Immigrating From Cuba With “Nothing in my pockets,” to a CEO Funding $12 Million a Month
December 15, 2020
“Work hard, don’t ask questions, and good things will happen to you,” Frank Ebanks described his keys to success in the MCA world. “Being Positive, working hard, and keeping my eyes open: If I hadn’t been looking for opportunities at 2 am in the morning on Craigslist, I would have never known about this industry, but it’s huge, it’s such a big industry.”
Ebanks started what would become Spartan Capital shortly after seeing an ad calling for startup investors in an industry Ebanks had never heard of, called Merchant Cash Advance.
It was around 2016. Ebanks was up late in the NYU university library, putting himself through an MBA while working as a reactor operator at the Indian Point nuclear power plant in Westchester.
Despite the job security Ebanks enjoyed, he said he wasn’t happy with his career, wasn’t getting the satisfaction he wanted. He had already made it a long way— starting before the millennium as a Cuban immigrant, immigrating to the Dominican Republic in 1998 and then Florida in 2002 with empty pockets. Shortly after arriving, Ebanks enlisted.
“I spent some time in the army; I wanted to put in some time,” Ebanks said. “I said: ‘I’m a new immigrant, what’s the best thing that I could do to reward these opportunities?’ To serve in the army, give the country a couple years, and payback in advance for this opportunity that I knew I was going to have.”
Ebanks said he learned early on to take every opportunity seriously. He served for two years and then became an engineer and contractor for the army, working on the Patriot Missile defense system. He went through college at NJIT, graduating in 2009, and following in his father’s footsteps to become an electrical engineer.
After working with South Jerseys PSE&G, Ebanks took the opportunity to work full time shifts at the the nuclear power plant, and by 2016 he was pursuing an MBA and looking for ways to grow what he called “my empire.” Used to investing in small businesses already, discovering MCA fit right within his world.
“I’ve always been active, throughout my professional career I had businesses in real estate, I owned several businesses such as laundromats, a lot of retail cell phone stores and things like that,” Ebanks said. “So at one or two am in the morning, I’m working on how to build my empire. I was on Craigslist looking for opportunities, seeing what’s out there, and somebody wanted an investment, to partner up and start a company in a new industry.”
He took a meeting and learned a ton. Although he did not end up going into business with that person, he was hooked on the concept.
“I looked at that ad, and $10,000 later, we had a company,” Ebanks said.
He learned what he needed and ended up opening his own MCA business shortly after in New Jersey, finding he loved setting up syndicated MCA deals.
“I did some research, opened an office in New Jersey, secured a manager to run the operation, and we started brokering deals and learning about syndication.”
He worked with SFS Capital, now called Kapitus. He fell in love with the immediate gratification feedback of making deals, seeing returns on account receivables, and watching renewals come in. The business grew, but things were not always a straight climb to success.
“There was a point where things were not going well and I had to start a new company, find new parters and investors with a funding direct-only focus, and moved into my basement- my wife was unhappy with that. I started hiring people, processors, underwriters, and ISO managers in my basement,” Ebanks said. “At one point, she said, ‘Okay, this is enough. Ten strangers are coming into my house every day, you’ve got to get an office,’ so we secured an office in New York. And that’s when things took off in 2017.”
At that point, Ebanks had shifted his business model from securing deals to funding them all his own, using capital he raised. Ebanks said that being a broker partnered with Kapitus was great, but he wanted to grow and run his business entirely. The best way to do that was through ISO management, Ebanks said. Ebanks let the direct sales team phase out and he hired ISO managers, learning the ISO business as he went.
“So fast forward now: We have over five ISO managers, and we’re funding about $12 million a month,” Ebanks said. “It’s been a phenomenal journey and the most rewarding thing I’ve ever done in my life; I’m not shy to share how exciting every day is to me, and how other than my family and my kids and God, this is the most important thing my life.”
For brokers looking to get started in the industry, Ebanks has this advice to share: Don’t settle.
“Don’t settle, look for growth, and invest your money,” Ebanks said. “I always invested everything I could, 95%, every penny on the business. It matters especially at the beginning, the more you invest, don’t let it sit.”
That investment should go toward your business, your staff, and hiring. Ebanks said the more you invest, the bigger the bag, the more your firm would grow, and your employees will grow with you. Helping employees will mean they will eventually leave, but in Ebanks’ experience treating employees right creates partners.
“Some of them now are partners, and the employee-employer relationship is always more partnership,” Ebanks said. “Some of them own their own companies now, and we help each other out. If they have a big deal, they say: ‘Frank do you want to take $50,000 out of this deal?’ I say yea I trust you. I’ve known you for years.”
