The UCC Boom Is Over

I spend a little bit of time scrolling through social media during my down times. There’s always an array of memes, GIFs, pictures, and random quotes that are posted either to spark laughter or to flat out troll a particular person or audience. I ran across a particular post that was interesting, it said: It’s called originality, you should try it sometime! This post got me thinking about our industry, the Merchant Cash Advance and Alternative Business Loan industry, and how over here on the broker side of things where we seem to as a whole, be lacking any type of originality.

• We for the most part, use the same sales pitches
• We for the most part, recruit using the same “rah rah” sales motivational speech
• We for the most part, resell the same product (the MCA or alternative business loan), even though we have access to reselling all types of alternative financing products such as asset based lines of credit, inventory loans, warehouse loans, hard money loans, bridge loans, SBA loans, credit cards, factoring, equipment leasing, purchase order financing, commercial mortgages, etc.

But nothing seems to be more common amongst broker houses (large, small and one man shops) than the fact that we all seem to rely on prospecting to, marketing to and calling on the same merchants over and over, using the system known as The Uniform Commercial Code (The UCC).

THE UCC AS STRATEGIC MARKETING – VERY LATE 90’s TO 2011

The UCC was published in 1952, by a host of legal professionals including Grant Gilmore and William Schnader, to name a few. The code establishes rules and governs certain types of commercial transactions including leases, bank deposits, secured transactions, investment securities and letters of credit, to name a few. The UCC had been utilized heavily by our industry since the early days in the late 90’s until around 2011 to perfect an interest in future assets.

Starting in and around 2007, the UCC became a very strategic marketing tool because the merchant already knew what the product was, how it worked, and would most times seek renewal once they were 50% paid down. However, this was during a time when a lot of the funders were still pricing A-paper like C-paper, or B-paper like D-paper, so if you could build a quality funder network and price said merchants within their correct paper grade, you could steal them from their old provider through better pricing.

THE UCC AS A STRATEGIC MARKETING TOOL DECREASES IN QUALITY – 2011 TO 2013

A lot of funders stopped filing UCCs on good accounts altogether or companies began using various fake/alias names starting around 2011 due to many new broker houses entering the space and solely using UCC filings as a way to market to merchants a “lower priced” merchant cash advance.

As funders grew tired of their merchants not renewing and instead switching to other providers, they responded by rolling out competitive pricing tiers and new renewal procedures.

• Proper Paper Grade Pricing: A lot of funders began to roll out more risk-based pricing tiers to properly price merchants based on their paper grade. No longer would funders price an A-paper merchant like a C-paper merchant, instead they were pricing A-paper merchants like A-paper merchants. That made it more difficult to woo merchants away as they were now receiving the proper pricing from their current provider.
• Better Renewal Policies: A lot of funders began to eliminate their renewal policy that required merchants to pay off the current balance from the first advance with a portion of the renewal approval monies, essentially having them pay for the same balance twice. Instead, funders rolled out add-on procedures that mirrored a lot of the positive aspects of a credit line. This strategy helped to keep their merchants from moving to other providers because it always kept their balances too high for other funders to pay off.

THE UCC AS A STRATEGIC MARKETING TOOL

The UCC remains to be a tool for newer funders and brokers looking to make their mark. But with more merchants already being accurately priced, they have less incentive to simply trade one company for another. That doesn’t mean they’re not interested in using both at the same time however and thus stacking has kept value of UCCs alive. But will it last?

THE UCC BOOM IS OVER

It’s called originality, you should try it sometime!

It’s time for brokers to innovate and find other ways to market. In addition to the stacking, merchants are receiving 20 – 40 calls a week from different funders and brokers based on historical UCC filings.

This is insane. Instead of us all chasing after the same merchant, it’s time to find other quality forms of data to transform into a sales pipeline.

Increasing Barrier to Entry (Self-Regulation)

Having been involved in our industry in some capacity since January 2007 (Merchant Services direct sales from 01/2007 – 04/2009 and alternative financing from 11/2009 – 09/2015), it has always been amazing to me to see just how low the barrier to entry is into our space, due mainly to companies relying heavily on the highly profitable Mom and Pop Network.

