ACH Advances
Catch up with Alternative Business Lending
May 7, 2013
If you feel like you’re falling behind on the news, you’re not alone. Things are happening FAST. here’s what you need to know:
5/7/13: Google Looks to Profit from Alternative Lending. Say hello to Mother Google.
5/6/13: Forbes interview with a Kabbage co-founder. It did not sound like they plan on remaining exclusive to the e-commerce side of business lending.
5/3/13: Summary of the ETA Expo. ACH is now the leading platform behind Merchant Cash Advance.
5/2/13: Google Acquires a Stake in Lending Club. This of course begged the question that was asked in BusinessWeek the next day on 5/3/13 in Does Google Want to be a Small Business Lender?
5/2/13: IOU Central smashes last year’s numbers. Publicly traded in Canada, this funder is only picking up steam.
5/1/13: Google Ventures and Peter Thiel invest in On Deck Capital. How’s that for big names?
5/1/13: My Silicon Valley VC prediction comes true with the On Deck and Lending Club announcements.
4/24/13: Business Financial Services Upgrades to $82 million credit facility. Not too shabby
4/24/13: IOU Central renews their credit facility.
4/24/13: Rumors begin to swirl that Amerimerchant has also landed a new credit facility. We have no confirmation on this.
How’s that for a 2 week span and those are just some of the headlines. More news is on the way as we are hearing rumors galore.
Be sure to join the industry chatter about these developments on DailyFunder in these 2 hot threads:
Google investing in the industry
OnDeck vs. Kabbage
I made another prediction back in February 2012 (Does Your Mom Sell Merchant Cash Advance?) in which I said consolidation was inevitable. With all these funders raising massive capital, mergers and acquisitions will be next on the agenda.
ETA Expo Recap
May 3, 2013
Recap of the ETA Expo as it pertains to Merchant Cash Advance:
- Just about every funder has an ACH program or is working on implementing one.
- Many funders are licensed lenders or are working to become licensed in the states where it may be necessary. There actually seemed to be a lot of excitement about this. Funders are finding comfort in being subject to state mandated regulations as it probably raises their legitimacy and it will make their businesses easier to value when trying to raise money or sell.
- The ACH repayment market will be larger than the split-funding market this year. There’s no doubt in my mind about this. That means that ACH funding is now the primary protocol behind Merchant Cash Advance.
- Almost everyone is working hard to build up their technology. I got a personal demo of RetailCapital’s ISO/Agent system in addition to Capital Access Network’s new CapTap. Both are great. Capital Stack also has a beautiful platform.
- Stacking is the issue of 2013 as I heard that word uttered probably every 30 seconds for a whole week. I know the NAMAA folks are talking about it but I don’t know what the consensus is. It’s important to keep in mind that many funders aren’t NAMAA members and that affects NAMAA’s ability to dictate policy. Capital Access Network, the largest funder in the industry isn’t even a member.
- Speaking of NAMAA, they refaced their website and it looks A LOT better. I see only 14 members listed but it’s my understanding that there are closer to 20 of them.
- Factor rates are all over the place. Swift Capital has a new 1.099 program, which has got to be the first one to fall under the 10% threshold aside from Amex’s Merchant Financing. Higher risk deals however still operate in the 1.49 and up range. There is no one-size-fits-all product anymore.
- There were several direct lenders walking around that I had never heard of and they are apparently doing significant monthly volume. More and more people are getting into the funding business.
- It’s exhausting trying to keep up with the news surrounding On Deck Capital. They are on a very deliberate path and what we keeping seeing and hearing is them just checking things off on their to-do list. I bullet-pointed my theory on DailyFunder in response to a few posts.
- Discover and Priority Payments threw great parties.
- New Orleans has a lot of charm.
Make sure to check out my updates and photos that I’ve finally posted from the ETA Expo on DailyFunder and feel free to add your own if you were there.
Dozens of photos from the show
Also read: Soul Mates: Merchant Cash Advance and Silicon Valley VCs
Soul Mates: Merchant Cash Advance and Silicon Valley VCs
May 1, 2013
Almost 1 year ago to the day, I wrote a piece titled How the Facebook IPO Affects the Merchant Cash Advance Industry. In a most fitting way to commemorate this anniversary, it was reported early this morning that Google Ventures and Peter Thiel are investing in On Deck Capital (“ODC”) through additional Series D Financing. Thiel is especially symbolic in this case as he was the first outside investor in Facebook back in 2004.