Now that he’s on track to grow with recurring customers, seeing some merchants come back to renew twenty times since 2016, Ebanks sees a possible bright future for Spartan Capital: becoming a chartered online bank.
“It is an alternative lending space but to offer the best products to people,” Ebanks said. “I think at the end of the day, and we need all the resources we can get, the next chapter is to apply and secure an online bank charter, it’s the future of the fintech industry.
“Why do people like doing business with us versus a bank? Some of them can do business with banks, but they choose to use us because they have direct access to us after 6 pm, they could call us Saturday, they can call us on a Sunday,” Ebanks said. “A great relationship that they can never get from a bank. I want to bring what we do in MCA to the banking industry to serve people that want banking products, but I want to give them that MCA experience.”
State That Wooed Yellowstone Capital to Its Shores Has Changed Its Mind
December 8, 2020
The Attorney General of the State of New Jersey filed a lawsuit against Yellowstone Capital, LLC and several affiliated parties on Tuesday.
The 55-page complaint trots out a long list of allegations but appears to hone in on the company’s actions or alleged lack of action on the reconciliation provision of its merchant cash advance agreements. The AG alleges that the manner in which the defendants conducted themselves should subject the agreements to the state’s lending laws.
Notably, the State says these unlawful acts began in July 2015, months before the State lured Yellowstone to relocate its headquarters there from New York.
In September 2015, for example, the New Jersey Economic Development Authority approved Yellowstone for up to $3.3 million in Grow New Jersey tax credits. When Yellowstone officially moved to Jersey City in 2016, the city’s mayor even made a personal appearance at the office to welcome them.
Now that Covid-19 is ravaging the state’s economy, the political opinion has seemingly changed.
“We are taking action today to protect our State’s small businesses and small business owners from predatory practices in the market for merchant cash advances,” said Attorney General Gurbir Grewal. “Local businesses are struggling due to the COVID-19 pandemic, especially since many were unable to take advantage of the limited relief made available by the federal government through the Paycheck Protection Program. We will not tolerate – now or ever – efforts to take advantage of them through predatory lending and collection practices.”
In 2015, however, New Jersey officials assessed that Yellowstone would have a “net benefit to the State of $23.3 million over [a] 20 year period” and that it was economically important to attract their business operation. Yellowstone was at that time considering a move to White Plains, NY from the company’s original Manhattan offices, State officials argued, so they really had to offer the tax credits for them to come to New Jersey instead.
“Yellowstone is comprised of a team with years of industry experience,” says a 2015 project summary prepared by NJ Economic Development Authority officers Diane Ubinger and Mark Chierici. “As both a direct source of funding and as part of the country’s largest Independent Sales Organization network (‘ISO’) it has numerous in-house funders who concentrate on specific industries/businesses, while also having numerous funding partners within the MCA industry who fund its ‘outside-the-box’ transactions.”
But later in 2019, the deal changed when Yellowstone’s capital investment requirement was not met, the Authority’s communications director told deBanked. As a result the company ended up not receiving the tax credits.
“The NJEDA is committed to ensuring that businesses approved for tax incentives are compliant with all program requirements and to making sure that companies that do not meet their commitments to the taxpayers of New Jersey do not benefit from NJEDA-administered programs.”
Additional allegations in today’s complaint were made regarding Yellowstone’s historical use of confessions of judgment, a recovery tool that was largely eradicated by the passing of a law in New York in 2019.
The AG’s case was filed in Hudson County in the Superior Court.
Yellowstone Capital offered no comment to this story.
Update: 12/9/20 This story has been updated to reflect the current status of the tax credits as provided by NJ EDA.
Lawyers Chime in On What a Biden Administration Could Mean for Merchant Cash Advance
November 30, 2020
In the weeks following the election, the news cycle has been heavily focused on the presidential transition’s legal aspects.
Instead of worrying about vote recounts, merchant cash advance (MCA) companies are considering what legal changes, if any, might come after Jan 20th. Will the Biden administration spell the beginning of new regulations on the world of business to business financing?
Lawyers say that while the industry is waiting on Georgia to decide the Senate’s fate, increased regulation at the federal is unlikely to occur.
“If the Republicans hold in Georgia, and we have a split legislative branch, that means gridlock, and gridlock is great for the industry,” Catherine Brennan, partner at Hudson Cook, said. “The more progressive wing of the Democratic Party would like to put merchant cash advance under the auspices of quasi-consumer [loans,] but they won’t be able to do that with the split legislative branch.”
