John Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in Accounting, Business Management and Journalism. Tucker has nearly 9 years of professional experience in Commercial Finance and B2B Sales. Connect with Tucker on LinkedIn by clicking (here), or contact Tucker at Tucker@1stCapitalLoans.com or at 586-480-2140. Articles by John Tucker
Brokers: Being a Minimalist is Okay
December 1, 2015
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.
Mr. Broker: Stop Helping ME, Compete With YOU
November 29, 2015
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.
UCC Marketing
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.
Final Word
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.
Business Lending: Sell The Whole Solution
November 26, 2015
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
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.
SUPPORT
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.
PRICING
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.
FINAL WORD
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.
Building An Alternative Lending Sales Profile
November 24, 2015
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.
EFFICIENT PRE-QUALIFICATION
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.
The UCC Boom Is Over
November 21, 2015
I spend a little bit of time scrolling through social media during my down times. There’s always an array of memes, GIFs, pictures, and random quotes that are posted either to spark laughter or to flat out troll a particular person or audience. I ran across a particular post that was interesting, it said: It’s called originality, you should try it sometime! This post got me thinking about our industry, the Merchant Cash Advance and Alternative Business Loan industry, and how over here on the broker side of things where we seem to as a whole, be lacking any type of originality.
- We for the most part, use the same sales pitches
- We for the most part, recruit using the same “rah rah” sales motivational speech
- We for the most part, resell the same product (the MCA or alternative business loan), even though we have access to reselling all types of alternative financing products such as asset based lines of credit, inventory loans, warehouse loans, hard money loans, bridge loans, SBA loans, credit cards, factoring, equipment leasing, purchase order financing, commercial mortgages, etc.
But nothing seems to be more common amongst broker houses (large, small and one man shops) than the fact that we all seem to rely on prospecting to, marketing to and calling on the same merchants over and over, using the system known as The Uniform Commercial Code (The UCC).
THE UCC AS STRATEGIC MARKETING – VERY LATE 90’s TO 2011
The UCC was published in 1952, by a host of legal professionals including Grant Gilmore and William Schnader, to name a few. The code establishes rules and governs certain types of commercial transactions including leases, bank deposits, secured transactions, investment securities and letters of credit, to name a few. The UCC had been utilized heavily by our industry since the early days in the late 90’s until around 2011 to perfect an interest in future assets.
Starting in and around 2007, the UCC became a very strategic marketing tool because the merchant already knew what the product was, how it worked, and would most times seek renewal once they were 50% paid down. However, this was during a time when a lot of the funders were still pricing A-paper like C-paper, or B-paper like D-paper, so if you could build a quality funder network and price said merchants within their correct paper grade, you could steal them from their old provider through better pricing.
THE UCC AS A STRATEGIC MARKETING TOOL DECREASES IN QUALITY – 2011 TO 2013
A lot of funders stopped filing UCCs on good accounts altogether or companies began using various fake/alias names starting around 2011 due to many new broker houses entering the space and solely using UCC filings as a way to market to merchants a “lower priced” merchant cash advance.
As funders grew tired of their merchants not renewing and instead switching to other providers, they responded by rolling out competitive pricing tiers and new renewal procedures.
- Proper Paper Grade Pricing: A lot of funders began to roll out more risk-based pricing tiers to properly price merchants based on their paper grade. No longer would funders price an A-paper merchant like a C-paper merchant, instead they were pricing A-paper merchants like A-paper merchants. That made it more difficult to woo merchants away as they were now receiving the proper pricing from their current provider.
- Better Renewal Policies: A lot of funders began to eliminate their renewal policy that required merchants to pay off the current balance from the first advance with a portion of the renewal approval monies, essentially having them pay for the same balance twice. Instead, funders rolled out add-on procedures that mirrored a lot of the positive aspects of a credit line. This strategy helped to keep their merchants from moving to other providers because it always kept their balances too high for other funders to pay off.
THE UCC AS A STRATEGIC MARKETING TOOL
The UCC remains to be a tool for newer funders and brokers looking to make their mark. But with more merchants already being accurately priced, they have less incentive to simply trade one company for another. That doesn’t mean they’re not interested in using both at the same time however and thus stacking has kept value of UCCs alive. But will it last?
