Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.
Articles by Sean Murray
Are You an Underwriter Thinking About Going into Sales?
September 26, 2023
My days of working on deals are long gone but once upon a time I was the head of one of the most well-known MCA underwriting departments (Merchant Cash and Capital). The problem was that I was a restless 24 year-old with a front row seat to watching ISOs my age and younger make up to 4x as much as my salary all while spending their days giving me a hard time. I don’t have to recall what it was like because I wrote it down when it was happening.
“ISOs debate constantly about declines and make excuses for required paperwork that merchants can’t produce,” I wrote.
I had little appreciation for how hard sales was and I relished being a hardliner on guidelines. While this approach ultimately paid off majorly for the company (it was in the run-up to 2008!), it did not prepare me for what I did next. I quit my position and became a sales rep for an affiliated ISO, you know because I thought I would automatically become rich off commissions.
After learning that sales meant I would get only 3 leads per day, it dawned on me that 95% of my time would be spent cold calling UCCs. And so that’s what I did, blasting away UCCs on a manual hand dial basis because there was no auto-dialer. Getting any app in at all was a huge achievement and I begged and pleaded with underwriters to pre-approve incomplete files that in a former life I would have enjoyed striking down.
It was a very humbling experience, which was made all the more humble when about a month later almost every MCA company in the industry stopped funding as credit lines got pulled and the financial system came to a standstill to kick off the Great Recession. I really could not believe my luck. My position had no base pay in those days so I had really shot myself in the foot. Just as before, I documented my experience.
“My streak was extended to 25 declined deals and a merchant I had been pitching for literally 4 months was finally giving me a shot. The sweat, the stress, and the dwindling commission paychecks led to the addition of a 2% closing cost on the deal. The merchant ok’d it and signed my form.”
I wasn’t the closing fee type but after the terrible streak and virtually no pay for a whole month, it happened. Unfortunately, the funder I did it with was not happy about it at all.
“The funder got wind of the closing cost and called our office,” I wrote. “Something was said about greed and overburdening their merchant. A warning was issued and they were going to watch my submissions more closely. 25 straight submissions with auto-decline notices, 4 months of sweat in closing a deal, and only a quarter of that 2% closing cost actually going into my pocket. That’s pre-tax by the way. Now I’m on their watch list.”
Somehow, somewhere at a funding company there was an underwriter out there talking about me being an annoying ISO. Fortunately, I appreciated the irony at the time and it was no hard feelings. I felt thankful for having had the experience on the other side of the table.
If you’re wondering if I went back to underwriting or gave up sales, I didn’t. I continued on as a sales rep and manually dialed hundreds of people a day for another three years. I really enjoyed the challenge and the motivation it sparked inside me. I ended up getting a lot of deals funded, though probably not enough to say that I was ever great at it. I launched deBanked while doing this believe it or not. Smile and dial during the day, type on the site at night. Oh those were the days.
The moral of my experience is that the grass is always greener on the other side and sometimes it takes walking a mile in another person’s shoes to really appreciate what they do. If you’re ever annoyed by someone you have to deal with or envious of whatever they’re getting, just know there’s probably more to the story. I hope this helps.
BOO! The deBanked Spooktacular is Coming in October (For Real)
September 25, 2023 Oh there’s a Broker event in New York alright, and it’s by deBanked on October 26. Join the industry for a deBanked Spooktacular at Bourbon & Branch in Midtown Manhattan.
Get right to the networking and fun in the hub of the industry and enjoy bundles of swag, an open bar, treats, and more. Costumes are welcome but not required. The tickets cost a fraction of other events. If you’re a broker, meet the funders and leave with a goodie bag you’ll never forget! deBanked and DailyFunder website advertisers get a special privilege. To find out what that is, email: larissa@debanked.com deBanked CONNECT MIAMI will follow on Jan 11, 2024 in Miami Beach.
|
As IRS Announces Pause of ERC Payouts, Businesses May Resume Pursuit of Upfront Alternatives
September 14, 2023
Across the web on internet forums such as Reddit, business owners accustomed to telling ERC filing war stories are starting to worry that their checks might not be coming any time soon.
