Square’s Merchant Cash Advance Program Now Among Biggest in the World
March 10, 2016Square originated more than $400 million worth of merchant cash advances advances in 2015, according to their Q4 earnings report. Their average deal size was just shy of $6,000. The result is a 300% increase year-over-year and makes them one of the largest players in that industry worldwide.
RANKINGS
| Company Name | 2015 Funding Volume | 2014 Funding Volume |
| OnDeck | $1,900,000,000 | $1,200,000,000 |
| CAN Capital | $1,500,000,000 | $1,000,000,000 |
| Funding Circle | $1,200,000,000 | $600,000,000 |
| PayPal Working Capital | $900,000,000 | $250,000,000 |
| Bizfi | $480,000,000 | $277,000,000 |
| Fundry (Yellowstone Capital) | $422,000,000 | $290,000,000 |
| Square Capital | $400,000,000 | $100,000,000 |
| Strategic Funding Source | $375,000,000 | $280,000,000 |
A much longer list will be available in deBanked’s March/April 2016 Magazine Issue. SUBSCRIBE FREE to make sure you obtain a copy.
MFS Global Co-founder Launches Own Brokerage
March 9, 2016
Co-founder and COO of MFS Global, Robert Abramov launched his own ISO brokerage called Flow Rich Capital and departed from his role at MFS.
The new company based in Las Vegas has already signed on partners like CAN Capital. Abramov wants to keep the business small and minimal, with not more than five lenders. While he will exit from MFS Global’s day-to-day business, he will continue to hold equity and be part-owner in the company.
“He is pretty much transitioned out but he is still an active member of the executive staff,” said Tom Abramov, founder and CEO of MFS Global. “I am sure he is going to knock it out of the park and I hope he sends us deals.”
Tom added that as an older brother, he is happy that his brother is pursuing his dreams. “I know that Robert wanted to do this for long. He wanted to pursue his passion and we are wholeheartedly behind him,” he added.
For Abramov, experience working with merchants coupled with marketing experience gave him the confidence to start his own shop. “I have fun working with merchants and clients and have been running an ISO shop for five years now,” he added.
Flow Rich is in the process of setting up a team and and building a lender database.
As the industry expands and catches the eye of the big banks, competition will continue to breed. “While competition is on the rise, it will finally weed out the smaller guys tarnishing the image of the industry with little experience,” Abramov said.
Is now a good time as any to enter the business?
Herio Capital Breaks $20 Million in Funded Deals
March 9, 2016
It might feel like 1997, but in early 2016 Herio Capital has surpassed $20 million in funding since inception. Co-founded by Sherif Hassan, the company’s chief executive, Herio launched only one year ago. Hassan was one of OnDeck’s first employees who stayed with the company all the way up until just before they went public.
Today, Hassan does not appear to be regretting that choice. “We have lots to be grateful for and even more to be excited about in 2016,” he said.
The company’s chief product officer and co-founder, Patrick Janson, summed up their vision like this, “When we started Herio, we saw a huge opportunity to improve upon the software that currently supports the marketplace lending industry.”
The Herio team will be attending the LendIt Conference in San Francisco next month.
“Reaching the $20 million funding milestone is a testament to the execution, creativity, and diligence of everyone at Herio. We are grateful to our team and our loyal industry partners. We are excited about the advancements our industry will make in the next period as we continue to design the future of credit,” concluded Hassan.
Yellowstone Capital Welcomed to New Office Location By City Mayor
March 8, 2016
It’s a change of scenery, insiders at Fundry subsidiary Yellowstone Capital say about their new office.
The company has officially relocated from 160 Pearl Street in Manhattan to 1 Evertrust Plaza in Jersey City. On their first day in the new location, Jersey City Mayor Steven Fulop made an appearance and posed for a photo with company executives Isaac Stern and Jeff Reece to celebrate their arrival. Aside from outgrowing the NYC office that they operated from for years, Yellowstone was wooed to the State by the New Jersey Economic Development Authority to create jobs in the area in exchange for a tax incentive. The hundreds of employees they bring with them to the neighborhood now will also serve to stimulate Jersey City’s burgeoning economy.
The company originated close to half a billion dollars in funding for small businesses in 2015.
Just one stop from the Path Train’s World Trade Center station, Yellowstone’s new office environment makes it feel as if the company has been transported a million miles away. deBanked was given a tour of the new space, which at 25,000 square feet, was easy to get lost in. One employee said the upgrade from their previous location felt so immense, that it felt like they had moved to Japan.