THE UCC BOOM IS OVER
It’s called originality, you should try it sometime!
It’s time for brokers to innovate and find other ways to market. In addition to the stacking, merchants are receiving 20 – 40 calls a week from different funders and brokers based on historical UCC filings.
This is insane. Instead of us all chasing after the same merchant, it’s time to find other quality forms of data to transform into a sales pipeline.
What Makes a Good Loan Broker? Is it How Much You Fund?
November 18, 2015What Makes A Good Broker?
Through the plethora of recruiting ads by brokerages, funders and lenders, trying to draw people into the space through promises of lucrative paydays with minimal work, one has to stop and wonder, who are the actual good brokers? What do they look like, sound like, and dress like? How is their personality? How is their work ethic? How can you spot them in a crowd?
There are a number of things that make a good broker, a good broker, but for the sake of this discussion, I wanted to begin with expectations and measurements of funding volumes.
LIMITING THE MEASUREMENT
A broker can have a good month, a good quarter, and even a good year, so to truly judge the quality of a broker’s work, I believe you have to start the measurement over at least a 24 month time period. This would smooth out things that usually plague sales professionals such as down times, seasonal periods, stall periods, dry spells, artificial market boom and bust periods.
One won’t even be able to complete this measurement on most brokers entering the space, as most of them will be out of the industry within 3 – 6 months. I believe that success in our industry is mainly due to having leveraged resources that give you a competitive advantage, rather than actual superior “selling” capabilities. 20% of brokers will have these resources and 80% will not.
MEASUREMENT TIERS
From my research, these are the measuring tiers that can be utilized to gauge the quality of a broker over at least a 24 month time period. These numbers include both new and renewal funding volumes. With renewal merchants, even though you are dealing with the same client, they still require a new underwriting process with new offers being generated, thus requiring a new sales process or another “close.” As renewals are the lifeblood of our industry, many brokers have a plan in place to build a renewal portfolio and “sit back”, thus we shouldn’t only factor in new deals to this measurement.
- $300,000 plus a month in funding average: The Superstar Broker Level
- $150,000 to $250,000 a month in funding average: The Good Broker Level
- $75,000 to $125,000 a month in funding average: The Average Broker Level
- $25,000 to $50,000 a month in funding average: The Rookie Broker Level
If you have been a broker for at least 24 months, what is your current standing? If you are currently at the Rookie Agent level or the Average Agent level, what do you think you can do to get to the Good Agent level or the Superstar Agent level?
NOT ALL BROKERS ARE EQUAL IN TERMS OF OPERATIONAL STRUCTURE
These measurement tiers are only for individual brokers and not for total funding volumes completed by an entire office of brokers.
But also understand that other variables might be at play for an individual broker as well, such as the fact that he might be a sub-broker to a large brokerage house that feeds him warm leads all day, and his job is just to come in, sit down and focus only on the selling/closing part of the process. Or, he might be a part of a funder’s inside sales team and similar to the sub-broker, he gets warm leads fed to him all day to where he just needs to come in, sit down and focus only on selling/closing.
If you are currently in the sub-broker or inside sales team setup, it’s understandable if you are in The Superstar Broker level as you have more leveraged resources, less responsibilities and more time to dedicate solely to your selling/closing process.
But if you are operating as a One Man Show, like I was, then (in my opinion) it would mean a lot more to consistently perform at either The Superstar Broker level or The Good Broker level, considering all of the administrative/operational tasks that you solely have to juggle on your own.
MY ONE MAN SHOW PERFORMANCE
As my office currently goes through restructuring, during my time of selling the product from late November 2009 until September 2015 (70 months), I averaged $200,000 a month in new and renewal funding volume. This would place me at The Good Broker level.
There were surely months when I funded at The Superstar Broker level of over $300,000 with even some months getting at or near $1 million, but those were not my consistent averages throughout the 5 years and 10 months (70 months) that I sold the product. During the 70 month time period operating as a One Man Show, I had to juggle many administrative/operational aspects including but not limited to:
- Completing my own secondary and primary market research
- Designing my own business plan, ROI formulas, and completing my own trend analysis
- Coming up with innovative ways to creatively and profitably finance my office
- Building business related credit
- Setting up my funder network and keeping up on their underwriting criterion
- Setting up agreements with warm data suppliers and other vendors
- Designing and running my own website
- Setting up and managing my own direct and in-direct marketing campaigns
- Running through my daily calls to warm data (averaged about 150 a day)
- Managing and following up with my sales pipeline
- Managing and following up with my current deals in underwriting
- Managing and following up with my renewal portfolio
- Managing legal aspects such as contracts, LLC requirements, keeping up on marketing laws, etc.