“I spoke with an agent today. She said they received an organization-wide email to stop processing ERC for the time being,” one user reported at the end of August. Some users replied to say that it wasn’t true. But it is.
On July 26, IRS Commissioner Danny Werfel said that the IRS had cleared its backlog of valid ERC claims and is now “intensifying compliance work and putting in place additional procedures to deal with fraud in the program.”
“The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining,” Werfel said.
The IRS later confirmed to the Wall Street Journal that it had in fact slowed its processing of claims. There’s some truth in the assertion that the IRS had cleared out a major backlog before doing this.
In late June, for example, those same internet forums were abuzz with happy check recipients and a rush of optimism that the era of long processing wait times was coming to a close. The shift in sentiment had implications. For Finance ERC, a company that provides business owners with cash upfront in return for buying their future ERC receivables, the impact was immediate.
“[Early in] the summer we saw tremendous demand in our origination levels, April, May, and June, of companies coming to us with the mindset that the IRS was taking too long so they wanted to sell their ERC credit rather than wait,” said David Goldin, a Managing Member of Finance ERC. “And then we saw in our portfolio, which is large checks flowing in from the IRS all at once over the summer, and then we saw our demand for new customers fall off a cliff.”
The IRS cranking out checks had made people reconsider not wanting to wait.
“Psychologically, customers then would say, ‘why would I finance it, I’m going to be getting my check any day, my friend got his check, this one got his check…'”
But since then IRS checks slowed to a crawl, intentionally. And for all the talk about clearing the backlog, there were still 637,000 unprocessed 941-X forms (adjusted quarterly tax forms necessary for the credit) as of September 6th, not to mention that under current law, 2020 tax returns can be amended until April 2024, and 2021 returns can be amended until April 2025.
On September 14th, the IRS upped the ante of a delay to a total pause for new claims. “New claims for the employee retention credit, or ERC, won’t be processed until at least 2024,” the WSJ reported. The headline leaves little room for misinterpretation: IRS Shuts Door on New Pandemic Tax Credit Claims Until at Least 2024.
All of which means that business owners are now back to the waiting game and potentially back to considering upfront solutions. For Finance ERC, the company saw interest suddenly pick up and then accelerate since the first WSJ story came out.
“So I’m not saying the day that article came out, but we’ve definitely seen a spike in demand,” Goldin said. “My thing would be that for anyone that was selling [ERC financing], to think about that again, or those that weren’t selling it and they’re feeling that the MCA market is struggling, it’s too competitive, this is a new opportunity.”
Goldin shared this prior to the news breaking that the delay of ERC payouts had completely paused. Presumably, it would only make businesses more interested in getting the financing.
As he previously told deBanked, Finance ERC’s product requires no payments, can be eligible for up to 4-6x of what they would otherwise qualify for with an MCA, and can get it at a fraction of the cost of an MCA. But offering it can’t be done as an afterthought, he explained, even if you’re a big company with a big merchant portfolio.
“…you send out one or two emails you might as well not even send them out at all,” Goldin said.” Unless you’re actually embracing the product in your ecosystem, you know, drip marketing, follow up, you literally have to have a separate team selling it or it won’t work. But the guys that have done it, I know a few MCA guys that have, they’ve crushed it on both filing and funding. They’ve set up a separate group, separate sales guys, and they’re really killing it.”
And so the previous frontier of financing the ERC could now also be the next frontier yet again because of what’s taking place. On one subreddit, now that the reality is setting in, the tone has shifted.
“Has anyone tried contacting their state representative about the delay in refund?” The user began. He then adds that he’s already been waiting a whole year.
Experts: How GFE Went Big
September 6, 2023The Brewster Building is an icon in Long Island City, a bustling district of Queens that’s right across the water from Manhattan. Most people know the building as the official headquarters of JetBlue because their giant logo on the roof can be seen from miles away. Others identify it as a major corporate hub for The Estée Lauder Companies since they sublease a substantial amount of office space inside. But up on the eighth floor, men and women traversing the hallways in suits work for another employer that’s making a splash in a different industry altogether. The sign on their door says GFE, which is short for Global Funding Experts. It’s a company that provides working capital to small businesses nationwide and they just recently secured a senior debt facility of up to $100 million.
