small business owners

NY Small Business Owners Protest $15 Minimum Wage

March 8, 2016
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Gov. Andrew CuomoSmall business owners in New York have registered dissent against Gov. Andrew Cuomo’s plan to raise the minimum wage in the state to $15 per hour, the highest minimum wage in the country.

In November last year, Cuomo announced that New York will raise the wages of permanent and seasonal workers to $15 by 2021. The business owners gathered in Albany on Tuesday to reject the proposal, claiming that the tax cut offered to ease the process is too little to offset the cost.

Small businesses generate roughly $950 billion in revenues annually and created 2 million jobs in 2014.

American Express wants to lend more to small businesses

February 10, 2016
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American Express hopes to tide over the bitter credit-card deal with Costco by lending to small businesses.

The two companies ended their 16-year partnership when Costco joined hands with Citi in March 2015. This June, customers will receive their Costco-brand Visa credit cards.

AmEx wants to turn its focus on what it is already familiar with — small business loans. In 2014, AmeEx cards for small businesses funded $190 billion in purchases, up from $122 billion in 2010, with enough reason to believe that there is room to grow the business.

AmEx hopes for the small-business loans to make up for the lost revenue from the Costco deal which accounts 20 percent of the company’s outstanding loans, according to a Reuters report.

 

The Importance Of A Profitable Business Model And Creative Financing For Your Broker Office

August 10, 2015
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EntrepreneurContinuing The Year Of The Broker Discussion, I wanted to touch on another aspect that isn’t discussed too often in our space (Independent Broker or Independent Agent space), and that’s the importance of creating a profitable business model and rounding up creative debt financing for our Office.

I believe it was the Roman Playwright, Plautus, that said, You must spend money to make money. This is certainly true for Independent Brokers and Agents, as we are entrepreneurs in every sense of the word, or if you operate a one man show like I do, then you would be more along the lines of a solopreneur which is new terminology floating around that refers to certain special entrepreneurs who run their business solo with full responsibility over the day-to-day operations.

However, despite the fact that one must spend money in order to make it, it begs the question as to why many new Brokers have very little networks, resources and other sources for financing?

Not only do they lack these resources, but many new Brokers also have not truly developed a scientific business model for their office based on: If I invest XYZ in data, marketing and all other aspects in association of producing 1 new closed deal, I would receive XYZ back into terms of the revenue off the initial closed deal as well as XYZ back in terms of recurring revenues on the renewals of said merchant.

Many new brokers lack both a scientific and profitable business model, along with efficient financing for said business model, which threatens their survival going forward.

Your Profitable Business Model

I argue with investors across the Investment Community all of the time in relation to which is better in terms of building the most Wealth, is it investing in Stocks or operating your own Profitable Business Model? I have always believed creating your own Profitable Business Model was the fastest way to Wealth due to the lack of control one has over the returns you can generate through the Stock Market. Commentators like James Altucher tend to agree with my mentality as he says: The best way to take advantage of a booming stock market is to invest in your own ideas. If you have an extra $50,000 don’t put it into stocks. Put it into yourself. You’ll make 10,000% on that instead of 5% per year.

I’ve always used a model of at least a 400% return within 24 months for operating my office because, not only did I have to cover business expenses and taxes, but I also had to cover my personal expenses, the funding of my emergency funds/savings, and the funding of my retirement accounts which includes SEP IRAs, Social Security, and Health Saving Accounts.

So for example, my model might have it to where if I invest $30,000 into my office, that should produce revenues of around $180,000 within 24 months, revenues include commissions from new deals, renewal deals, side processing residuals and other valued added products. This would leave a profit before taxes of $150,000 or a 500% return. Now the 500% range is just the benchmark used, in terms of actual returns, they have been at least double this amount due to my focus on maintaining clients for the long term as with recurring clients, there are no investment dollars spent on the acquisition of those additional revenues but they do continue to add to the overall “profitability” measurement of the original investment.

Utilizing this predictable model allows for the use of creative financing for leverage, cashflow management, along with the preservation of savings, and other investment portfolios. One of the tools I have been using for creative financing have been Credit Card No Interest Promotional Offers.

Using Credit Card Promotional Offers To Finance Your Office

I’m a Dave Ramsey fan like many Americans, but I’m totally against Mr. Ramsey’s consistent hammering of the use of “debt,” specifically the use of Credit Cards. Credit Cards are just like hand guns, if you put the gun in the hands of a solider, police officer, hunter, or a responsible home owner, then you protect human life, build nations and protect communities. If you put the gun in the hands of the common Chicago inner city street thug, then you get crime and homicide. If you put a Credit Card in the hands of a responsible person, the Credit Card is used to bring a variety of additional benefits to said user. But in the hands of an irresponsible person, the Credit Card just adds to their financial woes.

If you strive to keep your personal credit profile clean and with high efficiency, you should qualify for a number of Credit Cards that not just provide cashback rewards, but they provide short term financing in the form of 0% interest for 12 – 18 months, with a 1% – 3% upfront fee. This means you can receive an up to 18 month loan for only 1% – 3% in borrowing costs. These offers are not presented just when the card is opened, but they are generated usually on a monthly or quarterly basis.

So coming back to my business model, I might put that entire $30,000 on a credit card promo deal for 18 months with an upfront fee of 3%, which means the borrowing costs are $900. I would continue paying the minimum payment every month which is usually calculated as no more than 0.5% – 1% of the outstanding balance. I would invest the $30,000 into my business model and would have obtained the break-even return and profit measurement in a relatively short period of time (usually 3 – 5 months) and then be profitable on the investment. I would eventually end up paying off the outstanding balance on the Credit Card well before the promo period ends, which further increases my positive credit history allowing for larger credit limits to be requested.

Other Benefits Of Credit Cards Over Other Payment Options

Credit Cards also provide a host of other benefits including cashback rewards of anywhere from 1% – 45% depending on the reward category, these rewards and savings are not available through any other form of payment option. If you seek out cards with no monthly fees, setup fees or annual fees, you could run up balances, pay them off before the grace period ends, and obtain a stream of free income.

Credit Cards also include Chargeback Protection that can save you a significant amount of headaches down the line should you run into an unscrupulous vendor, or if you are the unfortunate victim of theft such as a robbery, identity theft, strong-arm theft, etc. For example:

  • If someone steals your wallet and goes on a “card swiping spree”, once you report your Credit Card stolen then you aren’t responsible for any of those transactions. This isn’t as efficient if you carried a Debit Card, as the money would be gone from your Checking Account until the Bank recovers the funds in 30 – 90 days, which might cause you some cashflow issues. If you carried Cash, the money might never be recovered.
  • If you ordered something from a vendor and didn’t receive it, you are protected with the use of Credit Cards. With a Debit Card or Check, it will again take 30 – 90 days for the dispute to complete with the Bank, however, throughout this period of time the money is still gone from your account until the dispute is over, which might cause some cashflow issues. If you used Cash for the order, the money might never be recovered in this case as even though you are likely to obtain a judgment by suing the vendor, the Courts do not assist you with collections.

