’s mailbox, email and voicemail with A Paper offers.
But if these two aspects weren’t bad enough, far too many Sales Managers also have a very impatient disposition when it comes to the B2B sales cycle. Far too often, they will set B2B sales quotas either by the day, the week, or the month, rather than by the quarter or the year, as they should be set.
The bottom line is that sometimes it just takes a merchant longer than usual to move forward, which while it surely delays the sales cycle, it doesn’t mean that the merchant is disinterested or trying to pull your chain, sometimes there’s just legitimate delays in the B2B sales cycle.
THE REALITY OF THE B2B SALES CYCLE
Far too many Sales Managers are just out of touch, as they still believe in the mythical smooth walking, talking and overly charismatic sales guy who can sell fire to Hell. According to these types of Sales Managers, you should be able to get all of your applications within the first call or within the first week of speaking with a merchant, and if you don’t, then apparently you don’t belong in this industry and should seek opportunities elsewhere.
How out of touch could these guys be? Have they ever in their life managed an individual B2B Sales Pipeline? In reality, here’s how the deals go most of the time:
- Your first attempt with the merchant is on a Monday. The merchant is interested but is very busy right now as he’s about to enter his afternoon rush. He gives you his email, says to email him over information and follow up on Thursday.
- You email information that Monday night and then follow up that Thursday. You get his staff member on the telephone saying he had to leave early today, but will be back on Saturday. You send him a follow up email on Thursday night.
- You call back on Saturday and he answers the telephone, he confirms that he received the email but just hasn’t had time to sit down and take a look over everything. Says to follow up with him this Monday at 2:00 p.m. before his afternoon rush.
- You call back that Monday, he says he has a good 5 minutes to talk and before you can begin speaking, he immediately begins a long discourse. He talks about how he’s looking at setting up this second location and how he has it all lined out, he just needs a good $100k to get the second location up and running. His bank hasn’t been that much of a help for this project and he reviewed your email, he likes the premium estimated price ranges that you have listed with up to 24 month terms. You begin to ask him some questions to properly pre-qualify him, you discover that he’s an A Paper client and you estimate that you can get him approved for the $100k over 24 months that he’s interested in. You go over the documentation needed to get started and the estimated timeframe until funding completion. He says that sounds great and to email everything you need from him by email tonight, and he’ll work on getting that back to you as soon as he gets back to his home office tonight.
- You email him that Monday night with items needed to move forward. Tuesday, Wednesday and Thursday go by, you don’t hear anything from him.
- You follow up with him on Friday and his staff member says he’s not there but he will indeed be back on Monday. You leave a message for him with his staff member as well as send him a follow up email that Friday afternoon.
- You call back on that Monday, his staff member says he is available and goes to bring him on the telephone. He gets on the telephone and says he’s been working on the items this morning and will fax them shortly. He asks for your fax line once again.
- On Wednesday morning, you get a fax from him with only partial items of the application package, such as only 2 pages of your 3 page application, and only 2 months of bank statements even though you requested 3 months. You call him that Wednesday afternoon to confirm receipt and request the additional items that were missing. He says he will get that right over to you here shortly.
- Thursday and Friday go by, you receive no additional items. You send him a follow up email on Friday night about the additional items.
- You follow up with him that Monday to touch base for the additional items, he gets that over to you by fax that afternoon, now giving you a completed application package. Now you have a completed application package, or what is referred to as a “close”, but that took four weeks of follow up which included 8 follow up calls and numerous emails.
SOMETIMES IT COULD TAKE 6 MONTHS OR MORE
This was just one example of where it took four weeks to get a completed application package, however, sometimes it could take up to 6 months for me to receive a completed application package from a merchant due to various reasons.
Some of the reasons include: waiting for an existing balance to come down, waiting for a tax lien payment plan to get finalized, waiting for a bankruptcy discharge, waiting for NSFs to come down, the merchant running into a family emergency, or the project for which the merchant needed funding gets put on hold in some way.