Boris Musheyev, GFE’s CEO, founded the company almost a decade ago with partner Viacheslav “Steve” Eliyayev. Musheyev was working mainly in real estate when he learned about an innovative way to support small businesses by purchasing their future receivables. A cautious investor, he didn’t just jump right in. Instead, he bided his time with research on how it worked. He crunched numbers and analyzed the risks before he was confident it was something he wanted to do.
“From the outset, I’ve only channeled funds into ventures I wholeheartedly believed would both succeed and offer genuine value,” Musheyev told deBanked. “This commitment was evident in 2013 when we began by investing our capital.”
Alas, Global Funding Experts was born. The company’s model is referral partner driven, meaning they rely on ISOs for submissions and there’s no internal sales force. Today, GFE has an estimated 1,500 ISOs signed up and they receive about 700 applications on an average day. It’s a level of scale that wouldn’t be possible if they didn’t have an efficient CRM, something Musheyev predicted the necessity and utility of long before. GFE began building its own proprietary CRM in 2017 and the company used that to accelerate growth beyond its early startup days.
With its momentum, GFE brought on Boris Shakhmurov to serve as COO in 2019, a traditional banking executive with 20 years experience. Shakhmurov was previously an Executive Director at JPMorgan Chase and had overseen mainly cybersecurity, technology controls, and compliance before making his move to GFE. The two Boris’s knew each other previously, having been friends for over 30 years already. At GFE, Shakhmurov’s pitch that “banks don’t lend to small businesses” lands differently given his background.
“As an expert in Governance, Risk, and Compliance, when I joined the organization in 2019, our goal was to establish a best-in-class MCA Operational Resilience framework to address current and future challenges facing our industry,” Shakhmurov said. “With a focus on building strong and resilient operational controls, we used a multidisciplinary approach to assess the risk across all of our information assets and business processes. The Zero Trust and Defense-in-Depth approach enabled us to focus on early detection, rapid response, enhanced protection, and reducing single points of failure throughout the entire MCA lifecycle.”
For all the technical talk, Shakhmurov said what really stands out is the firm’s family-like atmosphere, which one can see for themselves in their spacious office. That environment has been achieved all while tightly controlling and compartmentalizing access to data, the company says. Security is paramount.
With the infrastructure in place, GFE hired Jonathan Mayer to be their CFO, a veteran accountant who previously spent more than 10 years at Grant Thornton LLP. Mayer first met Musheyev and Shakhmurov in 2021 and he echoed a similar sentiment about how he ended up at GFE. “The work ethic and trust and family environment really stood out to me,” Mayer said.
Between Musheyev, Eliyayev, Shakhmurov, and Mayer, the firm was then off to the races, ultimately leading up to the securing of a debt facility last month of up to $100 million. A lot went into making that happen, including the enlistment of a well known industry law firm to perform the due diligence, they say.
“Through consistent communication with our merchants and operational adaptability, we’ve not only met but surpassed our profitability benchmarks, all the while ensuring minimal defaults in our portfolio,” Musheyev said.
The company also credits having a qualified CFO and robust CRM technology as being necessary ingredients to getting a serious deal done. GFE’s signature products include purchases of future receivables, reverse consolidations, and more recently something called “Incremental Funding.” There’s also no commission clawbacks, they tout. Overall, GFE has funded over $400 million in capital to small businesses since inception.
The executive team heaped praise on the staff for being integral to their success.
“What we have is trust,” Shakhmurov said, who comes back again and again to the importance of building a business that will endure. “If you look at the banking industry, you need operational resilience,” he said.
New York’s Fourth Department: Revenue Purchase Agreements Are Not Loans
August 25, 2023A lawsuit brought by Samson MCA LLC against Joseph A. Russo M.D. P.C./IV Therapeutics PLLC, DBA Aspire Med Spa & Joseph Russo & Marco V Beatrice has brought revenue purchase agreements back in to the legal spotlight in New York State. Once again its been affirmed that they’re not loans.