To Wrap

In order to survive going forward as an Independent Broker or Agent, remember the importance of developing a profitable business model as well as having low cost sources of financing for said model. Credit Cards are one of the ways you can creatively finance your business model.

I’m on track to end the year with near or over $200,000 in total credit limit availability. This credit limit availability is spread out over a number of different accounts, but some of my favorite Credit Card Accounts include: The Double Cash Card ™ from CitiBank, The Discover IT Card ™ from Discover Bank, The BankAmericard Cash Rewards Card ™ from Bank of America, The Chase Freedom Card ™ from Chase Bank, The Upromise Mastercard ™ from Barclay’s Bank, The QuickSilver Rewards Card ™ from Capital One Bank, and The Blue Cash Everyday Card ™ from American Express.

The Funding Calls That Won’t Stop

November 23, 2014
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“Your business has been approved for a loan…”

Last week, Chicago Public Radio (WBEZ 95.1 FM) investigated a trend in the small business community, the use of merchant cash advance financing. The station called me in advance to answer some questions about merchant cash advances and I gave my best explanation of the industry and its products.

Of the discussion that lasted more than 30 minutes, only about five of my sentences made it on the air. While I clarify some of my positions below, it was sobering to learn the context of how they were used, as a defense to real life merchant complaints.

The satisfaction rate with merchant cash advances are pretty high and I say that mainly because it’s so rare to hear complaints from anyone other than journalists that can’t believe anyone would accept rates above 6% APR. And while there are indeed bad actors in the industry (as there are in any industry), the gripe one merchant had about phone solicitations that just won’t stop is a recurring theme.

It’s happening to me too.

As an account representative in 2010 calling real time leads sold to five parties at once, I did what anyone would do, I pretended to be a small business myself and inquired through the website that we bought leads from and entered my cell phone as the point of contact

Ring. Ring. Ring…

Within a half hour, representatives from four companies called me, and I learned exactly who my competition was, how they explained the product, and what they would say to win me over. Two of the four were really good and one even referenced my name personally, saying something to the effect of, “If you get a call from Sean Murray, his rates are worse than mine.” Obviously he had already done what I was doing now, which was pretend to be a small business so he could prove to the prospect he was well informed about the alternatives. He had heard my pitch already and was now throwing me under the bus by planting the seed that I was going to offer something more expensive even if it wasn’t the truth.

In the end none of them won because it was all a farce. One never called me again after the first call. Another kept at it for a week and the remaining two followed up for a month.

And then it got quiet…

I had been marked as a dead lead and forgotten about until three months later when one company sent a follow up email. “Smart,” I thought. But then a call came six months later, and then more emails, some from companies I didn’t originally engage with.

And they continued at regular intervals, every couple of months an email or call. Was it interesting? Yes. Annoying? No.

Until this year.

call centerThe volume of emails have slowed but I’ve somehow ended up on robo calling lists. “Press 1 to talk to a funding specialist or press 9 to be added to the Do Not Call list”

The press 9 option doesn’t work for me. Sure, I might be removed from that marketer’s list, but it in no way removes you from anyone else’s list. I knew that already of course because I’ve been on the other end before.

The first time I got one of these calls, I was excited to tell the sales representative who I really was, level with him, and explain that it was a really good idea to take me off the list. But much like other business loan robo call complaints, the representative wouldn’t tell me anything about himself or his company.

I got yelled at.

Every time I tried to ask a question, he’d get louder, insisting I tell him my monthly gross sales volume for the “cash advance I wanted.”

A rogue actor maybe, but I’ve since gotten additional business loan robo calls and have made no progress in getting myself removed. I just hang up now.

Call it sweet irony perhaps. Or maybe a wake up call (pun intended). I applied on a website once four years ago and the rest is history.

My experience with repeat solicitations is marginal compared to somebody that has actually used a merchant cash advance. With the filing of a public UCC-1, anyone in the industry can easily access that data and convert it into a marketing list. And they do.

Brokers that scorn UCC marketing acknowledge that these businesses could be getting called 5-10 times a day. My own clients had reported repetitive calls back when I was an account representative. And while UCC marketing is very cost effective, in today’s market where more than a thousand companies are offering similar financial products, it’s probably safe to say it’s overly saturated.

And if 5-10 calls per day were even remotely accurate, I’d surmise that level of volume is marring the industry’s reputation as a whole.

I could argue though that when customers have a great many options to choose from, they win. With more than a thousand companies offering merchant cash advances and business loans, it’s truly a buyer’s market. Play all the companies against each other and you should end up with the best possible terms. It’s a great time to seek capital.

Except we’ve got to do something about those phone calls, or at least the robo calls.

Every angry robo dial recipient becomes one less person likely to speak positively about the the nonbank financing industry. Aged leads, UCCs and phone calls might be inexpensive, but the cost to undo negative preconceived notions is immeasurable.

Do you want to be known as the company that helped small businesses or the annoying people that won’t stop calling? If merchants are taking to the air waves to complain, it will only be a matter of time before the FTC and FCC become interested.


Regarding my comments on the radio about APRs and daily amortization, they were pulled from a conversation that compared daily payment loans to purchases of future sales. I DO believe bad actors exist and every business owner should have an accountant, lawyer, or savvy third party review any contracts they enter into, financial or otherwise.

Access to Capital – A Dose of Reality

June 15, 2014
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So much for a lack of transparency… While sitting directly next to Maria Contreras-Sweet, the head of the Small Business Administration, OnDeck Capital’s CEO corrected U.S. Senator Cory Booker’s comments about the APR of their loans. High teens? Not so, said Noah Breslow who explained their average 6 month loan has an APR of 60% even while costing only 15 cents on the dollar.

Why is access to capital so expensive? Rob Frohwein, the CEO of Kabbage said that up until recently his company was borrowing funds at a net rate of more than 20% APR. In order to turn a profit, they had to lend at a rate much higher than that.


The Access to Capital small business panel included:
Maria Contreras-Sweet – Head of the U.S. Small Business Administration
Noah Breslow – CEO, OnDeck Capital
Rohit Arora – CEO, Biz2Credit
David Nayor – CEO, BoeFly
Rob Frohwein – CEO, Kabbage
Paul Quintero – CEO, Accion East
Rohan Matthew – CEO, Intersect Fund
Jonny Price – Senior Director, Kiva Zip
Jeff Bogan – SVP, LendingClub
Steve Allocca – Global Head of Credit, PayPal
Jay Savulich – Managing Director of Programs, Rising Tide Capital

The Deal

May 25, 2014
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When times are tough, small businesses take chances. Last year, a family run business in Cohasset, MA made a snap decision and agreed to a $75,000 loan with infinity percent interest, literally. The principal was completely repaid in just 74 days but as per the contract, they still had to make fixed interest payments for as long as the business was open.