Brennan has a wealth of experience as a commercial finance compliance and litigation lawyer and regularly contributes to the national conversation on alternative and fintech law topics. She said that even if Democrats control the Senate, moderates may still hold back progressives from making new regulatory laws.
“There’s some moderate Democrats who understand the need for this market, they understand the product, and their constituents, in particular, use the product,” Brennan said. “I don’t see anything at the federal level that should be viewed as an existential threat to the ongoing existence of the industry.”
What Brennan does see as more likely, is the gradual adoption of MCA under preexisting executive agencies like the CFPB and FTC. She pointed to the Dodd-Frank Act implementing consumer lending data collection as a possible avenue regulators might take by pushing for data collection in the MCA space.
Still, Brennan insists that MCA firms will be OK so long as they understand the FTC can already look into commercial finance practices and that it has gone after ISOs in the past. She sees that as the number one development from a regulatory standpoint because the FTC will ultimately review what took place in the financial service markets during the pandemic and decide if action is warranted. Still, if funders have been responsible and fair, they should be in a good place.
Brennan did say that the position might be up for grabs when it comes to the head of the CFPB. The previous leader, Richard Cordray, fought with the Trump administration against his re-appointment, believing his position surpassed the president’s authority to fill. Of course, it did not, and Cordray was removed, but there is nothing stopping the Democrats from re-appointing him, Brennan said, especially when other appointees may give up valuable Congressional seats.
James Huber, a partner at Global Legal Law Firm specializing in collections, believes that even if the Senate is somehow blue and passes regulation, that MCAs that are playing by the rules would benefit. The MCA business was born under the Obama administration during the last financial crisis, and if Biden beefs up the CFPB, it would only hurt payday lenders, Huber said.
“It certainly flourished under Obama, so one might think now that it’s got its foothold and it’s here you can almost guarantee that it’s going to continue to do really, really well when there’s stricter regulation,” Huber said. “Your typical deBanked cash advance technology company: I think they’re going to do well with their bread and butter product…”
Huber said that especially when we’re seeing businesses hurting for cash right now, b2b finance will thrive. Huber was worried about Biden’s talk about bankruptcy reform, however.
“Biden’s talked about bankruptcy reform, to make it easier for people to go through bankruptcy, and yield assets like their houses and their cars and things that,” Huber said. “That’s a concern; that would mean that you’re fraudulently applying for a loan, and that’ll be accepted. It slows down collection efforts; our main role in the MCA business is on [defaults].”
Katherine Fisher, a Hudson Cook partner who, alongside Brennan, has deep experience in MCA representation and compliance, agreed with her colleague that funders need to make sure they keep an eye open toward compliance when it comes to regulation.
“Firms that have not focused on the regulatory process need to start, and companies that have looked at it need to revisit it,” Fisher said. Funders should “expect to be comfortable if they are asked to describe how they comply and prepare to do so.”
But beyond that, she sees no doomsday event on the horizon; even if the Senate is no longer Republican-controlled, it would be up to the FTC and CFPB to set the tone. If the CFPB, for example, pushed for data collection under 1071 of the Dodd-Frank Act, it might signal a more attentive regulatory environment for MCA and factoring.
Compared to 2008, when the last Democratic administration took office, MCA wasn’t on the radar, Fisher said. Now that it is on the map this time around, especially after MCA funders proved how vital they were to the SMB market during the pandemic, there will be more attention on B2B transactions.
But firms only need to think of this as a chance to make sure their practices are healthy, and most of the industry has already shown signs of doing so. Fisher pointed to the FTC’s small business finance forum last year, which included a panel of MCA representatives at the table.
“I don’t think it is a scary time. It’s an opportunity for MCA to improve their processes, make sure they are following the law,” Fisher said. “They don’t need to be afraid but need to batten down. Much of the industry has already done that, the MCA industry has been focused on adopting good practices.”
In Loving Memory of Elliot J Dabah
November 17, 2020
Elliot J Dabah, CEO of NYC-based Merchants Cash Partners, LLC, recently passed away. Known throughout the merchant financing industry, friends and colleagues began collecting kind words to reflect on his life to be able to share them here.
Elliot Ashkenazie, his business partner and best friend, said “Elliot Dabah would step up and help anyone in need whether that be his own employee, another ISO, or a complete stranger on the street. He didn’t keep any secrets so he would have an advantage over others, he simply paid it forward and helped the community as a whole benefit from it. Merchants Cash Partners will work tirelessly to carry on his legacy and his values.”