SOMETIMES THE MERCHANT JUST NEEDS MORE TIME, DON’T QUIT SO EARLY
This is why any B2B sales quota that’s measured on a daily, weekly or monthly basis is completely and utterly insane. B2B sales cycles can take longer and are usually more complex than B2C sales cycles which involve fewer decision makers, lower dollar exchanges and usually less complex solutions.
This is why Sales Managers and Agents alike should be more patient when it comes to the B2B sales cycle. On a daily basis, the focus should just be on continuing to grow your B2B Sales Pipeline as well as follow up on said B2B Sales Pipeline through telephone calls, email, mail and social media. You would then begin to receive emails, faxes and mailings with various application packages from members of your B2B Sales pipelines at random times of the day and night.
You should judge the effectiveness of your process on more of a quarterly or annual basis, rather than daily, weekly, or monthly, as sometimes the merchant just needs more time.
Don’t quit so early.
I’ve always wondered why being successful has to be tied to the acquisition of high-dollar materialistic toys. And I’ve always wondered why it wasn’t more tied to your level of freedom. Freedom as in, telling the world to go to hell. Being able to do whatever you wanted to do, live where you wanted to live, and enjoy the limited amount of time you had on this planet before you passed away back into whatever cloud you came from.
Let many within our industry tell it (as they seek to build their Mom and Pop Network), success is all about the acquisition of high-dollar materialistic toys in conjunction with delusional compensation promises.
I have criticized some of the motivational sales speeches done within our industry by direct funders, lenders and large broker houses, seeking to recruit those (for their Mom and Pop Network) into our industry from the Burger King drive-thru line, with the dream of making big money, fast. But we all know the reality is that only a small percentage of those that enter our space actually end up having some sort of career longevity, as success in our industry is based more on having strategic leveraged resources, rather than being the mythical smooth talking, walking, charismatic sales machine. The misguided sales motivational enticement speech is coupled with pictures of luxury cars like the Mercedes Benz S-class, along with big houses on the hill.
That marketing message clear, if you come in here and resell our services to merchants out of the Yellow Pages or by using the same UCC data that 100 other brokers are calling on, you will soon be closing deals left and right! You will be making $20,000 a month, enough to be driving that S-Class and living in that house on the hill!
THIS MESSAGE AND MILLENIALS
It’s a very enticing message for a segment of Millennials, like the ones that have attended brand name colleges for $100k on student loans, only to come out and be told that they don’t have enough experience to even qualify for entry level positions. Same goes for the ones forced to work in industries that have nothing to do with their expensive degrees.
“So you mean I can skip that nonsense, sit on a predictive dialer all day calling something referred to as a “UCC record?” they might gleefully ask. “And I can start today? I’m in!” I’m sorry, but it’s mostly a pipe dream.
Sure, there are a few individual brokers making $20,000 a month right now, but the majority making anywhere close to that are only talking about “special” months that they have had, not a consistent two-year span of this activity. Or, they have overrides on a team of individual brokers and this amount of money is usually the gross revenue, which means once you take out their very high cost of operations (using their very expensive mailing or online PPC campaigns), it paints a totally different picture.
CAN SUCCESS = MINIMALISM?
There’s a new movement going on and it’s all about Minimalism. Minimalism is based on living below your means to a point where you can survive and live a quality life on what’s been traditionally seen as “not so much,” without getting yourself deep into debt or requiring significant incomes for a long period of time due to having to sustain your high consumption lifestyle.
I once told you that it was okay to be a piker, and I’m telling you today that it’s okay to be a minimalist.
- It’s okay to not want to lease or purchase that luxury car, putting yourself on the hook for $600 – $900 a month in car payments for 36, 60, 84 or even 120 months.
- It’s okay to not want to purchase that big house, putting yourself on the hook for 20 – 30 years of a $2,000 – $3,000 or so mortgage payment before even bringing in the costs of maintenance, repairs, utilities, furniture, taxes and insurance.
- It’s okay to not want to buy every single new gadget that a technology company releases.
- It’s okay to take staycations rather than vacations.
- It’s okay to cook at home, eat healthy and eat less, rather than eat out all of the time digesting processed foods through the drive-thru or at the most expensive restaurants you can find.