But don’t expect Jesse Eisenberg to be called upon to play Noah Breslow or Mitch Jacobs in a movie about small business lending just yet, as the ODC story is a tad less revolutionary than facebook. Or maybe it’s not. Google Ventures is not one of the usual backing suspects in the MCA industry, but their involvement in this case is a perfect validation of my prediction 1 year ago.
Merchant Cash Advance financing turns 15 this year and split-funding goes back more than two decades, but the best of times are just beginning. On September 19, 2012 I bid farewell to an era and made my case for the one I foresaw on the horizon. Facebook wasn’t the first social network on the Internet, nor was their concept original, but they changed how we interact with strangers, friends, and family members online forever. There is a familiar trend with ODC and even Kabbage, two names that every journalist appears obligated to mention these days when writing about Main Street. Perhaps their technology based approaches send a tingle up the leg of the mainstream media or maybe they’re just really changing the game. They definitely appeal to the Silicon Valley crowd in a way that the old guard of Merchant Cash Advance companies apparently do not.
“Old guard, did you just say old guard?!”
Contrary to urban myth, On Deck Capital and Kabbage are not taking on small businesses all by themselves. They are but a fraction of the overall alternative business lending market with the leaders being anything but old guard. Debt and Equity are pouring into these firms and there are no signs of it letting up any time soon. I can’t go a day without a fund, lender, or investor reaching out to me in some way with the hope that I can steer them to a funding provider in need of a capital raise. Their options to get in now are running low and my advice to them is to set your sights lower on ISOs. The big funders have got capital covered and the ISO market is the next gold rush.
The industry can’t grow without originations and most funders depend on some level of ISO business (a few entirely) to hit their benchmarks month after month. So the funders do their job well, but the lead generators are driving a large percentage of the growth.
In March, I attended the Search Marketing Expo in Silicon Valley. In a sheer twist of fate, at the same time a Merchant Cash Advance guy like myself was touring the campuses of Facebook and Google, it appears that Facebook and Google were busy touring the campuses of a Merchant Cash Advance company.
The connection between Silicon Valley and alternative business lending is beginning to run deep, very deep. I think we’re soulmates. Only time will tell.
Follow us at the ETA Expo
April 30, 2013May 3, 1:00am: I underestimated how easy it would be to make frequent updates. Wednesday was fantastic. I uploaded a couple dozen photos and updates all at once earlier today over on DailyFunder. As soon as the show was over, I found myself on Bourbon Street at the Discover party followed by the Priority Payments party. Both were a great time.
My Recap of the show is up now: ETA Expo Recap
Soul Mates: Merchant Cash Advance and Silicon Valley VCs
Original story about On Deck Capital’s investment from Google Ventures and Peter Thiel
My theory on why On Deck Capital took a paltry $17 million from Google Ventures and Peter Thiel
Photos and updates from the ETA
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May 1, 1:00am: Great start to the show this evening. Merchant Cash Advance providers and alternative business lenders continue to have a very strong presence in the payments industry. The booths I saw include: RetailCapital, NextWave Funding, Merchant Cash Group, On Deck Capital, Capital Access Network, Strategic Funding Source, American Finance Solutions, Swift Capital, MotherFund, and Principis Capital. GRP Funding and Paramount Merchant Funding are also on the exhibitor list but I didn’t spot their booths yet. That’s pretty substantial and it omits the major presence of Merchant Cash Advance companies that aren’t exhibiting. I bumped into Merchant Cash and Capital.
I met the guys behind Super G Funding which lends money against residuals. They’re great guys and they have such a unique role in the industry.
I think every funder I spoke with was quick to mention that they do 12 month deals and either offer direct debit repayment or will have it soon. The ACH train has disrupted the split-funding market pretty severely though many funders continue to do big numbers via split.
Nobody seemed to have an appetite for low FICO score deals (500s and below) except for Merchant Cash Group which target the higher risk market intentionally. And when I say “don’t have an appetite for,” I literally mean when asking a funder if they do below 500 credit, the answer is some version of “HECK NO!!”
Overall tone, and perhaps its because opening night included open bar, but it was very optimistic. Most funders seemed intent on expanding and are eager to service as much business as possible. I definitely get that sense that there is a real focus these days on the bigger fish ISOs ($1 million+ in referral business a month). When newbie brokers enter the space, funders spend an enormous amount of resources developing them and many times they just don’t pan out. Either the brokers don’t have the capacity to do more than a handful of deals, or they just don’t “get it.”
If you’re a mom and pop ISO and you have just 1 or 2 deals a month, it’s more difficult these days to get time and attention from a funder. Capital is flooding into the industry and everybody wants partners that can produce volume. From a resource standpoint, the “1 and done” reps are not an efficient use of time.