It wasn’t necessarily a good deal. Heck, some might think it was a really bad deal, but they got the cash when they needed it. The perpetual fixed payments kicked in after the principal was repaid because the lender structured them as royalty fees. A normal merchant cash advance will take a percentage of a merchant’s sales up until a predetermined amount has been satisfied, but this deal required a percentage forever. Is Wall Street running amok yet again? Shouldn’t people be monitoring stuff like this?

As it would turn out, about 6.5 million people were witness to this transaction. More than half of those people, most of whom are hard-working American families, cheered the business owner on. That’s because this deal had nothing to do with Wall Street and did not involve a commercial loan broker.

The business is named Wicked Good Cupcakes and it’s a deal they made on Shark Tank, a hit TV show on ABC. Kevin O’Leary loaned them $75,000 and took a percentage of every sale until he was repaid just 2.5 months later. Since then he is taking a permanent royalty of 45 cents per cupcake sold.

As quoted in the Boston Business Journal

“The royalty deal has worked great for us,” said Tracey Noonan, the CEO of the company.

Many people told her immediately following the deal that she was stupid. But today, Wicked Good Cupcakes is doing better than ever.

O’Leary, whom the business owners called an “angel in disguise” has referred to the deal as one of the most phenomenal ever made on the show. Wicked Good Cupcakes is actually on pace to do $3 million in revenue in 2014.

While it’s true that part of their success is due to the appearance on the show, nowhere does it say that entrepreneurs have to agree to take a deal if offered one. That means the owners could have walked away from O’Leary’s offer and still experienced the same post-show hysteria of celebrity. But they needed the money… and there was an offer on the table. It wasn’t the best deal, but it was A deal.

And that’s the nature of business. Everything is about circumstances. You could be flush with cash or in a pinch, growing fast or playing defense. All the while opportunities and obstacles approach from every turn.

sharkUnlike consumers who are afforded protections from making decisions that might not be in their best interest, small businesses are free to pursue whatever strategy they want. The best part about capitalism is that you’re the master of your own destiny.

The terms O’Leary offered to Wicked Good Cupcakes were not unique. Just recently in the 12th episode of Season 5, he offered a $100,000 loan to Tipsy Elves that once repaid, would still require payments in perpetuity in the form of a royalty fee for every sale. That’s an equivalent APR of infinity. In the end, they turned it down and went with Robert Herjavec’s equity offer instead.

Many viewers have taken to twitter to share their doubts about the viability of the Tipsy Elves business model, which is selling ugly Christmas sweaters. That healthy dose of skepticism is something alternative lenders are no strangers to, and as such they tend to price their deals accordingly.

Even deal making that is done on TV in front of millions of witnesses can go sour. Just ask Marcus Lemonis, the star of the TV show The Profit, who recently made a deal with a business in my own backyard, A. Stein Meat Products in Brooklyn, NY. After learning the business was on the brink of insolvency, Lemonis offered them a cash lifeline in exchange for buying their Brooklyn Burger brand at a bargain price of $190,000. In any other circumstances, that deal might not have happened.

Lemonis expeditiously wired them the cash, but never got what he paid for in return. Mora and Buxbaum, the owners, claim the funds were a loan but they have never made a payment. Defaults like these happen every day, especially in alternative business lending.

The entrepreneur applies for a business loan, the loan gets made, and the borrower quickly defaults. The result is that the price goes up for the next guy. That’s the risk part that lenders always talk about, the odds that they’re not going to get paid back. If every business repaid their loans, the average cost of financing in alternative business lending would probably be about 6% a year, around what an A rated personal loan costs on LendingClub, instead of the high double digit or triple digit rates that exist now.

Even Kevin O’Leary isn’t taking any chances, hence he protects himself by charging infinity percent interest, and America thanks him every Friday night for blessing entrepreneurs with an opportunity. It’s not the best deal, but it’s A deal.

Small business owners are sophisticated enough to make tough decisions all on their own. That’s the reason we can put them in the public eye, in front of more than 6 million people who either cheer for their success or literally cry out for their demise. These entrepreneurs don’t go on Rainbow & Unicorn Tank, they go on Shark Tank. Sometimes the entrepreneurs walk away with a partner, sometimes they get a loan with infinity percent interest. In the end, it’s their choice, a choice that 36,000 small businesses hoped they would have in 2012. That’s how many applied to be on the show that year.

Business is business and a deal’s a deal. The ball’s always in your court…


Quotes from Kevin O’Leary

Business is war. I go out there, I want to kill the competitors. I want to make their lives miserable. I want to steal their market share. I want them to fear me and I want everyone on my team thinking we’re going to win.

Here’s how I think of my money – as soldiers – I send them out to war everyday. I want them to take prisoners and come home, so there’s more of them.

You may lose your wife, you may lose your dog, your mother may hate you. None of those things matter. What matters is that you achieve success and become free. Then you can do whatever you like.

I’m not a tough guy. I’m just delivering the truth and only the truth and if you can’t deal with it, too bad.

Nobody forces you to work at Wal-Mart. Start your own business! Sell something to Wal-Mart!

Don’t cry about money, it never cries for you.

The only reason to do business is to make money; that’s the only reason for doing business.

Money has no grey areas. You either make it or you lose it.

Working 24 hours a day isn’t enough anymore. You have to be willing to sacrifice everything to be successful, including your personal life, your family life, maybe more. If people think it’s any less, they’re wrong, and they will fail.

I have met many entrepreneurs who have the passion and even the work ethic to succeed – but who are so obsessed with an idea that they don’t see its obvious flaws. Think about that. If you can’t even acknowledge your failures, how can you cut the rope and move on?

I don’t mind rude people. I want people that I can make money with, so if their executional abilities are good, and they’re arrogant and rude, I don’t care.


Can you handle it?

The Real Impact on Small Business

May 22, 2014
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the truthIt’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…

Federal Reserve Examined Alternative Business Lending

March 20, 2014
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Federal ReserveBack in January, 3 staff members of the Federal Reserve board investigated peer-to-peer (p2p) business lending, particularly by comparing it against p2p consumer lending. It offers this introductory background, “As distrust and dissatisfaction with commercial banks grew during the recent financial crisis,there was large growth in nonstandard types of borrowing arrangements.” That’s usually where we’d segue off into a discussion about merchant cash advance but it was the p2p model that had them so intrigued.

As it is a 28 page study, I have pasted the excerpts I felt were most relevant with my comments on top. The link to the full report is at the bottom:

Something I’ve noticed a lot myself:

Small business owners often intermingle their personal and business finances

Something Lending Club might want to think about a day after they announced business loans with an interest rate of 5.9%:

Our results indicate that loans for small business purposes were more than two-and-a-half times more likely to perform poorly.

Do merchant cash advance companies face a similar risk?