“Elliot Dabah was the heartbeat of the Financial District and he was an integrated part of my life, both professional and personal,” said Gigi Russo. “Not only did Elliot and I live three blocks from each other, but I first had the privilege and pleasure of meeting him while I was working for deBanked, at CONNECT San Diego. We quickly became close friends. He truly never took advantage of our tight knit friendship. His professional support was a reflection of his character— a respectable person that respected his family, friends and business associates. Elliot wanted everyone to succeed. He believed that friends and business colleagues should support one another to build a viable network.”
Tom Dool of Power Funding, said “Of all of the offices I’ve ever visited, I can honestly say that no other partner of mine compares to Merchants Cash Partners. From the moment I met both Elliots, they were inviting. I could tell right away that they had a special bond of shared enthusiasm, honesty, generosity, thoughtful, caring people.” He adds, “Elliot [Dabah] lived life with such a genuine love for people and getting to know people, discussing higher level ideas, sharing feelings. He was one of the best and I’ll never forget him.”
“Elliot was one of the most welcoming people I had the pleasure of knowing,” says Colt Kucker of Libertas Funding, “and always tried helping out whether it be a customer, myself, or anybody in need. He was a hard worker and will truly be missed by all he came across.”
Justin Friedman of Enova SMB, described Dabah, “Smart, strategic, urgent, generous and wise are a few words to describe Elliot. He was universally popular and a known professional in our industry, which isn’t common to come by. He cared about his customers and business relationships. Elliot’s presence in alternative lending was a positive one and he will be remembered for exactly that.”
Ben Lugassy of SOS Capital states that he was “Always smiling and enthusiastic, Elliot was the embodiment of joyful. A friend with tremendous respect and gratitude, he will always be remembered and in our prayers.”
Paul Boxer of Velocity Capital Group added, “Every-time I met Elliot he had the largest smile, always happy to talk shop and discuss the industry. He was very knowledgeable and had a wealth of information, he will surely be missed.”
Ken Peng of Elevate Funding recounts that Elliot, “was always great to work with. He was always very friendly and understanding when we did review any of his files. He will be missed.”
Gigi Russo, who was instrumental in putting this tribute together, further added that Elliot “treated everyone he came into contact with as a friend.” He has “a sincere, dignified, and affable reputation that will follow him after his passing. He will surely be remembered for supporting his colleagues, clients, business acquaintances, and network. The legacy Elliot has left behind is simple: Respect one another. Support one another. Honesty and hard work are necessities of success.”
Part of Elliot’s legacy is the company he built. Merchants Cash Partners, despite the pandemic, was so successful this year that it outgrew its office space.
“Elliot had a revolutionary style of making this industry a community,” says his partner Ashkenazie. “He referred clients and prospects alike to small firms and national firms, expecting nothing in return.”
Coincidence would have it that a photo of Elliot at a deBanked event was often used in event marketing promotions. As to how that picture came to be used so prominently, deBanked President Sean Murray said that “Elliot embodied the community we were trying to portray. A nice young business professional who radiated positive energy. Who is part of this industry? It’s guys like Elliot. That’s what we wanted everyone to know.
“Elliot totally noticed how often we were sharing his photo,” Murray said. “He told me that he thought that was pretty cool.”
What Would a Biden White House Mean for The MCA Industry?
November 14, 2020
What do small business finance companies think about the reality of a Biden White House? Will there be dramatic regulatory changes, massive new government stimulus, or significant differences in coronavirus policy?
“Not likely,” according to the head of two funders we spoke with. The CEOs of Greenwich Capital Management and Spartan Capital Group seemed to agree that overall, not much would change.
“We don’t expect any major changes to the industry to MCA,” Frank Ebanks, Spartan Capital owner, said. “I don’t think it would be any different than what we saw and experienced under Trump. Some states, some federal organizations attempted to regulate the industry, that’s already on the way, and that might continue: I don’t see it picking up any intensity.”
Ebanks’ firm has been around for four years, funding deals of up to $2 million. In that time, Ebanks has seen states like New York and California pass lending regulation and renewed activity at the CFPB, but never a fed-wide push to take on small business lending.
Nathan Abadi of Greenwich Capital Management, believes there might be short term benefits under Biden.
“In the short term, I think it’s going to be pretty good for people in our industry because under a Biden administration, we’ll see more bailouts go to SMBs than we would in a republican administration,” Abadi said. “If small businesses get bailed out, that means they can make their payments, and everyone is winning.”
He was less optimistic in the area of regulation, however.
“It’s necessary for our industry to have some vetting process and some regulation, as you saw happen with Par recently,” Abadi said. “All these other companies are taking in private investments from multiple investors, not necessarily accredited, and the money kind of goes into a black hole.”