- Managing accounting, insurance and tax related aspects
- Managing retirement account aspects
On the side, I built a merchant processing portfolio on track to process close to $200 million.
To top everything off, I also managed to complete four college degrees (MBA and three bachelor’s degrees) during this hectic and stressful time period as well.
YOU MIGHT HAVE BETTER OPERATIONAL LUXURIES THAN I DID
If you have the luxury of being a sub-broker or a part of an inside sales team, with having a team of people to do a good chunk of the administrative/operational tasks listed above (that I had to manage on my own), then as mentioned, you stand a great chance of getting to and staying in The Superstar Broker level of performance in terms of funding volumes.
You want to just bring to the table a solid work ethic and professional competency, always with the passion, desire and ability to learn. You also want to be very efficient in time management. I believe that time management is a “skill” that must be honed and managed. As the English brewer Charles Buxton said: “You will never find time for anything. If you want time, you must make it.”
Increasing Barrier to Entry (Self-Regulation)
November 15, 2015
Having been involved in our industry in some capacity since January 2007 (Merchant Services direct sales from 01/2007 – 04/2009 and alternative financing from 11/2009 – 09/2015), it has always been amazing to me to see just how low the barrier to entry is into our space, due mainly to companies relying heavily on the highly profitable Mom and Pop Network.
I have made reference before to The Mom and Pop Network that exists in our industry, which is just a group of random brokers who will resell for free (they cover their own expenses on all commission). A funder might have a Mom and Pop Network of 3,000 brokers that bring in on average of 10 applications a year (30,000 apps), with 35% getting approved (10,500) and 30% closing (3,150), with an average funding per client of $30,000. This is close to $95 million in annual funding volume that comes in very profitable and in a lot of ways, very “risk-free” in terms of new client acquisition ROI.
PROBLEMS WITH THE MOM AND POP NETWORK
Companies in our space relying heavily on The Mom and Pop Network, is why the barrier to entry is so low, as the major players want to continue benefiting from free marketing/advertising by recruiting hundreds to thousands of random, inexperienced, experienced, ethical, or unethical agents/brokers, who are willing to work for free (100% commission) and cover their own expenses, all for the rah-rah sales dream of striking it big.
The reality however, is that The Mom and Pop Network creates a number of problems for our industry which cause merchants to lose faith in all agent/brokers in the space, as well as causing somewhat decent funders, lenders and merchant processors to end up on RipoffReports and other negative review sites. These problems include but are not limited to:
- Merchants being the victim of rogue agents/brokers ripping them off, stealing from them, flat out lying to them, forging signatures, doing bait and switch pricing tactics, and other measures.
- Merchants being the victim to an inexperienced agent/broker providing the wrong information on pricing, terms, conditions, and other aspects which leave Merchants in a bad position long after the “close” of the sale.
- Merchants being the victim to the flat out unprofessionalism on behalf of these rogue and inexperienced agents/brokers.
THE MOM AND POP NETWORK IS THE LAZY WAY TO BUILD A SALES FORCE
The reality is that The Mom and Pop Network is a lazy way of making a profit in the professional Sales game. Instead of actually developing a quality in-house training program that creates a high quality professional Sales Team backed with knowledge, competency, market research, etc., most companies in our space would just rather hire a bunch of random people with a pulse, feed them the rah rah sales motivational dream speech, throw them against a wall and pick off what sticks.
The vast majority of the individual agents/brokers listed in the Mom and Pop Network do not make enough money directly from the activity to make a living, but as a collective whole, the company gains new clients in one of the most profitable and risk-free manners possible.
But in return for that profitable and risk-free procedure, a ton of damage is done to the industry that’s irreplaceable, continuing the threat of government regulation coming in and totally changing the way we all do business for the worse.