Between 2006 and 2008 peer-to-peer lending grew steadily. It hit a snag in 2008 when the SEC determined that their loans should be classified as securities and, thus, regulated. This led both Prosper and Lending Club to put any new loans on hold until they properly registered with the SEC.

Yup.

Lending to small businesses is generally considered to be riskier and more costly because small firms have higher failure rates and are more vulnerable to downturns in the economy. Lending to small businesses is further complicated by their informational opacity. Most do not have the detailed financial statements

Lending Club had higher decline rates in high risk states.

while Florida was home to more than 4,000 applications for small business loans, fewer than 300 of them were funded

We’ve all seen deals where the merchant requests much more than we’d ever feel comfortable with:

requesting greater amounts of money decreased the likelihood of a loan being funded; each additional $1,000 requested decreased the likelihood of funding by about 4 percent.

Rest assured, the government will be watching and measuring the impacts all the while. Do higher cost, low paperwork loans impact small business longevity? I’m reminded of the raging stacking debate taking place in the industry right now…:

As small business owners are increasingly turning to this alternative source of money to fund their businesses, policy makers may wish to keep a close eye on both levels and terms of such lending. Because such loans require less paperwork than traditional loans, they may be considered relatively attractive. However, given the relatively higher rate paid on such loans, it may be in the best interest of the business owner to pursue more formal options. More research is required to understand the long-term impact of such loans on the longevity of the firm and more education to potential borrowers is likely in order.

Download the Federal Reserve Report HERE.

What’s the Reason Behind the Rise of Non-bank Financing?

March 6, 2014
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OnDeck Capital CEO Noah Breslow is no stranger to CNBC. Just as word hit the press that his company had raised another $77 million, he made a television appearance to discuss their success.

So why are small businesses owners turning to alternatives?


Many businesses that use alternatives such as OnDeck qualify for traditional bank financing and use the alternatives anyway. Now that’s something to think about…

How Will Obamacare Affect Small Businesses?

December 12, 2013
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It’s one thing to assume how small businesses feel about Obamacare and another to hear it straight from the horse’s mouth. New York-based funding provider Merchant Cash and Capital surveyed their clients and this is what they learned:

  • Nearly one third of respondents believe the Act will increase operational expenses.
  • 40 percent aren’t sure how it will impact their business.
  • One in four respondents said they will halt any growth initiatives in the near future as a result of the Act.

Additional survey details

Infographic from MCC
obamacare infographic

Can An Increase In Cosmetic Surgery Open New Markets For You?

November 13, 2013
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cosmetic surgeryAs reported by the American Society for Aesthetic Plastic Surgery, cosmetic surgical procedures have increased more than 3 percent in the past year, with approximately 1.7 million procedures performed in 2012*. This may not appear to be a drastic rise, but considering that in the past 16 years the number of cosmetic procedures for women has increased over 252 percent*, it is clear that this market is growing exponentially.

However, although more people might be opting for cosmetic procedures, it does not necessarily mean that more people have the funds readily available or are being approved for financing for such procedures. These can include anything from cosmetic surgery, Lasik eye surgery, cosmetic dentistry or even hair replacement.

When individuals do not have the money right away for these services, they typically can select the option of financing through their selected doctor’s office, if offered, or CareCredit, a credit card designed for patient health, beauty, and wellness needs. But if they are denied, where can they turn to next?

Healthcare industries now have the opportunity to offer an additional method of patient financing to guarantee patients have every possible option to obtain the funds they need for their desired service. External business financing institutions that provide healthcare and patient financing enable practitioners to ensure that no matter what, there is a way for a patient to obtain their desired procedures.

carecreditOne of our close partners, a national Lasik surgery provider, has been able to expand their business by taking advantage of such financing services. As a national Lasik provider performing more than 950,000 procedures over the last 14 years, our client has been able to improve their CareCredit financing approval rates from an approximate 50 percent to almost 100 percent.

When denied CareCredit, the patient then has the option to get interest-free financing directly from any business financer. With a small deposit of varying percentages to the provider for the procedure, the doctor is removed as the middleman. This works as a non-recourse transaction, as the patient deals with the external financer directly for their monthly payments. These occur in small installments for the general option of 12 to 24 months, offering the patient flexibility without worry.

What opportunity does this present to ISOs? With the option of these new services, there is the potential for growth into an expanding and relatively untouched market. When offering this solution to doctors and medical providers as a method of subprime patient financing, the doctor can be assured of increased clientele and traffic growth for individuals who may have been previously denied by existing financing options. In addition, as many independent sales operatives currently work with credit card processors, this can only be seen as one more desirable service or market to explore.

* Reference source: http://www.surgery.org/media/news-releases/cosmetic-procedures-increase-in-2012

The Entrepreneur

October 13, 2013
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entrepreneurial warriorsThey paint their faces, they unsheathe their swords. They look fearless even if they are in fact full of fear. Some wear a full body of armor and others have no armor at all.

We’ve all seen them, but they are not easily understood. The entrepreneur storms the castle not because he believes he will be victorious in doing so, but because he believes the castle must be stormed. He does it with a purpose and intent that is all his own. Some do it for riches and some for recognition. Others do it simply to change the status quo.

Call it an innate desire for conquest in modern times. An empire of widgets or influence is not much different than the empires of land and resources of yore. When an entrepreneur looks in the mirror, he sees his blood, his sweat, his tears. He sees scars that others cannot. Eyes burning, jaw clenched, he reminds himself that he will not go quietly into the night.

There is an acknowledgement that even if the worst should happen and the pursuit fails, that all has not been in vain, that it was a great honor to have gone down trying than to have not tried at all. One should imagine each failed startup contributing to a greater purpose, as felled warriors being greeted by the ancient valkyries of Valhalla.

Every entrepreneur has that first moment. The moment where they finally take the plunge and risk it all. It’s a moment they can’t take back and wouldn’t even if they could. Completely surrendering to the risk of total failure to pursue self-created success is an event that forever changes a man’s psyche. So empowered is that individual when they exchange their hard hat and workman’s gloves for a battle axe and chainmail. It’s as if pandora’s box opens and all at once they learn that they and they alone control their destiny.

Metal clangs, horses neigh. The entrepreneur roars and charges ahead. The crowd wonders, “why does he do it?” and the enemy wonders the same. Sword unsheathed, gaze steady, fearless looking even if full of fear. Not everyone can be like them. Some wear armor and others not at all. They come from all different backgrounds and circumstances. They storm the castle not because they believe they will be victorious, but because they believe the castle needs to be stormed. They do it because they must do it, because there is no going back. They do it for riches, for recognition, for change, for passion, for happiness, for love, for the challenge, for conquest, for their honor…

Are you an entrepreneur?

The Economics of Lending: Money vs. Goods and Services

May 21, 2013
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dvd or cash?If I were to offer you the choice between a free DVD with a retail value of $20 or a free $20 bill, which one would you take?