- It’s okay to only buy clothes you are going to actually wear and take care of them, rather than going shopping for new clothes every weekend based solely on emotional needs.
CAN SUCCESS = BEING ABLE TO TELL THE WORLD TO GO TO HELL?
It’s okay to be a Minimalist and live longer, on less.
You will eventually find yourself in a situation to where if you stopped working tomorrow, you would have enough saved in liquid and non-liquid assets to where you can tell the world to go to hell.
- You can tell your boss and fellow staff members to go to hell
- You can tell your materialistic friends to go to hell (because you will stop trying to impress them)
- You can tell your bad surroundings to go to hell (because you’ll be in an area you find peaceful)
That’s how Mr. Money Mustache did it. He did it by incorporating Minimalism as well as efficiently managing his income, expenses and investment accounts, to be able to tell the world at 30 to go to hell.
That’s true freedom, which is true success, which is the ability to not be in shackles to a corporation, due to living a high consumption lifestyle trying to impress people that don’t even like you anyway. True success is being free to leave behind the legacy that you prefer as well as to live the life that you prefer, not the type of life that society pressures you into “signing up for” with 5 year, 10 year, 20 year and 30 year installment terms.
To quote comedian Dennis Miller, “I rant, therefore I am.” I know everyone is in the holiday spirit and I surely would hate to kill off that jovial mood, but I thought that it was time for Part Three of my Rants, this time on one of the most crucial elements of our industry, The Brokers.
A Look Back At Prior Rants
In Part One I looked at the merchants, and explored some of their questionable behavioral choices. These choices (which a lot of them could be considered flat out stupid) hinder professionals within our industry from truly assisting merchants with their alternative financing needs. These questionable behavioral choices included: not meeting basic deadlines, bank statements being out of order, not being able to find financials, having very bad credit, running the business on overdraft protection, excessive stacking, sending in fake statements/financials, and not disclosing liens, bankruptcies or landlord/mortgage issues.
In Part Two I looked at the funders/lenders and explored some of their questionable practices. These choices hinder broker shops from progressing forward in an industry that’s oversaturated and highly competitive. These choices included: having new deal requirements to keep renewal portfolios, having an incompetent process, allowing merchants to stack, still filing UCCs on good accounts, and 30+ day commission clawbacks.
Stop Helping ME, Compete With YOU
It’s now time for Part Three of the Rants. Mr. Broker, unlike with the merchants and funders where I pleaded with them to “Help ME, Help YOU,” I’m actually going to do the opposite here and plead with you to “Stop Helping ME, Compete With YOU.”
We all know why you are in this industry, you (like myself), believe there is still great opportunity for growth. But some of the things that you do Mr. Broker make it hard for me to figure out if you are competing with me for market share or helping me take market share from you. Please allow me to list some of the things that you do that make it difficult for me to figure out if you are truly against me.
Not Pricing Based On Paper Grade
I understand Mr. Broker, that you believe in the mythical smooth talking, walking, charismatic sales machine, you know, the guy that can sell fire in hell and ice to an Eskimo, but I’m sorry to inform you that no such person exists. If you believe you are going to close your A-paper client by pushing them your 6 month 1.35 factor rate cash advance using your smooth talking skills, then I will not feel sorry for you if your merchant were stolen away by another broker pitching him 6 months at 1.12 – 1.20, which is what I consider to be the proper pricing based on their paper grade.
Forgetting the Endgame
So Mr. Broker, you seem to believe that we are in the lead generation business and not the brokering business. We aren’t paid on lead generation, we are only paid when we successfully broker a deal. To successfully broker a deal, we must find an interested client and match them with a funder that’s interested in funding them. We aren’t paid just to get people to send back an application that we can’t fund anywhere.
So if you propose potential terms without pre-qualifying them just to get an application package back, don’t be surprised if they decide to work with your competitor, the other broker who took the time to pre-qualify them from the beginning.
Mr. Broker, it’s understandable that you decided to open up shop in our industry because you heard about something called UCCs, but I know that you will soon figure out that the UCC Boom is Over.