Big ISOs have a lot of negotiating power at their disposal these days. In the last 7 years, it was good to be an ISO, then hard to be an ISO and now it’s good again. Many things in MCA have a weird way of going full circle. Hope to see you on Wednesday.
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Apr 30, 1:00am: 
Merchant Processing Resource will be publishing updates as often as we can from the ETA Expo in New Orleans. I am very excited to be down here. Earlier today I had the opportunity to eat beignets at Cafe Du Monde, visit the French Market District, and take a ride on the Natchez Steamboat on the Mississippi River. But starting Tuesday, it’s all business. A schedule of events can be found on the ETA’s website.
You can follow along with everyone else in town on twitter using #ETAExpo2013 or #ETAExpo13
and of course via the DailyFunder Merchant Cash Advance iPhone App.
Some pre-conference tweets:
ETA Expo 2013 on Twitter
pre-conference tweets
Storified by Sean M· Mon, Apr 29 2013 22:21:50
Here’s to learning, networking, and having fun!
– Merchant Processing Resource
https://debanked.com
It Got Said – Merchant Cash Advance – Friday Fun
April 26, 2013In honor of Friday, we’re having some fun…
Caught on twitter
And Also
Business Financial Services landed an $82 million credit line
A third industry captain will be joining DailyFunder’s CEO Corner early next week at the ETA Expo. Stay tuned! Read articles put out by two other MCA CEOs.
Sean of Merchant Processing Resource and the DailyFunder co-founders will be on the trade show floor of the ETA Expo next week. Considerable time will be spent at Merchant Cash Group‘s exhibit at booth #751 and a guest appearance at Strategic Funding Source‘s booth at #916. We’d love to see you there. Make sure you download the DailyFunder iPhone app as we will try to maintain a live blog of the events.
Funding Restaurants is Risky Business
April 22, 2013
Perhaps as a fitting follow up to our recent post on Merchant Cash Advance Default Rates, an article in the Dispatch reveals that of all the businesses getting SBA loans, restaurant franchises are the worst performers. WHAT?! You read that right, but many of us have been saying this all along. Retail and restaurants are inherently high risk and that’s partially why they’ve been the bread and butter of the Merchant Cash Advance industry for so long. A friend of mine works in the commercial lending department of a major bank and he’s told me bluntly many times that their POLICY when it comes to restaurant loan applications is to decline 100% of the time. They don’t care if they have 800 credit, 40 years in business and 50 locations, the default rate is just too damn high and not worth the risk. Now the bank doesn’t come out and market this publicly and that’s why I haven’t identified my friend or the name of the bank, but when you see the numbers, it makes sense.
The SBA states that 20% of their guaranteed loans default
- Of the loans that defaulted, more than 50% of them defaulted before they were 20% paid in
- Of the loans that defaulted, more than 33% of them defaulted before they were 10% paid in
- Of the loans that defaulted, more than 7% of them defaulted before making a single payment towards the principle
The Dispatch points out that the SBA guarantees higher risk loans, as if that somehow justifies these statistics. The maximum allowable interest rate on a 7(a) loan with a maturity under 7 years is prime + 2.25%. Right now prime is 3.25%. Think about this… the interest rate is 5.5% and the default rate is 20%. Most businesses default without hardly paying anything. The taxpayers eat the billion dollar losses that result and Main Street America goes on believing that an interest rate below 6% is reasonable.
In the private sector, there is no government body sweeping billions of dollars in losses under the rug. Alternative lenders like Merchant Cash Advance providers are on their own to price deals efficiently and rationally. As you might guess, that price is usually MUCH higher than 5.5%. Many funders charging in excess of 40% barely break even at the end of the year, and some go out of business. Think about it… many businesses they support don’t even qualify for an SBA loan and the default rate on those is 20%. To operate in such a risky market, many try to hedge those risks by setting daily payments as opposed to monthly, and setting the loan term to 1 year or less. Even then, economic swings and competition have a way of making sustainability difficult.
On another note, here we have the SBA stating that 20% of their loans default, many before making even a dent in the principle and we have some alternative business lenders targeting an even riskier market that is claiming default rates of 2-5%. Something doesn’t add up here. Just saying…
Merchant Cash Network Hosts MCA Info Session
April 20, 2013I recently had the opportunity to sit in on an informational session for small business owners hosted by New York City based ISO, Merchant Cash Network (MCN). On Wednesday April 10th, small businesses packed into a room at 1375 Broadway to learn about alternative financing with a focus on Merchant Cash Advance. MCN’s vast knowledge on the subject was obvious and I definitely believe these grass roots sessions are an excellent way to both educate the public and to bring businesses together to network. Great work guys!