Unless the DVD was something you were going to buy anyway or unless it was a rare item that is hard to find, you’d probably accept the cash. I would too, and that’s because I can turn around and exchange the $20 for anything I want. This isn’t to say that someone wouldn’t accept a DVD and give you something of value in return. You could probably do this but it would be a hassle compared to buying something with cash. Cash is the ultimate liquid asset. It has the same numerical value to all that evaluate it and it is acceptable everywhere.

If this is the case, then why do governments set limits on transactions that only involve cash vs. transactions that involve cash in exchange for a good or service? The reference I’m making here is to usury. Many states govern the interest that can be charged on a loan. This is done to protect borrowers but in doing so, they end up hurting them.

For example:
A manufacturer spends $100 to create a commercial refrigerator, but they sell it to a business for $1,000. That’s equates to a fee of 900%. Once the business books it as inventory, they will attempt to sell that refrigerator to a consumer for an even higher price to make a profit. While it’s a nice windfall for the manufacturer, it’s capitalism at its finest.

But what if the manufacturer lent the business $100 cash in exchange for $1,000 back? Does that change the transaction significantly? In our example above, the manufacturer gave the business an item worth $100 and got $1,000 cash in exchange. The business hopes to sell that item for more and turn a profit but a couple things could happen:

  • Consumers might not be willing to pay more than $1,000 or anything at all for that model/make/color
  • The refrigerator could get damaged and lose its value

If these scenarios were to occur, the business may try to liquidate the inventory for a lesser amount and take a loss, but doing that might not be easy. The refrigerator might have to be inspected and appraised before a buyer is confident to make the purchase. This problem doesn’t happen with cash. People don’t go out and appraise the value of a $100 bill to determine if it’s worth more or less than $100. The other possibility is that the business can’t liquidate it at all and they end up losing the entire $1,000 they spent.

What’s interesting is that if the business had accepted a $100 bill in exchange for paying $1,000 at a later date, that $100 bill wouldn’t have the real risk (discounting hyper-inflation) of becoming worthless tomorrow or becoming the object of a difficult liquidation.

the $1,000 refrigerator questionSo when faced with choices again… would you rather take a refrigerator someone spent $100 to make and try to sell it for more than $1,000 or would you rather someone give you $100 cash and you do whatever you want to try to turn that into more than a thousand bucks? On the one hand you have a refrigerator which might have a decent retail market and on the other hand you have cold hard cash that you can do anything with to try and make the necessary profit. You might choose refrigerator but you might choose the cash especially if you had a rock solid idea for that hundred bucks.

If you’re an expert in your trade, you might be able to build your own higher-quality refrigerator for the same cost of $100 and be able to sell it for $2,000. Sure beats buying a crappy lower quality one and struggling to sell it for more than a thousand doesn’t it? Then you could pay the $1,000 owed and walk away with $1,000 in profit.

Sounds awesome except some states might deem the transaction illegal because to give a business $100 cash in exchange for $1,000 over a certain time period is usurious and predatory to the borrower. But selling a refrigerator valued at $100 to a business for $1,000 is okay, even if the business is never able to sell it.

In the eyes of a state, it is okay for a business to pay a 900% markup for an illiquid asset but it is dangerous to pay a 900% markup for the most liquid asset of all. I don’t understand it. If the idea is to prevent lenders from poaching borrowers or borrowers from making bad business decisions, then why is it okay for someone to sell a product for a lot more than they paid for it? Is a manufacturer selling a $100 refrigerator to a business for $1,000 usurious?

Perhaps your answer would be that a business owner wouldn’t engage in such a transaction if he/she didn’t believe it could be sold for more, either because there is an established retail market or because of sufficient market research. That is a weak defense because businesses get stuck with inventory they can’t sell all the time. Whether the market changed or it was just a bad business decision, Americans attitude towards speculation on a good or service is one of total acceptance. But give a man a dollar and he can’t be trusted to earn back more than a few cents on it. A legislator might evaluate these potential returns on a $1 investment like this:

Turn it into $1.05? sure!
Turn it into $1.15 maybe…
Turn it into $2.00? Let’s make laws to prevent people from thinking that way!

In many states, if you borrow a dollar so you can make three but it cost you a dollar in interest to make this happen, it’s illegal. But if you pay a dollar for an old banana peel with the hope of selling it for $3, that’s a business transaction.

I could rehash examples over and over, but where I’m going with this is that there are things like credit history and risk criteria that prevent people from borrowing a dollar at a relatively low rate. Naturally, the more risky the borrower, the higher the cost. After a certain level though, the law intervenes. If the amount of risk warrants a very high rate of interest, more than what is allowed by law, the government would rather the borrower get nothing than allow the transactions to go through. It’s a very sad position the government takes on its citizens, that the borrower is not capable of generating the return they believe or that that they lack the intelligence to know what they’re engaging in and therefore the transaction should be stopped altogether. In a utopian society, saving people from themselves might seem fair and just, but in reality there are millions of people and businesses with less than stellar credit, disqualifying them from borrowing at all because to compensate for risk would require a rate of interest disallowed by law.

At this time last year, 53% of Americans had credit scores of 700 or better. 700 is that magic threshold and it means that 47% of Americans are going to have a hard time obtaining credit or won’t be able to get it at all. When the laws were written to protect borrowers, I highly doubt the legislators understood they would be locking out almost half the country.

It’s ironic then that in times of financial crisis, government points the finger at banks for keeping credit tight, when it is nearly impossibly to free it up because of how regulated it is.

money exchangeCredit has been screwy the last few years because government intervention is wreaking havoc on the market. The maximum allowable interest rate on an SBA 7(a) loan maturing in less than 7 years is the Prime Rate + 2.25%. That would be 5.5% annually. FICO states that the odds of a borrower becoming delinquent on their loan (90 days or more behind) range from 15% to 87% if their score is less than 700.

How can you expect to make money if you can only charge a maximum of 5.5% when 47% of all Americans have a 15 to 87% chance of going delinquent or defaulting? You can’t and that’s why the Small Business Administration exists. In order to manipulate banks into making wildly unprofitable loans to businesses, the Federal Government via the SBA guarantees up to 85% of the losses banks are stuck with. It’s a bandaid solution to the broken market that usury laws create.

The SBA also empowers banks to crush private sector competition since many non-bank financial institutions do not participate in the SBA program and therefore need to charge vastly higher rates to compensate for risk.

But even the SBA has strict criteria on default coverage. Many borrowers do not meet the SBA’s criteria, leaving the bank unable to lend to them.

It is no surprise then that the end result of continued credit market dysfunction has led to non-bank financial institutions getting creative. If you can’t loan a man a buck in return for two, then buy 2 bucks worth of his future success in exchange for a buck today. That was the original basis behind Merchant Cash Advance financing and the concept is rooted in factoring. Americans accept the buy/sell arrangement in business no matter how much risk each party is taking and so if we start treating cash as an asset, of which there is nothing more liquid, then we’ve finally cured the disconnect of money versus product/service.

