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
$4 Million Merchant Cash Advance Funded by Strategic Funding Source
August 23, 2011
Very reliable sources indicate that New York based Merchant Cash Advance funder, Strategic Funding Source(SFS), has inked a $4 Million Merchant Cash Advance with a big name business in Las Vegas. Without revealing who the recipient is, they seem to be very pleased with the outcome. They reportedly stated, “Strategic provided us with a very unique financing solution that gave us the final $4 million needed to complete the project and launch the company. Without their help and creativity, especially in this difficult economy, our completion may have not happened.”
To date, this would be the largest Merchant Cash Advance on record. It comes as no surprise that it came from SFS, one of the most experienced firms in the industry. Coincidentally, we recently singled them out in an article (Who is Really Getting a $250,000 Merchant Cash Advance?) as being one of the few firms capable of handling a million dollar deal.
It’s also worth mentioning that SFS is leading the Merchant Cash Advance industry in a new direction, in a way that resembles peer 2 peer(p2p) lending models like Prosper.com. Operating under the name Colonial Funding Network, investors have the ability to contribute their own funds towards a Merchant Cash Advance. The account is then serviced by SFS in return for a fee. Small businesses ultimately benefit since this creates a larger base of funds to draw from. To read more on our thoughts on how the p2p model is reshaping the industry, check out: The Direct Funder Model is SO 2009 or P2P Merchant Cash Advance Model Already Exists. To read up more on SFS and Colonial Funding Network, visit their site directly.
-The Merchant Cash Advance Resource
http://www.merchantcashadvanceresource.com
Photo copyrighted by: 123RF
When Average Credit is Better Than Excellent Credit: Data Points
August 23, 2011
Back in the wild days of Merchant Cash Advance(MCA), credit score was not only unimportant to the underwriting process, but irrelevant altogether. Business owners with FICO scores reaching down into the 300’s were obtaining 150% of their monthly average processing volume without question. That era came to an end and with good reason. Defaults and losses soared and some funding providers went under. If ignoring credit had continued, it may have lead to the industry’s demise.
In some respects, MCA providers overcompensated by making credit score the only factor, rather than simply incorporating it into the complete underwriting analysis. “FICO Under 500? Declined”, “Less than 550? No thanks!” “Under 600, Don’t bother”. This became the status quo during the conservative years of MCA. And yet business owners with credit scores as high as 800 were ending up in default. After much head scratching, some underwriters began digging a bit deeper. A healthy community burns out all at once in February, an entire industry underperforms, historical cash flow activity predicts survival rate, multiple partner businesses do better than sole proprietorships… While these were just an example of conclusions that could be reached, they’re all potentially part of an underwriting system, a system built on data points. We found a great example on an old personal blog of Jeff Mitelman, the CEO of Canadian based funding source, Advanceit. To quote Jeff,
“Here’s a practical application of using data points:
Merchant A has a restaurant in PEI, below average credit, a maxed out credit card & has applied for a $25,000 advance in June.
Merchant B has a restaurant in Southern Ontario, excellent credit & has applied for $50,000 in January.
With this information alone, B is clearly the better decision.
Now consider this new insight into the transactional history of accounts with similar characteristics that only a knowledge base can provide Advanceit has funded 50 restaurants in PEI, 47 of which have repaid without issue. The two of the 3 that didn’t repay stopped transacting in January. The historical credit card sales of restaurants in PEI peek in July & hit their lowest point in December.
Advanceit has funded 25 restaurants in Southern Ontario, 18 of which have gone to collections, 10 of which had write offs below the funded amount. Of the 10 losses, 8 of them occurred in March. The historical credit card sales of restaurants in Southern Ontario peek in December & hit their lowest point in February.
When evaluating the same two merchants through this lens, A is a no brainer & B is a recipe for disaster.“
A lot of the veteran MCA providers already implement a type of data points system, whether it be an objective scoring model or something more subjective. With the surge of many small ISOs putting their skin in the game and funding their own accounts, this advice should be not overlooked. Without data points, you’re shooting in the dark. Do not forget that your data points need substance either. If the only account funded in the State of Wyoming defaults, that should not be sufficient to cast off all businesses in Wyoming.
Credit is not the only factor, nor is it a solid predictor of the future. It’s a solitary piece of the Merchant Cash Advance puzzle. Don’t believe us? Take it from Jeff, it’s a game of “Learning by Losing.” Do your best.
– The Merchant Cash Advance Resource
http://www.merchantcashadvanceresource.com
Image copyrighted by 123RF
A Merchant Cash Advance Company Says ‘Done Deal’
August 23, 2011
New York based Merchant Cash Advance(MCA) provider Merchant Cash and Capital(MCC) is putting their money where their mouth is and getting creative in the underwriting process. A far cry from black and white bank methodology, MCC has approved merchants whose businesses have been to hell and back. While financially sustainable in the long run, these merchants faced short term obstacles that required someone to dig deeper, try harder, and ultimately believe in them.