Abadi further said that he thought while regulation is good for those who play by the rules, Democrats can go overboard.
Ebanks, meanwhile, thinks there is saftety in being a B2B business.
“Transactions between two individual companies are hard to regulate, especially when it comes to contracts,” Ebanks said. “That will stand and be around for a long time regardless of the government or who the president is.”
Ebanks continued to point out that an incoming administration would avoid changing anything that might hurt the economy now more than ever.
“I think that the President-Elect will put teams together that will attack the coronavirus situation aggressively and will neutralize it rather than try to live with it,” Ebanks said. “It’ll be tough for a month or two. And after that, it will be sort of back to normal, with just heavy aggressive localized actions.”
Pearl Capital is BACK
November 5, 2020
Pearl Capital was among the many small business finance companies that hit the pause button in 2020.
Now it’s BACK.
The company announced today that it was resuming funding MCAs after a long stretch of facilitating PPP loans, of which it processed more than $1.75B through a partnership it had with Cross River Bank.
“Pearl did not default on its senior credit line due to its superior underwriting and has added $250 Million in committed financing to expand its activities,” said company CEO Sol Lax. “If you are a small business and you have survived COVID, you shouldn’t have to shut your doors because you have limited access to capital. We are going to be there for small business both in further iterations of PPP as well as MCA.”
Pearl expects to resume at full speed rather than with limited capacity and highly restricted guidelines. According to the announcement, “Pearl’s ISO Partners can expect lighter stipulation requirements with fewer requested documentation than before and updated pricing. Virtually all business types are eligible for funding from Pearl including high risk industries like auto sales, real estate, home-based businesses, and insurance.
[…]
“We’re thrilled to have the ability again to continue to provide financing for companies during an especially difficult time for businesses across the country and give much needed financial support to businesses,” Lax said.
Shopify Capital Originated $252M in MCAs and Business Loans in Q3
October 29, 2020
Shopify Capital, the finance arm of the 2nd largest e-commerce platform in the United States, reported making $252.1M worth of merchant cash advances and loans in the 3rd quarter. This is a 79% increase over the same period last year and spans three markets, the US, UK, and Canada. It’s also a quarterly record for the company.
The figure also solidly trumped the numbers recently reported by rival OnDeck.
Shopify CFO Amy Shapero said that the company has maintained loss ratios in line with historical performance.
“Businesses need financial resources to survive and fulfill their potential especially in these uncertain times and as you heard just now capital greatly increases the value of Shopify to our merchants,” she said during the earnings call.
Revisiting Miami in 2020
October 23, 2020deBanked reporter Johny Fernandez flew down to Miami in September to find out how the South Florida non-bank small business finance industry has been getting along since covid. The following are some excerpts of interviews:
Jordan Fein, CEO of Greenbox Capital
“I’d be lying to you if I told you that, well it was fine for us. It wasn’t fine for anybody. We got hit pretty hard. I’d say that anywhere between 20 – 24% of our Canadian and about 25 – 28% of our US market got wiped out. And we shut down funding from mid-March to the end of April and we started funding again in early May. We’ve just increasingly been bringing back people from furlough and getting our legs back under us and now I think we’re really cooking right now.”
Craig Hecker, CEO of Bitty Advance
“So I think [the covid crisis] taught us a lot. And I think that when you face challenges like this pandemic, it really pushes you to reinvent yourself or reinvent certain parts of your business that you never thought were possible. And one of those things that we’ve learned is that we have a lot of folks that prefer to work at home, they’re actually more efficient working from home, they’re not in any hurry to come back into the office setting. Of course, we have certain employees that their jobs require them to kind of be with other employees, etc. but I think it’s really forced us to adapt, and to just embrace the new normal.”
Larry Bassuk, President of Idea Financial
“I think that we’ve been consistent in our risk management approach from the beginning. When we first surveyed the alternative lending space to see where we thought the best opportunity was for Idea Financial, we decided to focus on the higher credit quality segment of the market. our credit standards reflect that, our risk management principles reflect that, and quite frankly, our product reflects that. So during the covid crisis, when it was very acute in March, April, May, we got to see in real time, how our risk mitigation principles were functioning. It was a real test of all the theory that crisis, we got to see things shake out, and we got to see things being proven. A lot of assumptions that we were very strict on, really helped us manage the crisis. Going forward, we see that we’re going to be doubling down on those risk management principles, doubling down on how we underwrite and keeping a very close watch on how the businesses perform pre-covid, during covid, and then hopefully post-covid.”
You can watch the full 12 minute, 35 second TV episode deBanked produced here.
