Fundry’s Isaac Stern Hosts Successful Fundraiser for Hatzalah of Union County

‘Tis the season of giving for Fundry’s Isaac Stern and the dozens of folks that attended the December 5th winter fundraiser at his home in Hillside, New Jersey. The event, which served up 550 pounds of barbecue and included a Scotch taste testing bar hosted by representatives of Glenfiddich, raised over $60,000 for Hatzalah of Union County, a local non-profit all-volunteer emergency medical service organization.

Founded in 2004, Hatzalah EMS provides basic life support in medical emergency situations. They cover Union County NJ including the towns of Elizabeth, Hillside, Union, Roselle and Linden. Today, Hatzalah is staffed with 3 ambulances, 24 EMTs and 18 dispatchers all under the medical direction of a physician and two paramedics.

Hatzalah Chief Yudi Abraham told deBanked that Yellowstone Capital (a Fundry subsidiary) has been a long-time supporter of their organization. A few years ago, when the squad was undergoing a transition of directors, Chief Abraham reached out to Isaac Stern for financial help. At the time, Hatzalah was in serious need of replacing an older ambulance as well as covering monthly operating expenses. “Isaac didn’t waste any time and sprang right into action,” says Chief Abraham. “He immediately convened his employees and his associates and came through for us in a huge way.” Yellowstone Capital raised the funds in under two days for Hatzalah to buy a fairly used ambulance. Ever since then, Stern and Chief Abraham have been working closely together to ensure that other expenses were covered. Over the years, Yellowstone Capital has helped donate the funds to purchase two additional ambulances that currently make up Hatzalah’s fleet. The Yellowstone Capital name appears on the side of each of them.

The most recent event kicked off with a $10,000 personal donation from Stern, prompting others to give too while enjoying the festivities.

“With the help of Yellowstone Capital we are able to maintain our level of service and continue providing the best possible emergency care for our patients,” said Chief Chaim Cillo. “We at Hatzalah will forever be most appreciative for such an incredible company that cares and gives back to the community in such a large way.”

Stern and Yellowstone were also presented an award for their continued generosity.

Chief Yudi Abraham (left) and Fundry CEO Isaac Stern (right)

In attendance at the event were Fundry employees, friends, family members, and others from the non-bank finance industry.

From left to right: Andrew Hernandez of Central Diligence Group, Sean Murray of deBanked, and Andy McDonald of Yellowstone Capital/Fundry

Michael Samuels (left) and Steve Weinrib (right) both of Yellowstone Capital/Fundry

Hatzalah means “rescue” or “relief” in Hebrew and for many guests the event fell on the eve of the Hanukkah holiday. The volunteer EMS crew of course helps all people in need of care.

“Our pay,” said Chief Abraham, “is helping our patients and saving lives.”

Merchant Cash Advance | A Look Back and Plan Forward

Merchant Cash Advance is still a relatively unknown term and product to the masses, but amongst most of its target customer base, it definitely has a stigma that is rightly deserved in some ways, but I believe that it is also misunderstood in many other ways. Having been in the industry for nearly 10 years, I can say that I have seen my fair share of positive and negative events as they relate to the industry, but I believe that it has all been for its betterment and growth. Furthermore, by having been on the underwriting side for a majority of that time, I can say with great certainty that I have seen this product help several small business owners over the years, and it will continue to do so as the stigma fades away and acceptance increases.

For those of us working in this industry now, let’s face it – most small business owners that have taken a merchant cash advance or have been solicited for the product would much rather go to their bank for the money. The problem, as many merchants have come to realize in recent years, is that lending in general essentially dried up after the recession. The faucet is now running again, but small businesses were all but forgotten. Only the most well qualified borrowers are able to obtain the desired amount of capital needed at a reasonable cost through traditional bank loans. In addition to meeting all of the necessary criteria for a bank loan or line of credit, a borrower must also be prepared to wait months for the process to be finalized.

The days of a small business owner being able to go down to his or her community bank or local branch for a quick cash injection are long gone, but that’s where we come in. We are catering to a customer base that has been left out to dry. We are dealing in a marketplace that is grossly underserved by the larger financial institutions. We are charging a premium for taking on risk that most cannot stomach. We are keeping America running. That might sound ambitious, but is realistic when you put things in perspective.

SBA and IDC data show that small businesses employ at least half of the US workforce and produce anywhere from 60% – 80% of the new jobs annually while also accounting for nearly half of total US private payroll. As if that weren’t enough, small businesses also produce six trillion dollars or over 50% of all non-farm GDP in the US. When looking at additional SBA data which also states that more than 80% of all small businesses need to use some sort of financing to grow their business, it’s perplexing as to why banks have turned their backs on the people that have put America on their very own backs.