For those with heavy debt, critics point fingers at the lenders, disregarding the cash the borrower got as a seemingly empty asset with no value that disappeared over night, a trick they’ll conclude was all part of the lender’s plan to saddle the borrower with evil debt and interest charges.

Somewhere along the line, a few people stopped thinking about how they could turn a dollar into two and started thinking how they could use the dollar to pay for something they already got while worrying about the dollar and interest owed on it at a later date. As this psychology has taken root in our culture, people have painfully learned that the ability to borrow runs out and the reality of owing a lot of money interferes with the comfort of living the way they did before. Lenders have taken losses and legislators have enacted laws to prevent people from hurting themselves. It all comes back full circle as we wonder now why banks aren’t lending and people can’t get credit.

There are many solutions, some temporary, some long-term, some will help a little, and some will help a lot. All of the debates, arguments, and finger pointing don’t change the fact that no matter how much progress we make, there are people out there that are wondering how they can borrow a dollar today to pay for something they already got. Businesses borrow to pay for past due rent, pay off inventory, taxes, payroll, and equipment. There are instances when a cash infusion is appropriate because the business will bounce back and there are instances when a loan will prop an insolvent business up for a short while, only for it to finally fail because the profitability or cash-flow problems were never fixed.

In America we all understand the trading of goods and services for money, but when money is traded for money, we get confused. If you are willing to pay $1,000 for a refrigerator it cost someone else $100 to make with the belief that you could resell it for $2,000, then there is no reason why the manufacturer shouldn’t be able to borrow $100 and go direct to the consumer themselves. The $900 interest fee is justified. Let’s not forget that a competing lender will charge less to try and steal the borrower away. The market will takeover until the perfect balance is met between risk and reward. When we legislate away this natural process we cause dysfunction, creating the needs for bandaids like government guarantees to force a market into existence while disrupting all of the other ones.

Undo the regulations and inspire the masses to turn a dollar into two, a hundred, or a thousand! The possibilities are endless with cash. If you can’t think of a way to turn a healthy profit with the most liquid asset on Earth, then chances are your luck won’t be much better with selling refrigerators or anything else.

– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android

Merchant Cash Network Hosts MCA Info Session

April 20, 2013
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I recently had the opportunity to sit in on an informational session for small business owners hosted by New York City based ISO, Merchant Cash Network (MCN). On Wednesday April 10th, small businesses packed into a room at 1375 Broadway to learn about alternative financing with a focus on Merchant Cash Advance. MCN’s vast knowledge on the subject was obvious and I definitely believe these grass roots sessions are an excellent way to both educate the public and to bring businesses together to network. Great work guys!

merchant cash network

Photo below of the Merchant Cash Network team with Allie from Micro Office

merchant cash network photo

First Ever Small Business Community Chat: Join in!

March 28, 2013
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social circlesThe Small Business Community on Google Plus recently broke 1,000 members and to make the most of it, we’re kicking off the first ever Small Business Chat. The chat events will be held weekly, and each week it will cover a different topic.

The first chat will be on Tuesday, April 2nd at 8pm to 9pm EST in the Google Plus Small Business Community. Please RSVP HERE.

TOPIC:
Come meet and share with likeminded people about how you became an entrepreneur, what makes you tick, wild stories, personal strategies, and more! Thinking about going off on your own? Not sure if you have what it takes? Circle Up and have fun.

Don’t Get Banned by Your Target Market

March 19, 2013
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kicked out?I’ve watched this happen a lot over the last several weeks, particularly on Google Plus. Businesses both large and small join a community, start posting links to their blog and then they get banned. Some are posting crap and others are posting genuinely good content, but the good content is being pushed on people and nobody likes that.

Communities and forums exist for discussion, not for marketers to disseminate their blog posts with titles like 10 ways for small businesses to maximize profits. Now there are a few instances where it makes sense to post a link to your website, but only if it truly results in a healthy engaging debate and shares. If that doesn’t happen, then you’re probably in trouble.

I have actually had to watch a few people I know in financial services get the boot in communities, and there was nothing I could do to help them. Their brands have literally been BANNED from talking amongst their peers and potential customers and that’s probably the worst thing that can happen. I’ve all seen hundreds of small businesses make the same mistake, younger businesses that have finally decided to give social media a shot, only to be shown the door 10 minutes after they jump in. It’s disheartening. Many communities don’t offer a warning, so the best chance to let sometime know the basics of human interaction, is to do it before they join anything. If you were thinking of joining a community or have been banned by one, particularly on Google Plus, I’ve written up a little road map titled: Banned from a Google Plus Community?

– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android

Small Business Loans for Men? Not a Good Idea…

March 18, 2013
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A man walks into a bank and says “I want to know what kind of programs, discounts, and benefits you offer for men owned businesses.” The bankers exchange glances with each other and reply together, “For men? Sure! We love men!” Sounds a little outrageous doesn’t it? Don’t worry, this doesn’t usually happen, at least not on the Internet. Using Google’s keyword traffic estimator, zero people search for “business loans for men” each month. And why would men search for that? Or rather, why is it that other gender has a tendency to seek gender specific support?

As of the date we used Google’s keyword traffic estimator, the data showed there are approximately 4,650 searches for “business loans for women” each month on average. It seems men want business loans but women want business loans with them in mind. Tweak the query just a little bit more and it reveals that 51,570 people are looking for “grants for women” each month, which equates to an astounding half million inquiries plus a year! So ladies, What makes you look for something so gender specific?

womenPerhaps it has something to do with the odds having been stacked against them historically. In 2007, only 30% of all privately-owned American firms were owned by women. While that’s not exactly light years away from equality, women owned businesses only accounted for 11% of all firm revenues and just 13% of all firm employment, meaning of course, that their businesses tended to be smaller. Maybe women choose to be smaller and less involved in ownership, or maybe and far more likely it’s because men had been rigging the game for such a long time.

Up until 1988, lenders could deny women credit if they did not have a male relative co-sign for them. The Women’s Ownership Business Act, symbolically named House Resolution 5050, sought to end the lingering discrimination against women. It also:

established the National Women’s Business Council, a public policy advisory body comprised of women business owners and women’s business association representatives. Its mission is to promote initiatives, policies and programs designed to support women’s business enterprises at all stages of development, and to serve as an independent source of advice and counsel to the President, Congress, and the U.S. Small Business Administration on economic issues of importance to women business owners.

business womanI used the word lingering because the 1974 Equal Opportunity Credit Act already made it illegal for lenders to discriminate against applicants on the basis of gender, and at the same time barred discrimination on the basis of race, color, religion, national origin, marital status, and age. Apparently, this wasn’t enough. This law went into effect 39 years ago and still after all this time and additional legislation, women and other disadvantaged groups still don’t have a level playing field. Change has not come easy.