Coincidentally, we got ahold of this right after publishing an article that criticized ‘credit score only’ underwriting models (When Average Credit is Better Than Excellent Credit – Data Points). MCC offers proof of advanced analysis in a promotional flyer, titled “Done Deal.” The challenges include a restaurant that was temporarily closed, a movie theatre facing frivolous lawsuits, and a tough industry with declining sales. While we can’t comment on their success, it’s the kind of work that requires a big thumbs up from the small business community. Countless merchants have surely found themselves uttering these words at some point or another: “If I can just get the capital to get over this one small obstacle, I know I’ll make it. Who will listen to my story and help?” We urge these merchants to keep the faith and find a MCA provider that suits your needs.
It’s also worth mentioning that 2 of the 3 case studies offered by MCC were six figure deals. We recently singled them out as one of three industry giants (Who is Really Getting a $250,000 Merchant Cash Advance?) that were most capable of funding up to $1,000,000. Right on the mark and right on schedule, Strategic Funding Source, another New York based provider, announced the closing of a $4 Million deal just last week.
Remember where you heard it! The Merchant Cash Advance Resource is providing a play by play of an industry that is quickly gaining ground on their distant, overhyped challenger, SBA Loans. The gap is narrowing and businesses are benefitting. “Done Deal!”
-The Merchant Cash Advance Resource
No New SBA Loans Being Accepted. Don’t Understand? We’ll Draw You a Picture
August 23, 2011
On September 27, 2010, the Small Business Administration(SBA) temporarily sweetened the deal on the popular 7(a) loans. As part of the Small Business Jobs Act, government backed default guaranties rose to 90% and many of the major fees were waived.
By late December, the funds for this program had been fully allocated and exhausted. But the announcement was poorly communicated, resulting in thousands of unsuspecting bankers and applicants left stranded and confused. To deal with the drama, the SBA set up queues, where applicants were either placed on standby to take the place of a cancelled Jobs Act loan or to be transitioned into the regular 7(a) loan without the deal sweeteners.
But leave it to the SBA to underestimate the intelligence of their clients. Worried that bankers and business owners might not understand the concept of closing one program and offering them another, they drew a picture.
Actual image being used on SBA.gov to explain the status of Jobs Act loans
In case the phrase “No New Loans Being Accepted” is obscure and cryptic, we can decipher the message using the Daily Transition Phase Alert meter. It’s a state of the art, super genius meter, that was handcrafted by NASA scientists, and topped off with the modern pizazz of a traffic light. Green is GOOD. Red is BAD. Big dollar sign GOOD. Small dollar sign BAD. If the meter is yellow, speed up and try to beat the light but make sure there are no cops behind you first.
Bankers should start using this system en masse. Instead of an outright decline, they can simply inform applicants that their lending ability is in Phase Red. Persistent businesess can take their chances in the underwriting process and battle it out using the Daily Transition Phase Alert meter 2.0. Left foot on $. Right hand on. But watch out for blue because blue is very bad! Blue automatically allows the bank to raise your business checking account fees and increase your credit card processing rates.
The Amazing Daily Transition Phase Alert Meter 2.0!
While your bank is busy playing games with you (they’re not just mind games anymore!), alternative financial firms such as Merchant Cash Advance providers are busy funding applicants in less than 7 days on average. The process is easy, only minimal paperwork is required, it’s credit score flexible, and every business is doing it these days. Want to find out the status of your Merchant Cash Advance application? We’ll hand draw you a picture:
Choose your funding source wisely…
– The Merchant Cash Advance Resource
Merchant Cash Advance in California
August 23, 2011
For no reason in particular, we advise you tread carefully in California.
-The Merchant Cash Advance Resource
Debit Interchange Fee Study Act: A Few Good Senators Try to Stop the Madness
August 23, 2011Originally published on March 17, 2011.
What started as a citizen revolt against Wall Street to both punish them for the previous recession and prevent another one, has now morphed and devolved into a personal battle that threatens to eliminate the use of money altogether.
JPMorgan Chase, one of the largest card issuers in the world recently stated the legislation may force them to limit the amount a consumer can spend in a single debit card transaction to as low as $50. Need a full tank of gas? You better bring cash!
The Durbin Amendment of the Wall Street Reform and Consumer Protection Act will instate a flat 12 cent cap on Debit Card “interchange fees” effective as of July, 2011. The media communicated this cap as a “flat swipe fee”, a term used in such incorrect context that it has even confused executives of major card processors. How can public opinion be formed or swayed when the media and quite possibly the Senators and Congressman that passed the law fail to understand what “interchange fees” actually are and who they are paid to?