However, I do not want to go into great detail or make any assumptions on why “big banks” are not lending to small businesses. Rather, I would like to take some time to focus on how we can continue to support the growth of small businesses across America. The MCA product in particular has evolved quite a bit over the past 10 years, but a lot of that development has taken place in the past 3-5 years, and the industry has grown leaps and bounds as a result. When I started working as an underwriter several years ago, there were less than 10 lenders and 50 brokers operating within the space. Nowadays, there are hundreds on both sides of the fence, and there are multiple new entrants every day – senior guys starting their own operations, one man rogues from the insurance and mortgage businesses, consumer payday lenders, et cetera. – all looking for our piece of the pie, but who out there is really looking to improve upon and grow the product for the better?

I suppose therein lies the problem. Unfortunately, the tremendous growth we have recently witnessed also comes with a flood of unqualified and unknowledgeable management and staff that are simply following the direction of their unqualified and unknowledgeable employers. As an industry, if we expect to continue making headway in the small business lending environment, we must first better ourselves by taking the time to learn and understand the product in order to better educate our customers. If you know me, you have heard me say on a few occasions that it is easy to put the money on the streets, but the problem for most people is getting it back.

As with anything in life, you cannot jump into something and expect to master it. Over time, you get a grip of what you are doing, and you begin to build on that understanding. Therefore, no one should enter the market expecting to make huge returns without learning the ins and outs of the business. I, along with several of my peers, have seen plenty of well-intentioned but aggressive entrants “lose their shirts,” so to speak, because they did not do the proper diligence on the industry or the actual diligence required to operate within the space. Lending money with only a UCC-1 in place only on future receivables or sometimes no collateral at all is risky business as it is, but not taking the necessary steps to mitigate that risk is only asking for a rough road ahead – not only for the lender itself, but also for their potential clients, brokers, other lenders, and the industry as a whole.

Our underwriters and sales people, in addition to management, should have a solid understanding of the product they are working on. They should be able to educate customers as well as their peers. Transparency throughout the process is key for maintaining a long and mutually benefiting relationship with the client. By having this firm grip and understanding of the product, we reduce the risk of an unsatisfied customer. As with the mortgage and insurance industries, sales and underwriting must work together to determine the best possible result for both the client and the company. This is definitely a challenge for most groups due to the amount of balancing required to meet the needs of the company, but by establishing best practices and procedures in both the sales and underwriting processes, we can begin to think and work within separate verticals and group goals but streamline the process to achieve the agenda of alternative small business lending which should be to help provide small business owners with the fast and efficient capital they need.

Whether you have been in the industry for years, you have just joined this year, or you are considering taking the dive now, it’s only fitting that at this time of year we give thanks to those small business owners and celebrate their entrepreneurial spirits because they are the reason we, ourselves, are currently employed. But more importantly, they are setting us up for quite an adventure which will change the landscape of small business lending for good. I, personally, cannot wait for the next 3-5 years of continued growth because I can only see a bright future if we are able to collectively educate ourselves and pass that knowledge along to our clients. As long as the proper steps to learn have been taken, the competition from new entrants mentioned previously is also welcomed because this further drives new ideas and developments within the space – new financial products to offer clients, lower costs, and most importantly easier and efficient access to quick capital for the busy small business owners constantly on the go in an effort to grow their business while putting the rest of us on their backs.

Merchant Cash Advance APR Debate (Sean Murray v Ami Kassar)

The other day, Inc. writer and loan broker Ami Kassar took some time out of his day from taking photos of his shadow in the park to engage me in a debate about the use of APRs in future receivable purchase transactions. He was apparently very bothered by my analysis of Square’s merchant cash advance program which has transacted more than $300 million to date.

To clarify my position here, I am indeed in favor of transparency, so long as it’s intelligent transparency. Coming up with phony percentages based on estimates and applying them to transactions where they don’t make sense is not transparency. Similarly, advocating that merchant cash advance companies and lenders alike move away from a dollar-for-dollar pricing model to one that requires the seller or borrower to do math or hire an accountant is also not transparency.

Even a Federal Reserve study that attempted to prove merchant cash advances were confusing inadvertently proved that APRs in general were confusing. If someone doesn’t know how to calculate an APR, then it’s unreasonable to assume that they could work backwards from an APR to determine the dollar-for-dollar cost of capital. In effect, APR is a surefire way to mask the trust cost despite arguments to the contrary.

My unplanned debate with Ami Kassar on twitter is below:

Sorry Ami. The only thing unclear is your argument.