A clear view of NYC’s Freedom Tower from many of the floor’s windows assures them that they are not that far.
Merchant Cash Advances Costly But Not Opportunistic, Fed Study Finds
March 6, 2016Only 71% of business owners that apply for a merchant cash advance actually get approved for them.
Equipment loans, commercial mortgages, and company vehicle loans all have higher approval rates than merchant cash advances, a comprehensive Federal Reserve study revealed. Lines of credit were approved just as often as merchant cash advances. Right behind them were business loans and SBA loans at approval rates of 69% and 59% respectively.
The statistics disprove the theory that merchant cash advance companies don’t underwrite or that they are doing so recklessly at the expense of their small business customers.
Only 7% of small businesses have ever even applied for a merchant cash advance.
The propensity to apply for a merchant cash advance ranked higher among businesses less than two years old and those seeking less than $100,000.
Notably, small businesses reported being much less satisfied with online lenders than banks, but overwhelmingly cited cost as the reason behind it. Big banks scored worse on transparency than online lenders among dissatisfied borrowers.
The findings are not surprising. 35% of small businesses said that speed of the decision process was a factor influencing where they applied. 37% said ease of the application process was a factor and 40% said the perceived chance of being funded played a role.
In these areas, online lenders walloped small and large banks. More than 50% of dissatisfied bank borrowers fingered a difficult application process as a reason and more than 40% said it was the long wait for a credit decision.
The results fall in line with expectations, that speed and ease often come at a cost. However, merchant cash advance companies do not appear to be approving applicants just to opportunistically charge a high fee. The approval rates are in line with other types of financial products, and are even less likely to be approved than a mortgage.
PayPal’s Merchant Cash Advance Program Grows, Performance Improves
February 27, 2016The PayPal Working Capital program has advanced more than $1 billion to small businesses since inception. Rooted in merchant cash advance methodology since PayPal withholds a percentage of each transaction until receiving payment in full, they are not actually buying future receivables. Rather, they originate loans through WebBank, the same Utah-chartered industrial bank that OnDeck uses. But OnDeck’s payments are fixed and PayPal’s are tied to sales activity.
PayPal’s loans therefore don’t have a fixed term but they evaluate historical sales activity and use that to project a loan payoff usually within 9 to 12 months. According to their Q4 2015 earnings report, their 2015 results performed just as well if not better than their 2014 results.
$421 million was outstanding at the end of 2015 compared to $103 million at the end of 2014. 77% of the $421 million was on pace to pay off within 30 days of their planned projections. 11.16% was on pace to finish 30-59 days beyond them. PayPal broke it down by dollars in their earnings report.
But we’ve broken it down into percentages below:
| Total outstanding balance | Within Projections | 30-59 days greater | 60-89 days greater | 90-180 days greater |
| $421 million | 77.43% | 11.16% | 4.99% | 5.70% |
| Total outstanding balance | Within Projections | 30-59 days greater | 60-89 days greater | 90-180 days greater |
| $103 million | 76.70% | 9.71% | 4.85% | 6.80% |
PayPal borrowers cannot simply stop accepting PayPal payments in order to avoid loan repayment. They are required to pay at least 10% of their total loan amount (loan + the fixed fee) every 90 days so that they make consistent repayment progress regardless of their sales volume. Notably, their website warns, “If you do not meet the requirements in the above policies and your loan goes into Default status, your entire loan balance could become due and limits could be placed on your PayPal account.” For businesses that depend on PayPal sales, that is certainly a downside worth avoiding.
Steal A Deal, Go To Jail – MCA Broker Takes Fight Over Backdoored Deals To Law Enforcement
February 22, 2016
A suspicion over stolen deals has led to the arrest of a sales agent, deBanked has learned.
It’s yet another case of a deal slipping out the back door, one that resulted in handcuffs, according to multiple sources familiar with the matter. deBanked obtained evidence of the arrest, which happened earlier this month, and confirmed the identity of the individual charged.
A sales agent’s ill-fated meeting with law enforcement began when an MCA brokerage suspected their hard-fought applications were being rerouted to a third party by way of a New York based funding company they usually submit to, according to one source. To confirm these suspicions, they submitted at least one funding application that was tagged with a specially designated phone number that they possessed. The tactic would allow them to do a clean trace on their deal by seeing who called upon that number, multiple sources confirmed.