Even if gender discrimination were to be totally eradicated (and we’re not saying it has or hasn’t been), many women still have their guard up. If they had to choose between a lender promoting loans and a lender promoting their desire to lend to women, the latter would probably offer a bit more comfort. They also seem to know that after years of discrimination that there are actual benefits to being a female entrepreneur these days and they want to take advantage of them. For example, the Women’s Small Business Accelerator of Central Ohio, a non-profit group, offers support specifically for women owned startups. Organizations like this are necessary because equality isn’t achieved just because a law says it’s so. At some point, the group that was disadvantaged needs a boost to capitalize on the equality they’ve finally been given. That’s good news for ladies in 2013 because there’s a lot of organizations out there that are willing to give them that boost.

At the same time, there are lenders that do not offer any incentive at all for women, but don’t discriminate against them either. These lenders tend to advertise in print and on the Internet that they have financing programs just for women and yet they offer no actual edge over male applicants. Instead, these lenders are simply acknowledging that some women are wary of bias, and are making it a point to communicate that women will be accepted equally. Equally is the key word there since if lenders actually deny male applicants in their pursuit to approve more female ones, they will be in violation of the Equal Opportunity Credit Act which protects gender as a class, not women. Tricky eh?

Lenders spend big bucks on marketing financing programs to women, so why don’t they use the same tactic to appeal to men? I mean, considering a Google search of “business loans for men” seems to turn up nothing of relevance, it looks like there’s a vast untapped market to corner. Perhaps men would start searching for programs marketed towards them if there were actual lenders speaking specifically to them. But that is a dangerous road, and one after years of inequality screams lawsuits. Even if lenders did not actually give preferential treatment to men, the appearance of a good ‘ol boys club would probably be enough to make people uncomfortable.

Would you publish an ad with the title, “Fast Business Loans for Whites”? Probably not, even if it was effective in attracting caucasian borrowers. But do a search for “Minority business loans” and you’ll find there’s a lot of programs openly targeting minorities. And just as I suspected, Google reveals that a significant amount of minorities are searching for financial help specifically for them, and not just financial help in general (There are about 570 searches a month for the exact phrase “minority business loans”).

business loans for men

And so it looks as if financial companies have adjusted their target markets at least when it comes to messaging. Lenders that do not custom tailor messaging to specific groups such as women business owners can find themselves having a difficult time competing. Anyone can offer business loans, but if they’re not responding to the personalization that some applicants are seeking, they may be missing out on a lot of potential customers. Personalization should be incorporated into any advertising campaign anyway, so long as it doesn’t rub people it’s not targeting the wrong way.

A television commercial that uses pickup trucks, power tools, and Clint Eastwood would probably entice males to apply for a business loan if that’s what the ad was selling, but it’d be a good way to alienate women, especially given the history of inequality. With nearly a million queries made each year by women seeking either loans or grants, they’re not a market you want to turn off. Saying you’ll help women shows you get it, but saying you’ll help men shows you don’t. But at the end of the day, we’re all equal 🙂

– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android

The Financial Statement Problem

February 26, 2013
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The Banks Know When You Don’t Keep Track

In the land of underwriting, sometimes Assets do not equal Liabilities + Equity. This only happens of course when a Balance sheet is prepared so poorly that it doesn’t even do the fundamental thing, balance… and I’ve seen plenty of these in my career.

balance sheetI’ve hung around enough small business owners to know that 99% of their time is spent running the business, not maintaining a general ledger. I get that operational duties bring in the cash and pay the bills, and that the books are something that spawn into existence on April 15th just to satisfy the tax man. I know that feeling, but that routine hurts in the long run especially when it comes time to apply for financing.

So what is a small business to expect when submitting financial documents for a loan approval?

5 out of 5 bank executives interviewed by Nerdwallet.com complained that too many small business owners don’t keep financial records, rarely update them, or only worry about them during tax season. Their advice? Hire a full-time financial professional. For a small business, this might mean being forced to sacrifice a chef, mechanic, or manager. The trade-off might not be worth it.

The merchant lending industry is a lot more forgiving when it comes to submitting documents. Deals under $100,000 may not require any financial statements at all. Yes, there are options out there specifically for the man or woman that chose a chef over an accountant, but that doesn’t mean they’re encouraging poor record keeping ways, nor does it mean they are blind to bad business practices.

financial statementsUnfortunately, over the course of many years, advertising that basically anyone can get approved with no financial statements and less than stellar credit history has caused people to let their guard down. The attitude is often, “the lenders don’t seem to care, so why should I take this seriously?” This mindset couldn’t be more detrimental to your approval chances. The CEO of New Resource Bank in his interview with Nerdwallet said, “A lender will judge you based on how you fill out your documents.” The same applies in merchant lending. In my experience, I’d estimate that about 20%-30% of small business owners submitted documentation with at least half the pages missing. I’d receive only the odd numbered pages or I’d get the bank statements for the strong months but none for the bad months even if they were the most recent. Strangest of all were the applicants that sent in only the first page of each statement as if showing the deposit figures for the month were somehow supposed to be comprehensive enough to analyze cash flow. The more disorganized the paperwork, the less credibility the applicant had in the mind of those judging them.

Believe me when I say that there is no lender in the world that is going to be confident in approving a pile of crap, no matter how easy they advertise the approval process is.

My advice? If you can’t make time to organize your books regularly or hire a financial professional, at least build it in to your plans to do it in the future. Bank financing may be out of the question in the interim, but that doesn’t mean you are out of options. Merchant lenders, like the ones listed in our directory can help you. Just make sure you take the the application process seriously. Approving loans without financial statements may make these lenders more open to risk, but they know a bad deal when they see one. Be honest, open, and submit well prepared documentation. That’s the best way to maximize your chances.

Your Life or Your Bank Statements

February 20, 2013
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“Um, I don’t feel comfortable sending them to you because they’re private.” One of the most interesting things I experienced as a broker and underwriter is the amount of times I heard merchants tell me their bank statements were too private to send in. I understand it’s not exactly the same thing as telling someone your phone number, but if you’re applying for a loan or intend to sell your future receivables, this doesn’t really cross the line as being too personal.

bank statementLet’s be honest here, there’s plenty of folks who get defensive over this simply because they’re overdrawn and they don’t want the lender to see it. I’ve heard every trick in the book, “the last 2 months statements are lost and my bank refuses to send me copies”, “I switched bank accounts yesterday and my old bank won’t send me my previous statements now”, or “I’ll send them over as soon as I have 100% final approval on the loan.” These excuses won’t work and they set off red flags with underwriters. Besides, if you lie about something during the application process and then proceed to sign a guarantee on the loan agreement that you’ve disclosed EVERYTHING, then you’ve already placed yourself in breach of contract or worse, you’ve committed fraud.