I have made reference before to The Mom and Pop Network that exists in our industry, which is just a group of random brokers who will resell for free (they cover their own expenses on all commission). A funder might have a Mom and Pop Network of 3,000 brokers that bring in on average of 10 applications a year (30,000 apps), with 35% getting approved (10,500) and 30% closing (3,150), with an average funding per client of $30,000. This is close to $95 million in annual funding volume that comes in very profitable and in a lot of ways, very “risk-free” in terms of new client acquisition ROI.

PROBLEMS WITH THE MOM AND POP NETWORK

Companies in our space relying heavily on The Mom and Pop Network, is why the barrier to entry is so low, as the major players want to continue benefiting from free marketing/advertising by recruiting hundreds to thousands of random, inexperienced, experienced, ethical, or unethical agents/brokers, who are willing to work for free (100% commission) and cover their own expenses, all for the rah-rah sales dream of striking it big.

The reality however, is that The Mom and Pop Network creates a number of problems for our industry which cause merchants to lose faith in all agent/brokers in the space, as well as causing somewhat decent funders, lenders and merchant processors to end up on RipoffReports and other negative review sites. These problems include but are not limited to:

• Merchants being the victim of rogue agents/brokers ripping them off, stealing from them, flat out lying to them, forging signatures, doing bait and switch pricing tactics, and other measures.
• Merchants being the victim to an inexperienced agent/broker providing the wrong information on pricing, terms, conditions, and other aspects which leave Merchants in a bad position long after the “close” of the sale.
• Merchants being the victim to the flat out unprofessionalism on behalf of these rogue and inexperienced agents/brokers.

THE MOM AND POP NETWORK IS THE LAZY WAY TO BUILD A SALES FORCE

The reality is that The Mom and Pop Network is a lazy way of making a profit in the professional Sales game. Instead of actually developing a quality in-house training program that creates a high quality professional Sales Team backed with knowledge, competency, market research, etc., most companies in our space would just rather hire a bunch of random people with a pulse, feed them the rah rah sales motivational dream speech, throw them against a wall and pick off what sticks.

The vast majority of the individual agents/brokers listed in the Mom and Pop Network do not make enough money directly from the activity to make a living, but as a collective whole, the company gains new clients in one of the most profitable and risk-free manners possible.

But in return for that profitable and risk-free procedure, a ton of damage is done to the industry that’s irreplaceable, continuing the threat of government regulation coming in and totally changing the way we all do business for the worse.

RECOMMENDATIONS TO CLEAN UP THE MOM AND POP NETWORK (SELF-REGULATION)

Funders, lenders and merchant processors surely won’t take my advice to end The Mom and Pop Network tomorrow, because it’s simply too profitable, so instead how about we take the following steps to create a more quality Mom and Pop Network?

To clean this up, every funder, lender and merchant processor should require extensive personal and professional background checks on every agent, broker and reseller that they bring on board externally, just as they would do internally with direct employees they would hire on W-2. Just because someone is a 1099 independent contractor, does not mean you might not still be named to a major lawsuit, held liable, etc., for their rogue and inexperienced actions to Merchants in the marketplace.

For Personal Background Checks:

• Pull their credit: If their credit is bad and they can’t provide some type of reasonable explanation, I wouldn’t approve them to begin reselling your services. Think about it, we are in the financial services industry where the rep is going out to “consult” a merchant on a financial manner, when they can’t even do something as simple as pay minimum payments on a credit card every month? Or pay their taxes on time to avoid getting tax liens? Either they are horrible at managing their finances or they just have bad character, neither of which we want to bring into our industry.
• Look for any previous criminal record history: If you have a felony for any reason, you shouldn’t be allowed to come in and resell services to merchants that give you access to SSNs, DOBs, home addresses, bank accounts, tax returns, financial statements, etc. This should be common sense.
• Look for any previous excessive civil record history: Are they getting sued a lot and if so, what is it for? If it’s something that points to bad judgment or bad character, don’t allow them to resell your services.