Using Outdated Marketing Tactics
Speaking of UCCs, Mr. Broker why must you only rely on outdated marketing tactics, including UCCs and aged leads, leading to said merchants having 25 calls per week about funding to where they hang up in your face if you even mention you are from a funding company? Do you know that while you fight with 50 other brokers over the attention of one merchant (that doesn’t want to talk to any of you), there’s other brokers out there calling on data that nobody (or very few) people are calling on?
Not Running A Profitable Office
Every business must have a business plan and every business plan must have return on investment (ROI) projections. What are all of the estimated costs that you will have in acquiring a newly funded merchant? What are all of the estimated revenues that will come along with that, such as the new deal commissions, renewal commissions, merchant account conversion residuals, etc? Too many brokers have no idea what their costs are nor estimated revenues are to produce any type of true ROI forecasts. That begs the question, what kind of business are you running, Mr. Broker? It’s a wonder why so many offices fail, they don’t do any planning.
Not Properly Pre-Qualifying The Merchant
Why clog up your funder’s underwriting queue with applicants that have zero chance of being funded because either their cash advance balances are too high, credit scores are too low, bank statements are bad, they are in a restricted industry, or an assortment of other issues? Why not learn the underwriting criteria of your funder and then do efficient pre-qualification on your clients to where you can build a profile of them, estimate their paper grade, and determine if you even have a funder that could review them at this point in time? Or if the merchant is on the cusp of being eligible, help them get to that point. By not pre-qualifying the merchant, all you do is waste your merchant’s time which reduces the chances that they will work with you again in the future.
Submission Hot Shots
This goes with the situation from above. It’s already established Mr. Broker that you might not properly pre-qualify merchants which does nothing but waste their time, but you also hot shot them to 8 lenders. The key here, as mentioned, is that you have to efficiently pre-qualify the merchant to know where they stand and to know the 2 or 3 funders likely to approve them.
I rant, therefore I am, as comedian Dennis Miller would say. I surely hope I didn’t kill off your jovial mood this holiday season. This has been the Year of the Broker, and my goal is to help the inexperienced and experienced smaller broker shops. So with that being said, I plead with you Mr. Broker to “Stop Helping ME, Compete With YOU” by no longer repeating these mistakes listed above.
The year of 2015 went by rapidly, as it felt like yesterday that I was sitting back in my office chair, reading an article from the March/April 2015 edition of deBanked Magazine, composed by Ed McKinley, a man with nearly 40 years of journalism experience.
McKinley began a discussion about a “year of the broker,” based on analysis, interviews, and criticism of the mass new entrants of brokers into our space within recent times. I have spent the better part of this year continuing this discussion both here on deBanked and within our industry circle, with discussions that have been both conventional, out of the box, and even at times peculiar. Speaking of peculiar, this brings us to the opening of this discussion, in which I must quote RuPaul.
RuPaul once stated that, “life is about using the whole box of crayons.” In my opinion, if you can figure out the profession of sales, you can pretty much figure out most of everything there is to life. And if RuPaul is right in that life is about using the whole box of crayons, why do so many of the mass new entrants of brokers within our industry, believe they are going to properly sell a merchant without using the whole solution?
It’s common knowledge that every individual crayon provides its own distinctive color, which in and of itself creates its own distinctive value, as value in this case is based upon where the color fits on the page to provide its role in the total coloring scheme. But just like crayons, every part of our alternative financing solution provides a distinctive value that altogether creates the whole solution for the merchants we serve.
(Q) + (S) + (P) = THE WHOLE SOLUTION
The Whole Solution equation is based on three letters. “Q” stands for Quality, “S” stands for Support and “P” stands for “Pricing”. How many brokers within our industry focus only on offering the “Q” and “S” portion of this equation, without the “P” portion? How many brokers within our industry focus on offering the “Q” and “P” portion, without the “S” portion?
Quality is all about bringing to the merchant what they deem to be value, and in our space (alternative financing) that means capital when they need it. Thus, you should have a comprehensive resource network of alternative financing products from merchant cash advances, alternative business loans, equipment leasing products, factoring, purchase order financing, and more, with approval amounts that can solve the working capital needs of the merchant. This creates value.