Sure enough, someone other than the funding company reached back out to them, not knowing it was a trap. Unfortunately, that call wasn’t conclusive enough to connect it to the funder, according to one source. The sales agent attempting to snatch the deal wasn’t employed by the funder and the funder wasn’t sure how the sales agent was getting the deal in the first place. Somehow this guy was getting data he wasn’t supposed to be getting and the funder wanted nothing more than to make sure their integrity remained intact, a source said.
The victimized brokerage set their sights on the rogue sales agent and together with the cooperation of the local police department, apparently staged a sting operation. The rogue agent allegedly attempted to sell the stolen deal data to an undercover cop who was assisting with the case.
The suspect was charged with criminal possession of computer related material, a Class E felony, and released on recognizance three days later, according to arrest records obtained by deBanked. The penalty for such a crime can earn an offender up to 4 years in prison.
The funding company and brokerage are reportedly both relieved to have gotten to the bottom of the issue. Notably, in this case of deals slipping out the back door, it was the alleged recipient of the stolen deals that was charged. The hole that allowed him to get those deals in the first place has apparently resolved itself, sources said.
In the September/October 2015 issue of deBanked Magazine, interviewed MCA brokers agreed that the industry should police itself when it comes to backdooring. One brokerage, although not one that was named in that article, apparently took that advice literally when they enlisted the police to assist them.
All the sources to this story agreed that the arrest should serve as a warning. Backdooring deals has to stop, they concurred.
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The name of the accused and the names of the sources in this story were kept anonymous because it’s an ongoing criminal matter. The suspect is innocent until proven guilty.
Loan Brokers or Self Origination? Here’s What Experts Say
February 22, 2016
Last year belonged to the brokers in alternative finance — with a phone and a few leads pulled up online, anyone could sell a loan. With seemingly no barriers to entry, alternative lending attracted auto and insurance salesmen fleeing their jobs to cash in on the gold rush in an economy which was coming out of the shadows of distrust for big banks. And it found quick ascension to grow into a trillion dollar market.
But a year on, as the dust has settled, we asked industry veterans what it means to remain successful in this business and what is the key to sustainability — is it in going for the ISO/broker channel to find deals or originating your own.
Here’s what they had to say
Don’t Break the Broker
Tom Abramov of MFS Global voted for the ISO/broker channel and said that that’s how the company strictly does deals, working with brokers who have a track record as a part of their recruitment system. The six year old company that started as an broker shop now focuses only on funding with products that are a mix of merchant cash advances and lines of credit.
“We don’t look at FICO scores or SIC codes, we only look at cash flows of businesses,” said Abramov. “I want to see if I give a someone a dollar whether they can turn it into two.”
Abramov added that his firm offers brokers 20 percent commission and their default rates are sub 5 percent.
The advantages of scoring deals through a broker channel can be alluring. It involves no overhead, no staff that needs compensation, motivation and incentives, and makes use of the existing broker-merchant relationships.
Jordan Feinstein of NuLook Capital said that his firm works with brokers exclusively and the model has helped them respond to merchants faster. “We do not have a sales team speaking to merchants directly, that’s in conflict with our model,” said Feinstein. “We decided that the best way to grow is to build relationships to avoid the overhead, compliance, training and manpower that a sales team would require,” he said.
Building a Hybrid Model
There are some others who want to make the best of both the models and work with brokers while originating and funding their own deals. Forward Financing which uses a hybrid model has strategic partnerships with some brokers while still originating their own deals. “We have a hybrid model because our goal is to have a program for any type of business and work with companies across the spectrum of risk,” said Justin Bakes, CEO of Forward Financing. “While our priority is to self originate, it is essential to create and maintain partnerships in this business,” he said.
The Original Origination
While the allure of a lean business is certainly attractive, there are some who are in the industry to build a bigger business and create value by making it robust — Jared Weitz of United Capital Source is one of them. “There is a big market for both analytical process as well as sales process. It’s important to go after your strength,” said Jared Weitz, founder and CEO of United Capital Source. “When you originate and fund your own deals, you’re in a rewarding position and in control of how merchants get treated.”
Industry Trends
Speaking of the industry in general, these experts agreed that the business was undergoing a change with new entrants coming in and experimenting with better services and technologies.
“Last year was the year of brokers but we are still missing the education with merchants. Some brokers are interested while some are not,” said Abramov.
“I notice a clear difference between the old and the new in terms of technology and pricing model,” said Bakes.
“New funders are coming in with different products and terms with increased competition in the ISO market,” said Feinstein.
“Marketing is getting more expensive and only the ones who can afford to pay can play,” said Weitz.