In May 2021, plaintiff Samson MCA sued defendants for breach of contract and won on summary judgment despite defendants’ contentions that the revenue purchase agreements at issue were actually “criminally usurious loans.” Defendant Marco V Beatrice appealed. After a very careful analysis of the agreements, a final decision was issued by the Appellate Division, Fourth Department on August 11, 2023.
“On appeal, [defendant] contends that the agreements are void because they are criminally usurious loans and that the court therefore erred in granting plaintiff’s motion and denying defendants’ cross-motion with respect to him,” the Court stated. “Thus, the central question before us is whether the two agreements were, in fact, revenue purchase agreements or whether they were, instead, loans.”
The Court said that when determining whether a transaction constitutes a loan, courts must determine whether the amount is repayable absolutely or under all circumstances:
“Usually, courts weigh three factors when determining whether repayment is absolute or contingent:
(1) whether there is a reconciliation provision in the agreement;
(2) whether the agreement has a finite term; and
(3) whether there is any recourse should the merchant declare bankruptcy”
Final decision:
Contrary to [defendant’s] contention, plaintiff established as a matter of law that the agreements were revenue purchase agreements rather than loans, and [defendant] failed to raise a triable issue of fact with respect thereto (see Principis Capital, LLC, 201 AD3d at 754). Here, the agreements submitted by plaintiff contained reconciliation provisions requiring the adjustment of the remittance amount upon request based on changes to the entity defendants’ revenues, and had no finite term and no payment schedule. Additionally, as noted, each agreement contained an acknowledgment “that [plaintiff] may never receive the purchased amount in the event that [the entity defendants’ business] does not generate sufficient revenue” and, for the most part, plaintiff did not have recourse in the event that the entity defendants declared bankruptcy (see Streamlined Consultants, Inc. v EBF Holdings LLC, 2022 WL 4368114, *5 [SD NY, Sept. 20, 2022, No. 21-CV-9528 (KMK)]).
We have reviewed [defendant’s] remaining contention and conclude that it does not warrant reversal or modification of the judgment.
The original lawsuit can be found under Index No. 129401/2021 in the New York Supreme Court.
Full decision by the Appellate Division, Fourth Judicial Department can be found here.
Only 1 Month Until deBanked CONNECT San Diego
August 21, 2023
There’s just one month until deBanked CONNECT San Diego. The Wyndham San Diego Bayside was thankfully spared any impact from the weather that passed through the area this past weekend, which means the big show is ON IN FULL FORCE! Here’s some of the speaking sessions you can expect to see:
Plus, take advantage of the incredible networking opportunities that a deBanked CONNECT event offers!
We’ll see you there!
My Unique Experience Running a Print Magazine
August 12, 2023
Two and a half years ago, the last ever physical version of deBanked Magazine rolled off the printer (Nov/Dec 2020). Some were shocked that we stopped it while those who knew the print business wondered how it had ever gone on for so long. It was a nice addition to our website, placing content in hard copy format and shipping it out to thousands of offices across the industry for a total of six times per year, every year. Covid disrupting the traditional office work arrangement made it impossible to keep a magazine going that had such a large percentage of office distribution. I wasn’t sad when I made the decision to cut the cord, more like relieved, for it was an extraordinarily tough product to consistently produce for very little return in exchange.
And that’s where my unique story begins. With an average print run of 3,000 – 4,000 per issue and distributed for free, our little b2b magazine left a big impression on many who received it. So much so that some subscribers began to wonder if the real lucrative business of this era weren’t all the financial products covered in the magazine but perhaps the magazine business itself! LOL. But on this I am not joking. Rumors spread and I found myself on the receiving end of both admiration and condemnation about how much profit people thought the magazine was probably making deBanked. The most common estimate I heard? That the magazine was guaranteed to be yielding at least $1 million per year just to myself personally after all the expenses. Which, man, would’ve been pretty awesome! Some threw out ballpark valuations for our magazine of $10 million (or even $100 million!!!!!) based upon assumptions that it made multiple millions a year in profit. Not the investment bankers of course, who knew better.
