$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
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
Get 25% Off Your Next Merchant Cash Advance – Funding Coupons?
August 23, 2011
Still get excited about the coupons tucked neatly into the Sunday newspaper? Savvy shoppers can still spot the special deals. 40% off Post Cereal Products, Buy One Pint of Breyers Ice Cream and Get One Free, and $25 off your next Merchant Cash Advance. Wait….what?
By sheer coincidence, we randomly stumbled across this on the internet:
Get $25 Cash Back Discount on Merchant Cash Group
Merchant Cash Group COUPON
This is as seen on iCouponBlog.com. We have witnessed special promotion offers in the industry before, but never in the form of an actual coupon.
Considering a Merchant Cash Advance is actually a sale of the merchant’s future receivables to the funding provider, one must wonder if Merchant Cash Group would be the one redeeming their own coupon to get an even steeper discount. They are in actuality the buyer in the transaction after all. Food for thought!
Some of you may know Merchant Cash Group as the Direct Funder in Gainesville, FL. Word has it that they are pretty good people. They have not contributed to this article, nor have we informed them of it. We will gladly share any comment they have on this. The same goes for all our readers.
As a special treat, we’re offering this, “Get 50% OFF on Your Next Article Comment!” Limited time offer. Special Restrictions May Apply.
– The Merchant Cash Advance Resource
What’s Going on in California?
August 23, 2011
The people have spoken! Many of our readers have sent e-mails wondering why we don’t have any coverage on the recent events in California. So here goes:
If you’re out of the loop, a nearly 3 year old lawsuit against one of the major Merchant Cash Advance (MCA) providers is coming to a close. Their name is not important, but it is a firm we revere still to this day. The story takes place in California, where a group of merchants in 2008 contested their Merchant Cash Advance was actually a loan, not a sale. In the other 49 states, MCA has been virtually undisputed for years but California law has shades of Gray.
There is one cardinal rule for making a loan in California and that’s to be licensed to do so. The case struck at the heart of what MCA is all about, a sale of future card payment receivables for a discounted price today. So why would a buyer of future cash flows need a lending license? The answer is not a short one and it was a heated debate that spanned 3 years.
It comes as no surprise that the end result was a stalemate. Both sides exhausted their time and energy until they called it quits with a settlement. Over $4 Million dollars will be paid to the legal team representing the plaintiffs. That’s big bucks for a group that was unable to prove over the course of 3 years the need for a lending license to conduct a sale.
While the affected merchants, attorneys, and the MCA provider are eager to move on, a particular California law firm seems to have grabbed the baton. As of early March 2011, at least 3 other MCA providers are now facing the same situation. We’ve seen the court filings and it’s essentially the same challenge and question of licensed lending.
However, when considering the absolute unlikelihood that these independent lawsuits would have come together at the same time without extreme goading by their class representation attorneys, we are highly suspicious of the motives behind them. The timing implies that merchants funded by MCA provider A, MCA provider B, and MCA provider C all approached the same law firm at the same time with the same problem. This may have been possible if each provider structured a deal in the exact same manner. Rather, each provider used different contract language and there is no commonality between them outside of the tendency to all describe their product as a “Merchant Cash Advance”.
We are therefore inclined to believe this law firm is taking the “throw shit at the wall and hope something sticks” approach. Keen to the $4 Million windfall to be reaped in the case described above, it is reasonable to believe these attorneys went searching for customers of all MCA providers and invited them to be plaintiffs in their frivolous suits. There’s no precedence that they’ll win, but there is for a settlement, and a settlement could mean millions of dollars in representation fees.
Some of The Merchant Cash Advance Resource’s top connections can attest that this particular law firm spent a substantial amount of time surfing the net for all MCA providers in California. Using their web traffic analytics and tracing the activity to their domain name, it certainly appears they’re going shopping for “victims.” If we are right, expect more lawsuits from them in the next few months.
To add insult to injury, these events coincide with tough economic times. MCAs are widely celebrated as the easiest, most flexible financial option available to small businesses today. Over half a billion dollars was funded in 2010 alone. With the Federal Government struggling to do the same, it is troubling that a few slick lawyers are seeking to take the lifeline away.
Treasury offers funds to spur business lending
The SBA is in shambles, the unemployment rate is extraordinary, and banks are unwilling to lend. That’s not a great combination for America’s small business owner. Fortunately MCA providers have filled the gap. If steps are taken to discourage them from operating in California, millions of dollars will disappear from the state’s economy. That means less jobs, less sales, and less growth. And if that day should come, don’t point the finger at the Governor, The Federal Reserve, Obama, or the banks. You’ll be able to thank a few lawyers that robbed Californians for their own personal gain. The truth hurts.
– The Merchant Cash Advance Resource
