Small Business
Silicon Valley’s One Punch Knockout
October 4, 2012“This morning I woke up, brushed my teeth, and hopped in my hovercraft to go to the office. As soon as I arrived, I began my routine of playing ping-pong against my co-workers while computers performed the automated tasks I had set for them. Then I went to the gym, came back, and learned that our web portal had generated 12,000 leads, closed 7,000 deals, and funded 5,000 merchants. It was an exhausting day…” — A Senior Account Executive from the year 2013.
We’ve been offering insight on the 2012 invasion of Silicon Valley into the Merchant Cash Advance (MCA) industry. Excuse us, it’s called the “merchant financing industry” now. California technology companies are bringing money, yes, but most importantly, bringing their treasure trove of technologies to companies that were mostly satisfied with the status quo. But are America’s small businesses ready to do business Silicon Valley style or have MCA companies had it right all along, to operate in the way that small business is most comfortable with?
Two weeks ago, California enacted a law that will allow computerized driverless cars to drive on the road. Cars that drive themselves… this is business as usual in parts of California where everyday things such as gasoline, wires, and paper money don’t exist anymore. There, it is believed that clipping coupons from newspapers is something that the Pilgrims did on the Mayflower. There, applying for a small business loan should be as easy as using your brain waves to telepathically connect with a bank’s computer and having the funds instantly transferred to your bank account. There, is a sense that the rest of the country is just like them…. except it’s not.
If you’ve ever had the pleasure of being an MCA underwriter, you know why antiquated funding companies aren’t going to go quietly into the night. We got to speak with one veteran on condition of anonymity. His words:
We had a guy with good credit, processing $15,000 a month in credit card sales, looking for $20,000. He’d been in business for fourteen years and it seemed like a home run but it took seven weeks to close. He didn’t have a printer or a scanner and he had to drive twenty miles to the nearest Fedex/Kinkos every time he wanted to send us something. On his third trip, his ’94 Corolla broke down and we had to wait a few days until he could find a friend’s car to borrow to send the documents.
These situations do not occur every day, but it is evidence that automation will not singlehandedly knock everyone else out with one punch. There is a technology gap in America. Statisticians point out that 78% of Americans use the Internet, but there is a whole generation that doesn’t trust it with their most sensitive information or have the capabilities to use it to its fullest extent. Would a Silicon Valley takeover of the MCA industry alienate them and leave many of America’s small businesses once again without a shoulder to lean on?
Program or be Programmed
The title of this segment here is the title of a book written by Douglas Rushkoff. An article on CNN commented at length about it and its revelations about the digital age. Americans need to learn all the basics when they’re young. Your PHPs are just as important as your ABCs and 123s. CNN interestingly states:
It’s time Americans begin treating computer code the way we do the alphabet or arithmetic. Code is the stuff that makes computer programs work — the list of commands that tells a word processor, a website, a video game, or an airplane navigation system what to do. That’s all software is: lines of code, written by people.
—Just a couple of years ago, I was getting blank stares or worse when I would suggest to colleagues and audiences that they learn code, or else. “Program or be programmed,” became my mantra: If you are not a true user of digital technology, then you are likely being used by digital technology. My suggestion that people learn to program was meant more as a starting point in a bigger argument.
—According to Calacanis, each employee who understands how to code is valued at about $500,000 to $1 million toward the total acquisition price. One million dollars just to get someone who learns code.
Read those last two lines? Each employee that understands how to code is worth up to $1 million. Are they seriously teaching people in school that Microsoft Office proficiency is a leg up in the business world?
College graduates that know more than one language have an edge over people that don’t. But speaking Chinese, Spanish, or Arabic won’t get you as far as JavaScript. According to IT World, JavaScript is the most highly ranked programming language in the world as measured by its use and popularity. Learn French and you’ll really enjoy a vacation in Paris. Learn PHP, Python, or Ruby and you just might become the King of France.
Am I Already a Dinosaur?
No! Don’t let those 10 year olds with a software empire get you down. Anyone can learn and you need not spend $30,000 a year on college tuition to do it. Codecademy can help complete beginners learn code for free. Get real good at it and you may earn yourself a $50,000 salary increase.