These numbers blew my mind, especially since I knew that they were very much rooted in complete delusional fantasy. If you want to know the truth, my internal personal valuation for our magazine had consistently been $0. This wasn’t some secret that I didn’t want anyone to know. I had just assumed it was obvious to all. I mean we were printing and mailing a free b2b magazine in the internet era. A magazine. A magazine…
In a good year, deBanked Magazine (when examined as a standalone) generated somewhere between $5,000 – $9,000 in total profit. That was with no salaries because it couldn’t afford even one full time employee dedicated to working on it. Not even myself got paid from it. The personal financial benefit to me throughout was a whopping $0. Thus with its extremely tight budget I played the role that a normal publication might have five people for in addition to working with a small number of freelancers for help in order to do the parts I couldn’t. I spent nights proofreading with a highlighter and days trying to figure out how we were going to fill up 30+ pages in a single issue. It was an incredible amount of work and truthfully, I really enjoyed it, which was the entire reason it existed in the first place. I thought it was a cool way to reach people that maybe weren’t reading our website and it provided us with a channel to create some long form stories we otherwise wouldn’t have created. I did not have one ounce of regret throughout that it was not a great financial business to be in and I promised myself I would just do it until I didn’t want to do it anymore or it started to generate a standalone loss.
But I admit the experience was slightly marred by the perception of how much some believed we were making from it. Everybody seemed to know somebody who had been in the magazine business and had apparently become a billionaire from it. They supposedly knew all the numbers, assumed our numbers, and as a result it made any humility I exhibited about it come off as disingenuous. I actually ended up becoming the target of some unusual hostility that I could not seem to shake about its “success,” no matter how obvious on its face that it wasn’t what they thought. There are those that will apparently take what they see and invent numbers off of how something looks and then tell others that those are the real numbers. I guess you live and learn.
And so when my wife questioned why she sometimes found me sitting at the dining room table at 2am hunched over a stack of crumpled printer paper with yellow markers on one side and a cup of coffee on the other, I made sure to tell her that what she was seeing was a billion dollars in wealth creation. My big find of the night might be that a product that wasn’t a loan had been characterized erroneously with loan-like language.
“Page 27, left column, 4th paragraph down, 3rd sentence, it says ‘repay,'” I’d write off to the printing press who was under the assumption that it was otherwise all ready to be scheduled for a job. “It shouldn’t say repay, it should say….”
Which was then replaced by something too long or too short that threw off the page count of the book and I’d wake up 3 hours later to be told that they’d need me to draw a chart, create a half page article, or maybe curate some photos to take up some space. “Also, there’s something wrong with the bleed on page 4 and these other photos you sent are RGB not CMYK,” I’d be told. “This needs to be fixed right now to meet the new deadline because you already missed the last deadline.”
Such is the mystical story of it all, the coming together of words on paper that then got sent in the mail. A good number of people enjoyed them. That was the reward. When it could no longer break even despite having no employees, I made the call to cut it. It was a lot of fun to be in print while it lasted. Also a heck of a lot of work. We tried a digital only version for a while thereafter but it just wasn’t the same.
I have a tendency to sell things at just about our cost of doing them because I know other companies have tight budgets. The hope is that people will like what we’re doing, it’ll have a positive impact, and they’ll want more of it. That’s pretty much what makes me tick. Had I another motive and the temperament for it, I’d be out there doing all the stuff that the people I write about are doing. It does look fun, but it also looks like a lot of hard work!
I don’t believe the magazine will ever come back, but I’ll never forget the experience of doing it.
The New York Disclosure Law is Here
August 1, 2023
The New York commercial financing disclosure law has arrived. Are you in compliance with it?
The 53-page requirements can be viewed here.
While the law is similar to the one recently rolled out in California, there may be some key differences. Your best bet is to contact a lawyer that is equipped to help you with this very thing. If you need a recommendation for one, email me at sean@debanked.com.
If you have no idea what this disclosure law thing in New York is all about, you need to catch up ASAP! This law was passed in 2020 and went through a formal rule-making process that lasted years. The rules were finalized on February 1, 2023 and were mandated to go into effect six months from that date.
Here’s a map of what you should be paying attention to right now!