For Professional Background Checks:

• Look for any previous sales experience: Our industry is very competitive, so why on Earth would a person without any prior professional sales experience want to run in here and start selling for free (on all commission)? At the very least, look for previous sales experience of at least two years with verified references from the prior employer in terms of performance.
• Look for any type of higher education: I would limit all new entrants only to those who have “some college”. It might just be an associate’s degree or they might have only completed one year of college, but they should have “some college”. College in and of itself might not directly influence a lot of the performance in terms of what makes a good sales professional, but usually a good professional in general in today’s day and age, will have some level of college completed.
• Look for a business plan: Simply, what is their plan of action to come in and begin turning profit in our highly competitive space? Do they have the proper accounting, legal, market research, business planning, strategic planning, marketing mediums, etc. in place? If they don’t, then why are they here?

SELF-REGULATION IS THE ANSWER

The barrier to entry into our space will be increased when companies using The Mom and Pop Network model (funders, lenders and merchant processors) start conducting more thorough personal and professional background checks on their recruit prospects.

They need to limit their recruiting efforts to individuals who “appear” to be competent, professional, and serious about our industry, rather than just to anybody with a pulse and a heartbeat, without taking into regard their previous criminal history, bad credit, bad character, lack of sales experience and lack of any type of business plan to gain market share.

Grenville Kleiser (personal development author) said, “by constant self-discipline and self-control, you can develop greatness of character.” If we want to eliminate the bad character that’s running rampant in our space, then we are going to have to develop our own forms of “self” control (self-regulation) to produce a better industry, one that’s instead running rampant with great character.

Industry Message Boards Crack Down on Anonymous Deal Grabbers

Industry message boards, including deBanked’s, have begun taking a stronger stance against anonymity to facilitate transparency and protect users. While anyone can still register with their personal addresses, a corporate email address must be provided in the course of soliciting business. Industry participants have reached a general consensus that soliciting deals while hiding behind a free email address raises a red flag.

With hundreds of legitimate vendors to choose from, there should be little need to transact with users that lack basic things such as a company name, office address and phone number.

“I’m bombarded with probably 10 emails every day of the week from a supposedly new lender that wants my business, and they’re really just a broker shop like we are,” said Cheryl Tibbs, in the September/October issue of deBanked Magazine. She warned that fake funders can steal deals and pocket the entire commission. They solicit deals in online forums, by email message or over the phone, and then they offer the deals to companies that really do function as direct funders, she said.

While no online forum was specified in the story, at least two forums have responded by cracking down on anonymity by suspending or banning violators.

The age of the gmail funder is coming to a close. Don’t buy leads from HotLeads4u69@hotmail.com and definitely don’t syndicate with a company that has no known address.

Brokers: It’s Okay To Be A Piker

The Financial Services Industry is famous for coming up with different connotations that are outside of the comprehension level of the general public. Such connotation listings include terms such as: Derivatives, EPS, Diluted EPS, SPO, EBITA, Par Value, among others.

But there’s one word that I wanted to discuss in particular that comes off as a form of “slang” within the Industry, and that’s the word Piker. To be called a piker by someone in our industry, is to be called a person that thinks small, reaches for small goals and doesn’t dream big.

MASS NEW BROKER ENTRANTS HAVE BIG DREAMS

The Merchant Cash Advance Industry is in a major bubble right now, with a large quantity of new broker entrants into the market all with big dreams inspired by the myriad of industry recruiting ads, highlighting that with little-to-no experience, you can jump in and make $20k a month. The “rah rah” sales motivational speeches soon follow with examples on how one guy is making $25k per month, how another guy just sold his MCA firm and cashed out for $5 million, how another guy made $1 million last year alone, and how YOU can do all of this too if you just come on in and start dialing!

So the big dreamers begin to dream……

• “This year I’m what Dave Ramsey calls a Whopper Flopper. I hate working in this crappy Burger King drive-thru, it’s time to start making my dreams come true.”
• “Next year, I will be making $20,000 a month and driving around in a Mercedes-Benz S-Class.”