One Punch
Silicon Valley with their exotic computer languages and cars that drive themselves may present a challenge to the MCA industry, but many firms will be able to hang on for a long, long time. Some people still pay by check at the grocery store and yes, many business owners would rather not use online banking, no matter how safe they’re told it is. But there will come a time when being bilingual means being able to write Java and Perl. Oh there will come a time when driving twenty miles to Kinkos in a car that one must drive themselves to fax a document that will never again exist on paper, will be an experience we confuse with the Pilgrims trip on the Mayflower.
Everyone should at least take some basic lessons on self-defense. Silicon Valley is coming out fighting. They might not knock you out, but it couldn’t hurt to have a white belt in JavaScript. Anything to keep you in the ring just a little bit longer.
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https://debanked.com
Article condensed 10/8/12
Ten Days
September 28, 2012
It’s been ten days since Kabbage announced they had raised $30 million to fuel the growth of their Merchant Cash Advance (MCA) operations at home and abroad. MCA is changing faster than we can report it:
Former Yahoo CEO joins Kabbage. Hello Silicon Valley takeover! Quotes from the story:
Kabbage is providing an old service, merchant cash advances, with a new twist
Did they just call merchant cash advances old?
Kabbage is rapidly reshaping the small business financing space in the same way that PayPal reshaped the payments space over the last decade
Start believing this…
Amazon enters the MCA industry with a new division called Amazon Lending. Quotes:
Amazon is lending up to $800,000 to some merchants, Wingo said, adding that this is a pretty aggressive entrance into merchant financing.
Merchant financing…quite possibly the term that will replace “merchant cash advance” in the next couple years. Notice AMEX’s advance program is called the same thing. Trend anyone?
Amazon is competing against a start-up called Kabbage, which extends cash advances ranging from $500 to $50,000
They apparently don’t feel anyone else is a threat in the online space.
“We’re flattered that Amazon is building a business modeled on ours,” said Kabbage co-founder Marc Gorlin. “It’s validating that big companies are getting into the small business financing space.”
Dear Kabbage, you did not invent this model.
The kicker to Amazon’s new program? They charge up to 13% interest annually, on pace with what a little company in California named Opportunity Fund claimed was flat out unprofitable. Does that make them yet another new company walking around with a giant Kick-Me sign on their back? Some industry insiders would argue that offering these low rate programs are like swallowing dynamite.
We did a little bit of digging on this new program to see exactly what Amazon was up to. One of their prospective merchants posted this excerpt of the fine print:
Subject to applicable law, you will be in default under this Loan Agreement if any of the following events occur: ……..
(iii) your gross merchandise sales on Amazon.com as reported in your Seller Account (“GMS”) in any month is less than 50% of your lowest GMS on Amazon.com in any of the prior 12 months,(iv) the collective value of your units stored in Amazon fulfillment centers in the US, based on your list price of those units on Amazon.com, (“FBA Inventory Value”) in any month is less than 50% of your lowest FBA Inventory Value in any of the prior 12 months,
Except as otherwise required by applicable law, if you are in default, subject to any right you may have under applicable law to receive notice of and to cure such default, you agree that we may in our sole discretion exercise any remedy available to us at law or equity or take any or all of the following actions: (I) declare the unpaid balance of your Loan to be immediately due and payable, (II) enforce our rights as a secured party by directing Amazon Services LLC to reserve, hold, and pay to us an amount up to the unpaid balance of your Loan from your Seller Account disbursements until the unpaid balance of your debt under this Loan Agreement is paid in full, (III) enforce our rights as a secured party, by taking possession of your units stored in Amazon fulfillment centers and disposing of them in accordance with the Uniform Commercial Code,……………..
If this Loan Agreement is referred to an attorney (who is not our salaried employee) to collect the amount you owe or otherwise enforce the terms of this Loan Agreement, you agree to pay our reasonable attorneys’ fees, court costs and other costs of collection to the fullest extent not prohibited by applicable law.
6. Financing Statements. You authorize us to file and, as we may deem necessary or desirable, to sign your name on any documents and take any other actions that we deem necessary or desirable to ensure that our security interest in any item of inventory or your Seller Account is properly attached and perfected.
There’s some language in there that would make a lot of MCA companies jealous, particularly the section that states a 50% drop in sales is an automatic default!
