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.