Merchant Cash Advance is The Real Square IPO Story

Square’s debut on the New York Stock Exchange is being talked about as one of the more consequential IPOs of 2015. As a mobile payments company famous for both losing money and its founding by Jack Dorsey, Twitter’s CEO, the $2.9 billion valuation pales in comparison to its rival First Data that went public just a month before. First Data, which was founded in 1971, is worth five times more than Square with a market cap of $14.7 billion to Square’s $2.9 billion. But it’s Square that everyone’s talking about and not necessarily in a positive way. Cast as the poster child for runaway private market valuations in Fintech, Square’s Series E round just a year before had supposedly increased its worth to $6 billion.

Robert Greifeld, the CEO of Nasdaq, had warned people just weeks earlier about the validity of private market valuations. “A unicorn valuation in private markets could be from just two people,” he said. “Whereas public markets could be 200,000 people.”

And while Square’s IPO was relatively well-received, closing at 45% above its offered price, there’s an entire story beyond payments hidden in the company’s financial statements under the label of “software and data products.” That’s code for merchant cash advance, the working capital product they offer to customers that currently makes up 4% of the company’s revenue.

“Since Square Capital is not a loan, there is no interest rate,” states the company’s FAQ. That echoes what dozens of other merchant cash advance companies have been saying for a decade. “You sell a specific amount of your future receivables to Square, and in return you get a lump sum for the sale,” marketing materials explain.

Lenders that don’t approve of this receivable purchase model are lobbying politically against it, some of whom are well-known. Lending Club for example, is a signatory to the Responsible Business Lending Coalition’s Small Business Borrowers Bill of Rights (SBBOR), committing themselves to things like transparency and the disclosure of APRs even for non-loan products.

But disclosing an APR on a receivable purchase merchant cash advance transaction is not only impossible since there is no time variable, but would violate the spirit of the contract even if estimates were used to fill in the blanks. Nonetheless, Fundera CEO Jared Hecht, whose marketplace platform has also signed the SBBOR told Forbes in September that “small business owners have been sold by pushy salespeople, hiding terms, disguising rates and manipulating customers into taking products that aren’t good for them.”

Ironically, Fundera’s own merchant cash advance partners have not made any such pledge to disclose APRs. No one’s commitment is verified anyway. “Neither Small Business Majority nor any other coalition member independently verifies that any of these signatory companies or entities in fact abide by the SBBOR,” the group’s website states. This isn’t to say that their intent is misguided, there’s just very little substance to it below the surface.

For example, while the coalition has made some subtle and not so subtle digs about merchant cash advances over fairness and transparency, it’s the lending model used by some of the SBBOR’s signatories that is being challenged by the courts right now. Because of Madden v. Midland, Lending Club’s practice of using a chartered bank to originate loans could potentially be in jeopardy. The ruling was just appealed to the U.S. Supreme Court. At the heart of the issue is the ability to usurp state usury caps through the National Bank Act. For a company that has pledged to offer non-abusive products, it’s ironic that their model relies on preemption of state interest rate caps all the while reassuring their shareholders that there’s no risk because of their Choice of Law fallback provision. In truth, Lending Club uses a state chartered bank and not a nationally chartered bank and thus would be somewhat shielded in an unfavorable Supreme Court ruling.

Those concerned in years past that receivable purchase merchant cash advances were full of regulatory uncertainty had shifted towards the model that Lending Club uses since it was perceived to have more nationally recognized legitimacy. However, with that model seriously challenged, old school merchant cash advances are once again looking pretty good. That’s probably why publicly traded Enova International Inc. (NYSE:ENVA) bought The Business Backer this past summer. And it’s why Square skated through their IPO without much resistance to their merchant cash advance activities.

The story of Square was either that it was overvalued, that CEO Jack Dorsey couldn’t handle running two companies, that they were losing money, or that their deal with Starbucks was a mistake. Meanwhile Square has processed $300 million worth of merchant cash advances, a product that doesn’t disclose an APR since it’s not a loan. “Nearly 90% of sellers who have been offered a second Square Capital advance cho[se] to accept a repeat advance,” their S-1 stated.

“If our Square Capital program shifts from an MCA model to a loan model, state and federal rules concerning lending could become applicable,” it adds. And right now partly due to Madden v. Midland, the loan model looks pretty shaky. Square proved many things when they went public on November 19th and one was that merchant cash advances are just the opposite of what critics have argued in the past.

Battery Ventures’ general partner Roger Lee told Business Insider, “the [Square Capital] product itself will have unique advantages in the market, and it’s a big market.”