Thoughts? Share them on DailyFunder.
– Merchant Processing Resource
https://debanked.com
Merchant Cash Advance Community Teams up for Charity
September 27, 2012You may have seen the news story somewhere already: Twelve Members of the Alternative Small Business Lending Community Join Forces for Charity, but you haven’t heard the background of all the companies involved. We’d like to shed some light on the competitors that are battling it out in an epic competition of fantasy football:
Merchant Cash Group
Based in Gainesville, FL, they are a charity league co-founder and direct provider of capital. They recently launched their Fast Funding Equity Program, a unique financial solution to merchants that may not be able to get approved anywhere else.
Competing for: Kiva
Kiva is a non-profit organization with a mission to connect people through lending to alleviate poverty.
Rapid Capital Funding
Based in Miami, FL, they are a direct financing source. They are one of the industry’s fastest growing companies and recently acquired a major credit facility from Veritas Financial Partners.
Competing for: Epilepsy Foundation
Financial Advantage Group
Based in Land O’Lakes, FL, they have been a financial provider since 2004. They have helped fund some big name franchises including individual locations for Sonic, Dunkin’ Donuts, and Quiznos.
Competing for: Society of St. Vincent De Paul
The Society of St. Vincent de Paul offers tangible assistance to those in need on a person-to-person basis.
RapidAdvance
Based in Bethesda, MD, RapidAdvance is one of the oldest and largest MCA firms in the country. They are often called upon to offer expert insight on the industry.
Competing for: Cystic Fibrosis Foundation
This foundation is the world’s leader in the search for a cure for cystic fibrosis.
Sure Payment Solutions
Based in New York City, they made a name for themselves by offering low credit card processing rates to merchants nationwide and expanded on that success by providing businesses with financing. They are well known for their industry blog, Sure Resources.
Competing for: ALS Association
The ALS Association is the only national non-profit organization fighting Lou Gehrig’s Disease on every front.
Meridian Leads
Meridian provides direct marketing programs for financial services companies. They are one of the most used and acclaimed marketing firms in the MCA space.
Competing for: 100 Urban Entrepreneurs
100 Urban Entrepreneurs is dedicated to helping provide a meaningful, long-term economic boost to urban communities throughout the United States by supporting minority entrepreneurship at its earliest stages.
Merchant Cash and Capital
Headquartered in New York City, they have funded over half a billion dollars to small businesses since 2005. They’re heavily involved in the financing of retail and food service franchises. Check out their new website.
Competing for: Gift of Life Bone Marrow Foundation – on behalf of The Silver Project
Gift of Life is a world leader facilitating transplants for children and adults suffering from many life-threatening diseases, among them leukemia and lymphoma.
NVMS, Inc.
A Manassas, VA firm, NVMS offers a full range of inspection services for the Mortgage, Banking, Commercial and Residential Property, Construction and Insurance industries. They’ve established a stellar reputation and are the inspection company of choice for many MCA providers.
Competing for: The Missionaries of our Lady of Divine Mercy
They provide humanitarian assistance to those suffering from poverty
United Capital Source
Based in Long Island, NY, United Capital Source has garnered much attention from their recent spate of seven figure financing deals. They are constantly adding new staff to satisfy the incredible demand for funding from mid-sized businesses.
Competing for: Smile Train
Smile Train partners with local surgeons in developing countries to provide free cleft care for poor children and follow-up services 24/7, 365 days a year.
Swift Capital
From the wonderful city of Wilmington, DE, Swift Capital has made a major splash in the alternative business loan space with low cost working capital. They have helped over 10,000 small businesses nationwide.
Competing for: American Heart Association
This association helps to build healthier lives, free of cardiovascular diseases and stroke.
TakeCharge Capital
TakeCharge Capital has offices in Connecticut, Mississippi, and Florida. They built their reputation on spectacular payment processing services and grew into becoming a national financing provider.
Competing for: Distressed Children & Infants International
DCI’s primary objective is to provide children in rural areas the opportunity to receive an education instead of entering into child labor.
Raharney Capital, LLC
Raharney Capital is a Merchant Cash Advance industry consulting firm based in New York City. They are a charity league co-founder and the operators of this very website, Merchant Processing Resource.