The original 176 page study and law can be downloaded here. It outlines on page 7 what they believe to be a 5 party system. It actually refers to it as a 4 party system and then corrects itself in the footnotes.
- Party #1 – The Cardholder/Customer
- Party #2 – The Card Issuing Bank (The bank that gave the customer the card. aka Wells Fargo, Bank of America, etc.)
- Party #3 – The Business/Merchant That is Accepting the Card as Payment
- Party #4 – The Acquiring Bank (The bank that allows the merchant to accept a credit card and services their account)
- Party #5 – The Payment Network (Visa or MasterCard or whichever brand’s logo is indicated on the card or used to transfer information from the merchant’s Acquiring Bank over to the customer’s Card Issuing Bank.)
Party #4 consists of multiple layers including companies that do all or just one of: marketing and underwriting the risk of the debit card accounts, processing the payments, receiving and providing settlement for the transactions, and maintaining the reports while offering support to the merchant.
Add that to the fact that the Federal Reserve at times seems to misuse “interchange fees.” Interchange fees are associated only with Party #2, the Card Issuing bank. The bulk of the report does indeed seem to limit the scope of the 12 cent cap to Card Issuing Banks. That implies and makes evident that the overall swipe fee that merchants pay will not have any such cap at all, but party #2 will be greatly affected. Since the Acquiring Banks are not clearly defined as subject to inclusion in the cap (it’s mentioned vaguely in a few paragraphs and footnotes), then the media frenzied reporting of a “12 cent swipe fee” would not be true at all. The Acquiring Banks and all the layers within them could fill the gap and keep the overall swipe fee that a merchant pays, the same. D’oh!
But Card Issuing banks are up in arms because the cap is impossible to sustain and it is even acknowledged in the report. The report quotes, “An issuer with costs above the cap would not receive interchange fees to cover those higher costs. As a result, a high-cost issuer would have an incentive to reduce its costs in order to avoid a penalty.” With millions of people in the industry, does the Federal Reserve really think that banks have at no point considered how to reduce costs already?
Too Rich?
As hard working Americans, we so badly want “Wall Street” and the “Big Banks” to simply be a handful of arrogant individuals in overpriced suits, drinking fine wines, while chatting about their new private jets and weekend trips to Paris. But instead the financial services industry employs millions of individuals, many who make less than $35,000/ year.
How many administrative assistants, customer support reps, technical support reps, risk analysts, underwriters, fraud prevention managers, internal IT & systems support reps, compliance officers, bookkeepers, internal auditors, salesmen, marketers, lawyers, and handlers of human resources do you think are employed in the electronic payments industry?
If these jobs were lost or affected, consider the consequences to the businesses that support them. How many supply companies sell them paper, business cards, printer ink, pens, and staplers? How many accountants do their books? How many IT companies sell them computer hardware and technology? These millions of workers do not starve to death, but rather eat breakfast and lunches at restaurants and cafes near their offices. How many restaurants and cafes depend on their business? How many cleaning services have contracts to maintain their offices? How many dealerships sell these workers cars?
How many of these people are doing the job just to support their families? We are not using the face of the hard working middle class to support our argument, but they will certainly become unwitting victims. While the contributors to our site are involved in the electronic payments industry, we are not executives, higher ups, or even rich. The site’s core message is to guide business owners to get the best deal in an industry that is already highly competitive and tough to understand.
Let us state this: Some banks have excessive profits and some executives in the payment industry are just a little too rich for comfort. But cutting what many experts are saying is $14 Billion dollars worth of revenue as of the result of this legislation isn’t going to affect the big guys, it’s going to clamp down on the little ones.
Didn’t the Article Title Mention Something about Senators?
Some may consider our message to be astroturfing but we’re just explaining the other side of the story. Before we regulate ourselves into a world without debit cards and the loss of a few milliion jobs, we applaud a few good Senators for introducing the Debit Interchange Fee Study Act of 2011. It aims to delay the Durbin Amendment for 2 years until a better system can be created. We like to think of it as taking a deep breath, composing ourselves, and then really trying to tackle the issue.
The sponsors of the Act are:
- Jon Tester D-Montana
- Bob Corker R-Tennessee
- John Kyl R-Arizona
- Ben Nelson D-Nebraska
- Tom Carper D-Delaware
- Chris Coons D-Delaware (What would Christine O’Donnell have done?)
- Pat Roberts R-Kansas
- Mike Lee R-Utah
- Pat Toomey R-Pennsylvania
Everyone wants lower costs but let’s do it right.
– deBanked