But on the flip side, just as many applicants are worried that submitting their bank statements could lead to identity theft. Maybe there is a slight chance it does, but probably only if you’re sending them to someone that already has all of your other identifying information like your social security number. That’s the “interesting” part I spoke of earlier because few people flinch when filling out their social security number on the application. Don’t get me wrong, I’m not trying to induce worry in businesses that want money. What am I trying to say is that waiting until late in the application process to do research on the lender or broker is too late. You need to be 100% confident in the recipient of your personal information before you even fill out the preliminary application on the first day.

social security numberWhen it comes to identify theft, Your social security number, name, address, and date of birth is really all it takes for you to be fully compromised. The rebuttal on the bank statements is always “But I don’t want someone to know my bank account number because then they might try to take money out of it.” Really? Have you ever written a check to someone? Have you ever signed up for direct deposit? Have you ever seen a waste basket full of bank receipts next to an ATM machine? I hate to say it but your bank account information is already public and you probably give it out to people on a daily or weekly basis. Routing numbers are shouted from the rooftops and you can see that for yourself at routingnumbers.org. If someone is going to try to debit money out of your account, your bank statements aren’t really necessary. It’s sad, but it’s true. Financial institutions review and audit businesses that debit their customers, but sometimes bad guys slip through the cracks. Generally if an unauthorized debit does happen, you are not liable for the loss. According to FTC.gov:

Since December 31, 1995, a seller or telemarketer is required by law to obtain your verifiable authorization to obtain payment from your bank account. That means whoever takes your bank account information over the phone must have your express permission to debit your account, and must use one of three ways to get it. The person must tell you that money will be taken from your bank account. If you authorize payment of money from your bank account, they must then get your written authorization, tape record your authorization, or send you a written confirmation before debiting your bank account. If they tape record your authorization, they must disclose, and you must receive, the following information:

The date of the demand draft;
The amount of the draft(s);
The payor’s (who will receive your money) name;
The number of draft payments (if more than one);
A telephone number that you can call during normal business hours; and
The date that you are giving your oral authorization.

If a seller or telemarketer uses written confirmation to verify your authorization, they must give you all the information required for a tape recorded authorization and tell you in the confirmation notice the refund procedure you can use to dispute the accuracy of the confirmation and receive a refund.

In the event these rules are violated and a debit happens anyway, the FTC advises this:

If telemarketers cause money to be taken from your bank account without your knowledge or authorization, they have violated the law. If you receive a written confirmation notice that does not accurately represent your understanding of the sale, follow the refund procedures that should have been provided and request a refund of your money. If you do not receive a refund, it’s against the law. If you believe you have been a victim of fraud, contact your bank immediately. Tell the bank that you did not okay the debit and that you want to prevent further debiting. You also should contact your state Attorney General. Depending on the timing and the circumstances, you may be able to get your money back.

It’s important that you know these rules, but it’s twice as important to do a background check on the financial service company before you send them ANYTHING. Your social security number is your crown jewel. Be smart about who you send it to. And as for your mysteriously missing January bank statement? There’s a pretty good chance your story about where it went or why it’s never coming back isn’t going to work. Good luck and safe funding!

– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android

Where’s the Reserve?

February 15, 2013
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cash reserves5 years ago it was merchant account sales. These days it’s all about the average daily ending balance in the business bank account. As the alternative business lending industry evolved, so too did the criteria to qualify, and nothing is more important now than historical cash flow. I spent a lot of time underwriting MCAs and one thing I noticed is that having a significant cash reserve is the exception, not the rule. Many small business owners I’ve encountered rely on overdraft protection just to pay their bills instead of using it as a backup cushion for the extremely rare circumstance that a check clears at the wrong time. The applicants with $1,000, $5,000 or $10,000 in daily reserves are treated very favorably in underwriting because heck, they can probably afford to take on debt. And then there’s the business owners with $20,000, $30,000 or $50,000 stashed away in the business account, a curious rarity that can actually throw up red flags.

Why is this merchant applying for capital when they’ve got $30,000 sitting in the account right now? Something doesn’t add up here,” an underwriter might say. But the only thing that doesn’t add up is the fact that so many businesses are running on fumes. We’ve got a few small business owners writing about matters from their perspective on The Frontline, and we took great interest in something written by Chef Angela Bell. As a restaurant owner, she believes it is important to keep a cash reserve equal to a minimum of 3 months expenses. Depending on the size of the restaurant and seasonality, that reserve may need to be able to cover an entire year. This includes rent and salaries!

It seems in practice, this rule is constantly violated. Maybe holding on to extra cash hurts the competitive edge, maybe a cash reserve existed but was consumed during an emergency, or maybe the business just isn’t doing that great. There are a lot of possibilities to explain the disappearance of cash reserves, and I’m not faulting the businesses for being in this situation, but rather pointing out that in my experience, money seems to go out as fast as it comes in.

This isn’t a 2013 problem or a financial crisis problem. It’s a small business problem and one that has been around for decades. It’s why the purchase of future credit cards spawned into existence. The original Merchant Cash Advance (MCA) program wasn’t created to help people with poor credit, it was designed to help the businesses that had no cash reserves. If a business has $2,000 in deposits every day but also $2,000 in withdrawals, there’s a good chance a debt payment will bounce. Even with 750 credit, no bank would ever take the risk on a business like that, and that’s where MCA came in. Assuming the business’s plans were sound, an MCA funder would withhold a percentage of merchant account sales before they were even transferred to the business’s bank account. That eliminated the risk of bounced checks for the funder and put the burden of operating on tight cash flow on the small business. Funders then reduced the strain by withholding less in times of weak sales and more in times of strong sales. The percentage system was the bridge to ensure the relationship was not predatory.

cash flowI’ve heard the frustrated replies from a business owner that was declined for weak or negative balances. They often sound something like this “Well, if I had cash I wouldn’t be needing a loan from you now would I?!” I feel for these people, I really do, but their approach to debt is misguided. Debt is not something you take on when you are out of money so you can continue business as usual. Debt is for growth or to be used as a temporary cash flow measure. Banks approve applicants that don’t need money because those that NEED IT are more likely to default.

MCA was the good faith option for small business owners that cried foul over the banks that wouldn’t lend to them. How could there be NOBODY willing to take a chance on them? And so MCA funding companies came along and did what the masses demanded, but at a cost to compensate them for the significant risk.

Today, there is high demand for merchant loans, loans that are evaluated based on a daily average bank balance and monthly revenue. Many people will get less than they want and others should consider traditional MCA instead. Those few that are at the breaking point and believe a loan will allow them to pay past due bills and keep them afloat are better off not applying at all. And for the rest that are contemplating using the $50,000 cash reserve they built up to expand should seriously consider financing instead to protect their cushion as best they can.

Tomorrow, the health inspector could close your doors, vandals could destroy your valuable assets, or the town could perform massively disruptive construction right outside the front steps that cripples sales for months. If you’re running on fumes, you’ll run out of gas. Always keep the cash reserve tank full and nobody will be able to stop you.

– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android