RECOMMENDATIONS TO CLEAN UP THE MOM AND POP NETWORK (SELF-REGULATION)
Funders, lenders and merchant processors surely won’t take my advice to end The Mom and Pop Network tomorrow, because it’s simply too profitable, so instead how about we take the following steps to create a more quality Mom and Pop Network?
To clean this up, every funder, lender and merchant processor should require extensive personal and professional background checks on every agent, broker and reseller that they bring on board externally, just as they would do internally with direct employees they would hire on W-2. Just because someone is a 1099 independent contractor, does not mean you might not still be named to a major lawsuit, held liable, etc., for their rogue and inexperienced actions to Merchants in the marketplace.
For Personal Background Checks:
- Pull their credit: If their credit is bad and they can’t provide some type of reasonable explanation, I wouldn’t approve them to begin reselling your services. Think about it, we are in the financial services industry where the rep is going out to “consult” a merchant on a financial manner, when they can’t even do something as simple as pay minimum payments on a credit card every month? Or pay their taxes on time to avoid getting tax liens? Either they are horrible at managing their finances or they just have bad character, neither of which we want to bring into our industry.
- Look for any previous criminal record history: If you have a felony for any reason, you shouldn’t be allowed to come in and resell services to merchants that give you access to SSNs, DOBs, home addresses, bank accounts, tax returns, financial statements, etc. This should be common sense.
- Look for any previous excessive civil record history: Are they getting sued a lot and if so, what is it for? If it’s something that points to bad judgment or bad character, don’t allow them to resell your services.
For Professional Background Checks:
- Look for any previous sales experience: Our industry is very competitive, so why on Earth would a person without any prior professional sales experience want to run in here and start selling for free (on all commission)? At the very least, look for previous sales experience of at least two years with verified references from the prior employer in terms of performance.
- Look for any type of higher education: I would limit all new entrants only to those who have “some college”. It might just be an associate’s degree or they might have only completed one year of college, but they should have “some college”. College in and of itself might not directly influence a lot of the performance in terms of what makes a good sales professional, but usually a good professional in general in today’s day and age, will have some level of college completed.
- Look for a business plan: Simply, what is their plan of action to come in and begin turning profit in our highly competitive space? Do they have the proper accounting, legal, market research, business planning, strategic planning, marketing mediums, etc. in place? If they don’t, then why are they here?
SELF-REGULATION IS THE ANSWER
The barrier to entry into our space will be increased when companies using The Mom and Pop Network model (funders, lenders and merchant processors) start conducting more thorough personal and professional background checks on their recruit prospects.
They need to limit their recruiting efforts to individuals who “appear” to be competent, professional, and serious about our industry, rather than just to anybody with a pulse and a heartbeat, without taking into regard their previous criminal history, bad credit, bad character, lack of sales experience and lack of any type of business plan to gain market share.
Grenville Kleiser (personal development author) said, “by constant self-discipline and self-control, you can develop greatness of character.” If we want to eliminate the bad character that’s running rampant in our space, then we are going to have to develop our own forms of “self” control (self-regulation) to produce a better industry, one that’s instead running rampant with great character.
Mr. Funder: Help ME, Help YOU (Rants On Funders and Lenders)
November 13, 2015
As we continue the Year of The Broker, I thought that it was time for a part two to my original rant article that blew off some steam on one of the most crucial elements in our industry, the merchants themselves. For this round, how about we take a look at another crucial element to our industry, the ones who create the platforms, raise the equity capital, create the products, fund the deals and pay the commissions. Of course, I’m talking about the Funders and Lenders.
Help ME, Help YOU
Mr. Funder, please Help ME, Help YOU. We all know the situation of why I, as an independent broker, are working with you and it’s because I’m a part of your Mom and Pop Network. The Mom and Pop Network is just a group of random brokers who will resell for free (we cover our own expenses), so your goal is to recruit hundreds to thousands of us to collectively produce tens of millions in annual funding volume for your organization.
But some of the things that you do Mr. Funder make it difficult for me to help YOU build your Mom and Pop Network, which in terms helps ME build my portfolio and commission stream. So allow me to list out some pet peeves that hopefully you, going forward, can fix.
