merchant funding
How One CEO Unified Two Companies with Different Cultures on Different Coasts
March 21, 2018
Company mergers, like marriages, have their pros and cons. Some are more successful than others and many say it’s unwise to rush into one. This is certainly the approach Adam Stettner adopted when he, as CEO of San Diego, CA-based Reliant Funding, oversaw the merger of his company with Merchants Capital Access, based in Melville, NY on Long Island.
At the time of the merger in April 2015, Merchants Capital Access was an MCA funder. According to Stettner, they were what he considered a “back end” as they didn’t do marketing or sales. They did underwriting and funding, but they did not originate any new business.
Reliant Funding, which Stettner led, did almost the inverse. While it did some cursory underwriting, it mostly marketed and sold funding to small businesses. It would also package small business merchants and place them for appropriate funding. But they did not fund directly. So, it seems, these two companies made for a perfect marriage. They completed each other. But not so fast.
Even though Stettner had considerable experience working as a direct lender in the student loan business prior to taking the helm at Reliant Funding in 2008, he didn’t feel ready to dive into funding a different type of client. (Stettner said he originated and held on his balance sheet $15 billion in student loans at National Lending Associates, a San Diego company he co-founded.)
“I felt like it was easy for somebody to come into the [merchant advance] space and start writing checks and funding businesses,” Stettner said. “It’s hard to figure out how to get that money back. So instead of jumping in with both feet, I thought it would be wise to really understand our target demographic, our end user, the small business owner.”
So while the technical merger of Reliant Funding and Merchants Capital Access happened in April 2015, the newly enlarged entity operated as two distinct brands until September 2017.
During this period, Stettner said, “we were studying everybody’s credit models and the best way to approach American small business owners, the best way to fund them, the best way to service them, and ultimately, the best way to renew them.”
This roughly two year period between the time of the actual merger and the official fusion of the two companies, now simply called Reliant Funding, was not just for Stettner to learn about funding small businesses. A lot more needed to happen to sync together a southern California company and a New York City-area company, each with different corporate cultures, attitudes and ways of getting work done.
“Getting 150 people with different views on work, culture, approach and strategy wasn’t easy,” Stettner said. “But it was definitely worthwhile and it was a lot of fun. There were times, of course, when it was frustrating as well.”
The stereotype of southern California being more laid back doesn’t hold up, according to Stettner, who grew up in New York and has worked in southern California for 14 years.
“While the environment may be laid back in appearance, the effort that’s put forth and the intensity that exists in the southern California office is no less than what you see out from our New York office,” Stettner said. “Both work incredibly hard and have great attitudes.”
However, he did say that the original culture in the New York office (formerly the Merchants Capital Access office) was much more centered around management decisions and Stettner made a point of bringing a culture of empowerment to that office.
What does that look like exactly?
“We talk [with employees] not only about the top line numbers, but also the bottom line numbers with the idea of empowering everyone,” Stettner said. “It’s important to me that everybody knows the why behind what we do. If people understand why we do something, it’s easier for them to get behind it, and they’re better equipped to offer an opinion that can help get us there faster.”
Now as Reliant Funding, Stettner said that the company is fully integrated under the one brand with unified systems and technology. The company is a funder with a sales team focused on direct origination. It also continues to grow what Stettner calls the wholesale channel or broker channel.
Lend360: The Industry Event of the Year
September 5, 2014It’s being called the full circle of lending. Non-bank business lenders, merchant cash advance companies, peer-to-peer lenders, consumer lenders, lead generators, and Wall Street tycoons are descending on New Orleans from October 14th to 17th to attend Lend360. I’ve partnered up with the event through the DailyFunder name.
From the governmental arena, Governor Bobby Jindal (left) and U.S. Senator David Vitter (right) are speaking at the conference.
On the business side, here are some speakers you might recognize that are definitely confirmed.
- Brendan Carroll, Victory Park Capital
- Brendan Ross, Direct Lending Investments
- Scott Termini, Direct Media Power
- Bob Coleman, Coleman Report
- Heather Francis, Merchant Cash Group
- Nick Owens, Magnolia Strategic Partners
- Sean Murray, DailyFunder (myself)
- Ken Rees, Elevate
- Mark Curry, Sol Partners
- Sasha Grutman, MiddleMarch advisors
- Al Wild, Crest Financial
- Mark Doman, eBureau
- Tim Madsen, PartnerWeekly
- Dickson Chu, Ingo
- John Hecht, Jeffries
If you’re involved in MCA or business lending, you NEED to be there.