Competing for: Network for Teaching Entrepreneurship
This organization’s mission is to provide programs that inspire young people from low-income communities to stay in school, to recognize business opportunities and to plan for successful futures.
The above companies are participants in the Merchant Cash Advance/ Microloan fantasy football league. Other firms within the same industry are constantly making charitable efforts as well, such as Yellowstone Capital. They recently raised money to help Hatzalah Volunteer Ambulance Corp acquire two ambulances. Noticeable company donors included Strategic Funding Source and Benchmark Merchant Solutions.
All of the mentioned firms are strongly recommending others to donate to the charities they are representing. In addition, any company or person that would like to contribute to the competition’s prize donation can do so by contacting sean@raharneycapital.com or heather@merchantcashgroup.com. We are not accepting contributions to individual charities, only to the prize donation that will be given to the winner’s charity. $5,850 has already been pledged to the prize as of the publication of this story.
– Merchant Processing Resource
https://debanked.com
New and improved New York City office location coming soon!
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Donate to one of the represented charities today!
The End of an Era
September 19, 2012It’s the end of an era. Sound ominous for a blog that reports on the Merchant Cash Advance (MCA) industry? It shouldn’t. In the last 10 years, MCA firms played in the minor leagues. No one was really paying attention to them and truthfully, a lot of critics didn’t think this business model would still be around. But today it still stands, funders are still funding, and this blog is practically struggling to keep up with the incredible amount of action that is taking place. Coincidentally, 2012 marks the end of the Mayan Calendar. Yes, it’s the end of an era.
MCA Goes From 0 to 60
There were a few big firms in the Mid-2000s (RapidAdvance, Merchant Cash and Capital, Strategic Funding Source, AdvanceMe, etc.) and they’ve all experienced modest success. It was “modest” in the sense that it is nothing compared to today’s standards. The level of play is changing. Wining and dining an Independent Sales Office (ISO) that could bring in $300,000 a month in deal flow used to be all the rage. 300k for one company was 300k less for a competitor. An extra point of commission here or a freebie approval there was enough to make you the big dog in town, at least for awhile. Despite all the supposed innovation and growth, the talent pool remained the same. Lead generators became agents, agents became ISOs, ISOs became syndication partners, syndication partners became funders, and funders became technology companies that were basically clearing houses for groups of funders. If the industry was Sally, Joe, and Tom in 2005, it was still Sally, Joe, and Tom in early 2011, just with new company names or titles. Then everything changed…
Money poured in:
Merchant Cash and Capital Announces $25 Million in new financing 10/4/11
Snap Advances raises $3 Million from TAB bank 11/21/11
Capital Access Network raises $30 Million 2/7/12
RapidAdvance Receives new financing facility through Wells Fargo 4/2/12
1st Merchant Funding | $5 Million re-discount line of credit from TAB bank 6/12
Strategic Funding Source secures $27 million 6/27/12
On Deck Capital raises $100 Million 8/23/12
Kabbage raises $30 Million 9/17/12
Industry insiders loosely redefined what a Merchant Cash Advance was:
Merchant Cash Advance Redefined Merchant Processing Resource 3/25/12
Big companies entered the market:
American Express Announces Their Own Merchant Cash Advance Program 9/22/11
PayPal Pilots Merchant Cash Advance Program in the U.K. 7/13/12
Some funders became licensed lenders in major states such as California:
A New Chapter Opens for Merchant Cash Advance The Green Sheet 6/25/12
Search the California licensed lender registry
New products formed:
FundersCloud creates platform to raise capital and find syndicate partners faster 8/29/12
A charity announces a new way to make subsidized business loans using the split-funding method 9/6/12
These barely scratch the surface of industry events. What used to be a competition to score the local neighborhood ISO has morphed into a race to be the first to partner up with Facebook, twitter, Groupon, and Square. Anyone not moving full speed ahead to integrate technology and social media will be gone in the next 24 months.