This is all about your professional competency, merchant servicing and merchant education.
- Professional competency is all about you and your team having knowledge of the industry, the various products, the competing products, the market trends, understanding your merchant’s industry, and understanding how the product could help (or hurt) the merchant in achieving their operational objectives.
- Merchant servicing is all about providing tools for your merchant to manage their account with you, such as online access to statements, balances, transactions, or at least providing such information in a monthly statement. It also includes having easy access to live support agents during business hours to properly handle merchant questions, payment issues, collection issues, as well as there being an option for payment modification if a situation warrants it.
- Merchant education is all about educating the merchant based on the big data analytic information that you have currently, and how they can use this to help their business in various areas such as how to qualify for more conventional financing, better marketing strategies, etc.
In our industry, proper pricing is based on utilizing risk-based pricing, which is to price a merchant based on their paper grade. This can only be done after efficient pre-qualification of the merchant to understand where they stand.
Some merchants have low risk measurement, thus, they are A+ Paper and A Paper. Some merchants have moderate levels of risk, thus, they are B and C Paper. Then some merchants have higher levels of risk, thus, they are D and E Paper.
A+ Paper: Should be priced similar to a P2P lender’s pricing schedule, which includes longer terms up to 60 months. These terms and conditions mirror that of a conventional loan.
A Paper: Should be priced on 6 – 18 month payback cycles. The shorter ranges of 6 – 8 months having 1.09 – 1.20 pricing, 9 – 10 months having 1.22 – 1.24 pricing, 12 – 15 months having 1.25 – 1.32 pricing, and 18 months having 1.28 – 1.35 pricing.
B and C Paper: Should be priced on 6 – 12 month payback cycles. The shorter ranges of 6 – 8 months having 1.22 – 1.26 pricing, 9 – 10 months having 1.28 – 1.30 pricing, and 12 months having 1.35 – 1.45 pricing.
D Paper: Should be priced on 4 – 7 month payback cycles. 4 – 5 months having 1.28 – 1.35 pricing and 6 – 7 months having 1.40 – 1.45 pricing.
E Paper: Too high of risk to usually find a decent approval.
I usually debate other sales professionals (within our industry and outside of it) in regards to selling the whole solution.
Some believe that if you put majority of the focus on quality and support, then you can literally price your client however you prefer, including well above their marketplace pricing.
Some believe that if you just focus on providing the lowest price, then you can get away without having the best quality and support functions.
Both of these approaches are selling the partial solution, but the whole solution should always be the best solution as it provides the best in quality and support, while tying in a proper pricing model for the client based on their standing in the marketplace. This leads to client longevity, loyalty and stickiness. That’s why I believe the best approach is to sell the whole solution.
Merriam-Webster dictionary defines the word, independent, in a number of different ways, but one of the definitions provided relates this word to the concept of freedom. Most of us operate in this industry on an independent basis, which gives us a significant level of freedom that revolves around not having a boss, freedom to set our own schedules, freedom from being down-sized, freedom from office politics, but more importantly:
- freedom to craft our own business plans
- freedom to target our own market segments
- freedom to decide what we will sell
- freedom to create our own products
- freedom to negotiate our own market pricing
- … and freedom to innovate
With such high levels of freedom, you have to wonder why a lot of brokers in our industry don’t exercise such liberties? Why do we sell the same products (cash advances and alternative business loans)? Why do we use the same marketing tactics (UCCs and aged leads)? Why do we market, promote and sell to the same merchants (UCCs)? Why do we use the same “pitch”? Why do we submit to the same funders?
If we are truly independent contractors, why do we all look, act and sound the same?
As we continue The Year Of The Broker, I wanted to begin a discussion on a concept that integrates your capability of independent expression. It’s the concept of constructing an alternative financing sales profile. It allows you to display your level of true independence by pre-qualifying your prospective clients and recommending solutions that are different from the pack of brokers recommending the same “me too” solutions, seeking to submit the merchant to the same “me too” funders.
ARE YOU A “BROKER” OR NOT?