Here’s the most recent version of the agenda:
October 14-17, 2014 New Orleans, LA
In Partnership with
| REGISTER TODAY |
What Would Barney Frank Say?
July 16, 2014While crowd funders navigate the JOBS Act and a possible revision to what constitutes an accredited investor, non-bank business lenders are raising eyebrows with sky high interest rates. Annual Percentage Rates (APRs) are reaching into the triple digits and critics are reaching for their megaphones to say something about it.
Unfortunately APRs don’t spell out the true dollar for dollar cost, a flaw pointed out by OnDeck Capital CEO Noah Breslow in regards to daily amortizing loans. In the June Access to Capital Small Business Panel, Breslow explained that a 60% APR loan could actually only cost 15% on a dollar for dollar basis over 6 months simply because of daily amortizing.
Still, the figures make for enticing headlines and it is to be expected that they will come under greater public scrutiny as time goes on.
In an opportunity I got to speak one-on-one with former Congressman Barney Frank in June, he offered some pretty interesting thoughts on the governance of business to business transactions.
Frank, who was the key author of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in 2010, was a longtime champion of consumer financial protections. But he sings a different tune when it’s all about business. Many people may not realize that he opposed the Durbin Amendment of the Dodd-Frank Act, the addition that placed caps and restrictions on debit card interchange fees. Federal restrictions on how much a business can charge another business? Not his thing…
Unsurprisingly then when I asked him if he’d be in favor of a federal cap on business loan interest rates, he sternly replied, “no.” He went on to say that he supported transparency in business loan transactions, such that the borrower should be easily able to identify the terms, but that the premise behind consumer loan protections was that consumers were less sophisticated.
Curiously, there are a few states that impose caps on commercial interest rates, making the regional landscape for high rate business lenders a little bit tricky. In a recent publication by financial law firm Hudson Cook, they spelled out federal laws that already govern business loans.
To date there has been no legislative activity related to merchant cash advance or alternative business lenders. If such discussion did arise though, it’s ironic to say that one of the most liberal congressmen of the last decade, a man who wrecked Wall Street, would stand to make an excellent champion of the alternative business lending cause.
I never thought I’d say this, but too bad the guy retired.
Is Awareness of Alternative Lending Still Low?
July 4, 2014
Prosper’s President Ron Suber and LendingClub’s CEO Renaud Laplanche have previously explained that there is still a large opportunity for growth because most people still don’t know non-bank lending options exist.
As cited on LendingMemo, Renaud Laplanche admitted the reason they are even considering an IPO is “to use it as an opportunity to raise awareness for the company.” He continued by saying that they don’t need capital so the purpose of their IPO aspirations “is a lot of free advertising.”
In casual conversations with business owners, friends, and new acquaintances I’ve asked if they’ve ever heard of merchant cash advance, p2p lending, or companies like OnDeck Capital and LendingClub. The answer is almost always ‘no’.
That means there is still a lot of work to do.
In this CNBC interview Funding Circle acknowledges that many business owners aren’t aware of alternatives and explains what makes them different.
Make Your Voice Heard
May 29, 2014Have an opinion on which way the industry is headed? Or eager to read about events that you feel are most relevant? DailyFunder is running a preliminary research survey geared towards those involved in merchant cash advance and alternative business lending. It’s completely anonymous and it will be used to help steer the direction of DailyFunder, the only alternative business lending publication. That means we want to know how you think, what you think, and what you care about.
Collected responses already prove that industry insiders have a lot to say, especially in the write-in questions. So go and make sure your voice is heard. It’s anonymous and it’ll only take a minute or two.
Some of the statistical results may be published in the next issue of the magazine.
START SURVEY
The Real Impact on Small Business
May 22, 2014
It’s not easy being in the lending business. Just talking about money can make people uncomfortable. Bringing up how much money you have, don’t have, or wish you had is like bringing up politics at Thanksgiving dinner. It’s taboo in this society. It’s even rude to ask somebody how much they make a year. That’s one of two reasons why being a lender or loan broker is so difficult, you’re forced to dive head first into emotionally charged waters.