May 18, 2012 was the first time we noticed and commented on what was happening. In How The Facebook IPO Affects the Merchant Cash Advance Industry, venture capitalists and Silicon Valley had finally found MCA and there’s no hiding from them. Now it seems all of our far-fetched predictions are not only coming true, they’re happening moments after we predict them. In our last article we instructed everyone to keep their eyes on Kabbage. Six days later they announced they had raised $30 million in new financing and would be expanding overseas. For a company that makes wild claims about the correlation of facebook fans with account performance, all while humorously being named after a boring vegetable, they sure seem perfectly able to threaten the status quo. Nobody dared touch Ebay or Amazon businesses until they came around.
Price
On the cost basis front, the middle ground is eroding even further. We first discussed this phenomenon on April 25, 2011 in The Fork in the Merchant Cash Advance Road. In it, we explained that the combination of competition and defaults were placing downward pressure and upward pressure on price at the same time. Today, there is surging demand for “starter deals” at 1.49 factors that are payable over 3 months at the same time that more and more new lenders are offering 1 year loans at 10%. The low rate, 12-18 month term deals are nothing new. A few funders tried them in the past and most suffered irrecoverable consequences. This is history that the new players didn’t witness.
Some outsiders view the MCA industry as a bunch of Wall Street guys that got fat, happy, and disincentivized to lower costs. On the contrary, one only needs to take a single look at this chart to realize that undercutting the entire market isn’t so genius after all. How can a funder survive with extremely low margins when 15% – 71% of their target market is likely to experience problems repaying their loans? These aren’t our stats, these are FICO’s:
Veteran industry insiders know this and acknowledge that the coming tide of low rate financing is a bubble that has burst before. On the DailyFunder, a few folks have offered this insight:
The mca/unsecured loan biz is very risky. It’s all fun and games till deals start going south. My guess is they either adjust rates to match defaults or go out of business. I know first hand that this is not a get rich quick business. It may look like it is from the outside but once you are inside you see the world differently pretty quickly.
[these new low rate deals are] just like On Deck did. When they first came out, they offered 12 month 1.09’s. Then it dropped to 6 month 1.12’s, then 1.18’s. Now you see 1.25’s to 1.35’s offered by them
Governance
On the other side of the cost war is potential federal regulation. At least one D.C. consulting firm is prodding the leaders of the MCA industry to take a proactive approach on self-governance. According to Magnolia Strategic Partners, MCA is on the radar of regulators and members of congress, especially in light of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new MCA playing field has invited media attention, and not all of it is positive.
The North American Merchant Advance Association is the only organization for industry cooperation but their ability to dictate policies and standards is weak. They receive very little press and their website has been down for weeks. Many argue that they have been effective in minimizing defaults by sharing data on fraudsters. While this does stand to serve the community, it is but a footnote in their orignal intended purpose.
New Barriers to Entry
For the first time ever, potential resellers are facing barriers to entry. Becoming an ISO has long been as simple as owning a phone and purchasing a list of businesses that have used MCA financing before. Today, it’s not that easy. These lists have been sold literally hundreds of times over and called tens of thousands of times over. Pay-Per-Click marketing is dominated by the million and billion dollar firms with money to burn. If John Doe ISO wants to advertise on Google, he better be prepared to compete with the likes of American Express and Wells Fargo. Good luck! Putting skin in the game has also become more of a prerequisite for ISOs to succeed. Funders want to know if a sales agent would put his or her own money into a deal… and then actually commit them to doing just that. The odds are becoming stacked against the undercapitalized and it isn’t likely to change.
In 2009, the most prevalent pitch used by sales agents was to inform prospects that they themselves were “a direct lender” and that anyone else the prospect might be talking to was a broker. “Cut out the middleman and go direct with us,” they’d convincingly argue. This line became less effective when prospects heard this from all five agents they spoke to. Name dropping strategic partnerships will be the new way to build credibility. “We’re partnered with Facebook, twitter, Groupon, and Square,” a sales agent will soon be saying. “Can our competitors make the same claims? Go with us.”