#1.) New Deal Requirements To Keep Renewal Portfolio
Mr. Funder, you received free marketing and acquired new clients on behalf of my efforts in marketing, selling and closing. You had no cost associated with the acquisition of said client other than the percentage points paid to me in commission, but that was only after the fact that I bought you a quality client (that didn’t default within 30-45 days), there was no risk assumed by you in spending money on marketing with a chance of not recouping profit.
So why in the hell do you put provisions in place to try and cut me OFF from said renewal portfolio? Do you realize that my entire business plan is based on building up a renewal portfolio and “sitting back”? That’s why I’m in Merchant Services related sales, it’s all about the Renewal Portfolio. Mr. Funder, please remove your insane new deal requirements and stop trying to push good brokers out of their Renewal Portfolio.
#2.) Having An Incompetent Process
From the customer service and billing support “little girls” who are flat out rude, to the payment collections team who messes up fixed payment withdrawals, to the underwriters who throw out inaccurate approval numbers, to having an underwriting process that takes 48-72 hours for you to update me on a file, to the excessively long closing process that drags on and on into 10 business days (two weeks) which is way more than the promoted “3 day” closing period, Mr. Funder, can you please take a little more time to fix your process?
#3.) Allowing My Merchants To Stack
So you make sure provisions are in place that I, the Broker, do not stack the merchant and you make this clear in the Broker Agreement that I would be “cut off” from renewals if such action occurs.
But yet, in your Funding Agreement for the Merchant, you have absolutely NO provision, sanction, penalty, or anything in place to punish the Merchant for going out and stacking other than the fact that he might not be approved with you for a renewal (like the Merchant would care, after all, 10 companies are calling him a day offering him money).
This means that the Broker up the street can stack my Merchant with a 2nd position, you will decline them during renewal as a result of such stack, and the other Broker will offer another approval to then 100% steal the client over to their organization going forward. You Mr. Funder get paid off, the merchant gets more money, the other Broker gains a new client……the only one that gets screwed in this situation is ME!
Mr. Funder, please add an Amendment to your Funding Agreements for Merchants that will put fines in place if they stack, similar to how Merchant Processors put ETFs in place to stop merchants from switching their merchant accounts every month to save “$10”. This will STOP the stacking craze when a merchant realizes they will have to pay $7,000 per STACK.
#4.) Still Filing UCCs On Good Accounts
So Mr. Funder, it’s common knowledge that the mass new entrants of brokers into the industry are all pounding away on UCC records, causing said merchants to receive 15 – 20 calls a week for “funding”. So knowing this Mr. Funder, why in the hell do you keep filing UCCs on good accounts?
If an account goes bad, you already have paperwork signed with said Merchant stating that a UCC “will be or could be” filed, can’t you just come back and file the UCCs only on the accounts that went to collections? Why file them on the good paying accounts so the Merchant is harassed all week long?
#5.) Over 30 Day Commission Clawbacks
No more than a 30 day clawback period should be in place. Once we start getting into 45, 60 and 90 day clawback periods, this means that you are inefficiently underwriting the merchant.
#6.) Excessive Stacking and Back-Dooring
Let’s start with back-dooring, once again, you receive free marketing from me and I’m only paid when I bring you a quality deal that funds. So why in the hell are you trying to steal my deals? Aren’t you already getting a good “deal” from me with all of the free marketing I’m doing for you? Mr. Funder, can you please stop back-dooring files?
In relation to Stacking, there’s absolutely no justification you can make for a 3rd, 4th, 5th, and 6th position stack. You can make a case for a 2nd position, even though it might still technically violate the 1st position lender’s Agreement, a 2nd position could work on a case-by-case basis.
There’s absolutely no justification for a 3rd plus position, all you are doing is taking way too much of the merchant’s monthly gross to where he might end up paying 40% (or more) of his monthly gross to Cash Advance companies. This makes absolutely no sense Mr. Funder, so can you please STOP doing this?
Final Word
Mr. Funder, please Help ME, Help YOU. My position as an independent broker in a highly competitive industry is hard enough. I have to cover my own insurance costs and I’m alone in this world in terms of developing my own profitable business plan to not just eat, but cover my other living expenses, pay for taxes (on time) and fund retirement.
Please stop making it harder for independent brokers with the above inefficiencies, keep your process as efficient as possible so that it can increase the probability of more of your independent brokers having career sustainability.