The second reason is telling an applicant ‘no’. It feels personal even if it’s not. “It’s just business,” the bearer of bad news will say, but it never feels that way. I know that firsthand through my experience as both a broker and an underwriter. Rejection is a painful experience for an applicant no matter how professional they are.
But sometimes you get to tell an applicant ‘yes’ and that can be an emotionally moving experience as well. Looking back, the only applicants I ever heard cry were the ones that got approved. Some of those approvals were expensive but they were given an opportunity in a world where up until that point, no one was willing to give them any opportunity at all. They were the forgotten businesses of America.
PayPal’s VP of SMB Lending recently said that he feels “blessed to be serving this higher need.” Blessed was an interesting word choice. Being able to support small businesses doesn’t just make him feel happy or hopeful or satisfied, it makes him feel blessed.
What is the real impact that alternative financing companies have on small businesses? Thanks to the funding companies who took the time to find out. Today, we can see for ourselves:
Above is just a small handful of the testimonials you can find on the websites of CAN Capital, Kabbage, RapidAdvance, Fora Financial, and Merchant Cash and Capital. Real businesses, real stories, real impact.
And there you have it…
Big Deal #2 Struck in MCA Industry
May 21, 2014
Another day, another capital raise for some company or other involved in alternative business lending. That’s the way it is these days, but the news about the American Finance Solutions (AFS)/CapFin Partners deal announced on Wednesday is markedly different.
It’s the Rockbridge Growth Equity (RGE)/RapidAdvance deal all over again, the welcoming of a major MCA company into a wider lending family. Though the release does not specify the amount of equity CapFin Partners acquired in the transaction, nor any valuation figure, the headline literally says it’s significant.
CapFin Partners is also a significant investor in Contintental Business Credit (CBC), an asset-based lender that’s been in operation since 1989. The CapFin deal will bring AFS and CBC together strategically. As said in the release, “the union of these two financial lending companies will widen the portfolio of services offered, which now include merchant cash advances, factoring and asset based loans.”
The design is strikingly similar to the RapidAdvance/RGE deal.
AFS/CapFin
The investment and close relationship with CBC will provide operational expertise, a diversified client base and a larger pool of capital for funding customers
RapidAdvance/RGE
By aligning with Rockbridge, we will leverage our new relationship with its portfolio of companies, bringing best practices and expertise to nearly every aspect of our business.
Both funders were founded in the pre-recession era, giving investors a chance to review performance and returns both through good times and bad.
Two years ago I predicted that “MCA will simply assimilate into other financial products.” As is the case with these two deals, it’s already becoming just one product out of many offered by financial institutions. Elsewhere in the industry, MCA companies are offering true loans to stay competitive and some funders are passing on MCA completely to focus just on traditional business loans with terms up to 10 years and traditional interest rates.
The AFS deal proved yet again though that there is a market to buy (or buy into) established reputable merchant cash advance companies. That should give hope to new funders that are trying to formulate a long-term exit strategy.
Congratulations to American Finance Solutions.
What if there were Trigger Leads?
April 27, 2014
Just recently, a user in DailyFunder’s forum complained that a deal of his had been poached by a competitor. There’s nothing new about that story, but it is what followed that drew interest. He was in the process of renewing his client for additional funds, when out of the blue popped up a competitor that called his client to tell them not to sign the contract they had in their hands until they heard his better offer.
As it was suspiciously timed and curiously specific, he decided to reach out to the alternative lending community for their thoughts. One possible conclusion offered was that the competitor was being fed trigger leads.
Trigger leads?????????????????
Forget UCCs folks. UCCs detail transactions that have already happened and we’ve all seen what they’ve done to the merchant cash advance and alternative business lending industry. Companies are scared to file them now. But what if all of your competitors were notified every time one of your deals was submitted to underwriting? You get the app signed, you submit the file, and the next day 10 companies have called your client to offer them a better deal on funding than whatever terms you were about to offer. What gives?
Popular in the mortgage industry, the credit bureaus can actually sell credit inquiry data to lenders. So imagine every time credit gets pulled on a deal, the merchant’s info is sent out to your competitors for a fee.
Dave Sullivan explains Trigger leads below:
There was no way to tell for sure if that was what happened in this situation, and I’ve yet to hear of trigger leads being used in the alternative business lending industry but if someone was getting them, I’m sure they’d want to keep their source top secret.
Can you imagine what kind of chaos would ensue if this became commonplace in our industry?
😉