The guy joins the new rolls of rookie/new broker entrants on web based predictive dialers calling merchants about a “UCC” they filed 3- 12 months ago. He will start out with about 150 merchants to call on Monday about this UCC filing, and by the time he calls those merchants on Monday, they would have already been called by 15 – 30 other companies over the previous two weeks alone.

In other words, they will all slam the telephone down in his face after he literally mentions the fact that he’s calling from any “capital or funding” company, without him even being able to get a word in.

DREAM KILLED (REALITY SETS IN)

The reality is that success in our industry is mainly due to leveraged resources, rather than actual superior “selling” capabilities. What happens is that 20% of the brokers in the market remain profitable and sustain a good career/operations going forward, where as 80% of brokers don’t last more than 3 – 6 months, mainly because the 20% has access to resources that the other 80% don’t have access to, that provides them a significant market competitive advantage. These resources include:

• Having Strategic Partnerships with Banks, Credit Unions, Processors and Other Associations
• Having Access To Financing (Debt and Equity) Allowing For A Much Higher Marketing Budget
• Having Access To Better Base Pricing
• Having Access To Better Quality Data
• Having Access To Better SEO Positioning
• Having Access To Better Marketing Channels

Mr. New Broker, you were hired to be a part of what I call The Mom and Pop Network, which is just a group of random brokers who will resell for free (you pay for all of your expenses). So they might maintain a Mom and Pop Network of 2,000 brokers that bring in on average of 10 applications a year (20,000 apps) with 35% getting approved (7,000) and 30% closing (2,100) with an average funding per client of $30,000. This is $63 million in annual funding volume for the firm from this source alone.

A DIFFERENT APPROACH: THE PIKER APPROACH

So Mr. New Broker, how about instead of following the “rah rah” sales crowd, how about you join me over here on the Piker side and we set some goals on being solidly in the middle class instead?

• Going based on individual income, you are considered middle class in the US for the most part if from staying in an low/average cost of living area, you make over $40k a year (lower middle class), $50k – $60k a year (the middle of the middle class) or $70k – $85k (higher middle class).
• $50k – $60k a year in a low cost of living area will still allow you to live in a great quality Suburb, if you strategically manage your expenses with efficient budgeting and tax reduction strategies.
• You also want to be putting away let’s say $7,500 a year into your retirement/investment accounts. If you do this for 40 years from 25 – 65, with just a conservative 5% per year return, you will have over $1 million at age 65. At 65 you could put that $1 million principal into a long term CD paying let’s say 3% per year, opt to receive the interest every month, and get $30,000 a year. Then when you add in your Social Security payments of let’s say $20,000 a year, this now gives you $50,000 a year in spending power without even touching the $1 million principal.

IMPLEMENTING THE PIKER APPROACH

The first thing you want to do is make sure you stay in a low cost of living area, so if you are in a high cost of living area like NYC or LA, I would move immediately. Secondly, you would setup your virtual office (in the cloud) to include your telephone line, fax line, website, etc. Thirdly, you want to focus on doing market research on various market niche challenges where you can come in and creatively solve outstanding problems, for example, you might do some of the following:

• Find new solutions for niche industries that don’t qualify for most MCAs, but would like an MCA.
• Find new solutions for start-up companies seeking working capital.
• Analyze big data sources to find merchants in particular situations that you could address.

Map out a complete strategic business plan with sales forecast estimates, ROI estimates, and partner with companies that have the infrastructure to help deliver the solutions you laid out. Keep your credit clean and use No Interest Credit Card Promo Deals to creatively finance your marketing efforts.

FINAL WORD – AM I DREAMING TOO SMALL?

Am I dreaming too small? Shouldn’t I be up all night focused on how to be the next CAN Capital?

My issue with the “rah rah” sales speech is that they preach from the TOP of the ladder in terms of the extravagant income estimates ( $250k – $1 million per year), without providing any information to New Brokers on actual strategies, competencies, networks, and resources needed to ACTUALLY amass such levels of annual income. It doesn’t make any sense.

So my advice for all New Brokers is to be a PIKER, which is to establish yourself solidly in the middle class first, then once that’s done, you can look at ways to expand on your competencies, resources and networks to grow into the six figure income range.