Are you paid only when you broker (fund) a deal?
If so, the generation of a financing lead or application in and of itself, doesn’t produce value as it doesn’t create revenue. Revenue is only created when you successfully broker a deal, which is to match a merchant with alternative funding needs and with a particular terms/conditions comfort range, with products funded by lenders whose pricing lines up with the particular comfort level of your prospective client.
As a broker, you are much more than a salesperson, you are more of a match-maker, an arbitrator, and an consultant. You can’t consult someone if you don’t know their current situation for one, and two, you can’t consult someone unless you have the resources to prescribe appropriate solutions.
See yourself more as a doctor than a salesperson, where as a salesperson has one or two products that he’s looking to “push” on a prospect using various tactics such as cost cutting and overcoming objections, a doctor isn’t trying to “push” anything out of the gate without firstly diagnosing the client through a series of questions. After said questions have been inquired and answers provided, the doctor creates a “profile” of said client and through his wealth of medication, he prescribes a couple of solutions to assist the client.
To help increase your chances of brokering (funding) your deals, you want to increase your level of pre-qualification and increase your level of product offerings, both of which will allow you to create firstly an alternative financing sales profile of your client, and then secondly allow you to go into your wealth of alternative financing products to prescribe an array of products.
Going forward, make sure to do serious pre-qualification to create an estimated risk profile as well as an estimated sales profile. You want to know all of the following: their credit, time in business, annual sales, cash flow situation, level of profitability, type of assets, outstanding commercial debt, any current tax or judgment liens, recent bankruptcies, and current status of commercial mortgage or commercial lease agreements.
From this information you are able to create an Alternative Financing Sales Profile along with an occupying Risk Profile for each product you will soon be recommending, to know which lender within that product category is best to serve your client.
YOUR WEALTH OF ALTERNATIVE FINANCING RESOURCES
So for example, say we have a restaurant owner that’s in need of $250k in working capital for expansion. You shoot him over the pre-qualification survey and receive the following: 700 FICO, 5 years in business, $1 million sales, zero NSFs/Overdrafts for 6 months, $10k average bank balances over the last 6 months, company has been profitable for the last 3 years, no tax liens, no judgment liens, no bankruptcies, current on commercial lease payment, outstanding debt that includes $25k on a credit card with $50k outstanding on a bank loan. The merchant’s commercial assets includes business equipment, free and clear, with appraised value of $150k.
As an alternative financing broker, you should have access to more than just merchant cash advances and alternative business loans, you should also have access to: merchant processing, equipment leasing, asset based lines of credit, inventory loans, SBA loans, business credit cards, factoring, purchase order financing, commercial mortgages and real estate hard money loans.
So based on the answers to the pre-qualification survey completed by the restaurant owner, in conjunction with his total financing needs, you might be prescribing an SBA loan, a merchant cash advance, and a sale-leaseback.
- You would seek to get him an SBA loan first and let’s just say he only gets approved for $50,000. So you guys complete the process to fund the SBA loan.
- Next, you would look at doing either a merchant cash advance for let’s say another $100,000 using split funding. You notice that his current processing rates are a little higher than market average pricing for Restaurants and show him a savings analysis with your interchange plus pricing structure with a 10BP mark-up that should be saving him $400 a year which is $1,200 over three years. So in the process of this you also convert his merchant processing over to one of your processing platforms that can handle split funding. Now you have raised $150,000 of the $250,000 funding goal that the merchant has in mind.
- Finally, you would look at doing a sale-leaseback on his pre-owned equipment that’s appraised for $150,000. With a 70% LTV, this comes to $105,000 in funding. Now you have successfully funded the merchant over $250,000 and in the process closed three different alternative funding products as well as converted over his merchant processing at the same time.
In an upcoming article, I will continue this discussion on pre-qualification by going into information on how this level of efficiency includes the creation of Risk Profiles that allow you to limit your submissions to your funders/lenders as to not clog up their underwriting pipelines with unnecessary submissions. It allows you to focus on submitting 10 applications and funding 5, instead of submitting 50 applications and funding 5.