See You On the Other Side
2013 will kick off a single elimination tournament. Funders that didn’t realize 2012 was the end of an era will begin to fade. 2014 will eliminate the weaker firms that remain and by 2015, Merchant Cash Advance will no longer be a term that anyone uses. Big banks and billion dollar technology companies will go on to rebrand all that which the funding warriors of the last decade have worked so hard to establish. MCA will simply assimilate into other financial products. The metaphorical Sally, Joe, and Tom will probably still be in the business, but be working for companies like Capital One, Wells Fargo, and American Express. And as for us…well… we’re going to need something else to talk about. But we’ll keep you posted until that day. đ
– Merchant Processing Resource
https://debanked.com
Follow The Money – MCA
September 8, 2012John Tozzi of BusinessWeek is just about the only journalist that follows the Merchant Cash Advance (MCA) industry. We use the verb “follows” loosely since he manages to write maybe one article per year on the subject. Rarely flattering, he does at least provide something that other writers do not: Substance. In his lastest piece, Wells Fargo Plays Both Sides of the Cash Advance Debate, Tozzi reminded us of something we’ve failed to address in this blog: big banks aren’t just becoming interested in MCA, they’ve already been involved in it for a long time. It also made painfully clear a message we’ve been trying to communicate for years, that ultra low interest rates are simply not feasible in small business lending.
Tozzi accuses Wells Fargo of sponsoring a small business lender that is directly attacking MCA companies while at the same time financing the companies being attacked. California based Opportunity Fund recently began offering a loan program that is…wait for it…repaid by withholding a percentage of credit card sales. They call it EasyPay and they’ve made no effort to hide their belief that they’ve achieved some kind of higher moral ground by charging only 12% APR. In their press release yesterday, they pounced on the competition:
While similar card-based payment systems exist in the private sector in the form of merchant advance loans, they routinely carry exorbitant interest rates that range from 104-177 percent. By contrast, EasyPay loans carry an annual interest rate of just 12 percent.
-Opportunity Fund
Wells Fargo awarded them cash and their “hypocrisy” is apparently history. Why? Wells Fargo has also backed prominent MCA providers RapidAdvance and Capital Access Network. This might come as news to some people, but not to us. What Tozzi may not realize is the main driver of the MCA industry has been and continues to be…banks. Sorry to break it to the small minority of people that suspect MCAs are part of some shadow banking system. Most small businesses are unaware that their funds may indirectly be coming from Capital One, Community National Bank, or even Wells Fargo!
And let’s come to terms with another hard fact about small business lending. Opportunity Fund is proof that you can charge 12% a year and be guaranteed to lose money. In the BusinessWeek interview: “At that rate, the nonprofit is not covering its costs, says Marco Lucioni, the lending director who created the product. Opportunity Fund subsidizes the loans to keep them cheap.”
Subsidies? Whhaaaaa??? Oh you didn’t know? Opportunity Fund is a registered 501(c)(3), a charity. Don’t get us wrong, we love charity and we think it’s wonderful that small businesses in California may be eligible for an EasyPay loan. We can’t help but be bothered though that a charity is attacking the private sector for charging “too much” when they acknowledge that their own rate of 12% (more than double the allowable interest rate on an SBA loan) is entirely unprofitable. We’ve made this charge over and over and over again. The world we lived in where business loans regularly came in at 5% annually was really just an artificial market caused by the SBA’s agreement to reimburse banks for all defaulted loans. But in the real private sector where there is no tax payer default guarantee, or charitable donors to put downward pressure on cost, it becomes clear that the MCA industry is the free market as it should be.
We also reject the characterization that MCAs are “expensive” since there are literally hundreds of funding companies and a thousand ways to structure a deal. That’s the problem with journalists that only drop in once a year or so, Tozzi has no idea how much has changed. Merchant Cash Advance simply means short-term business financing. The costs may be the equivalent of 1% APR or 200%. It could be a purchase of future sales or a fixed daily repayment loan. It might have everything to do with credit card sales or nothing to do with them at all.
The use of the split-funding method by a charitable business lender definitely highlights just how mainstream the ideas of the MCA industry have become. Hopefully they are prepared to deal with the rapidly evolving technology environment. They just might learn there’s a reason that Wells Fargo is also playing the other side. Companies like RapidAdvance and Capital Access Network are well-oiled machines and are respected by the small businesses that fund them. Tozzi calls this awkward. We think the banks in the diagram would beg to differ…
Follow the money and you’ll see why the MCA industry is a bet anyone would make.
– Merchant Processing Resource
https://debanked.com
Notice: the diagram may illustrate relationships that are out of date and omits that nature of the financing arrangement.
It Might Be You
August 8, 2012You are innocently eating your bologna sandwich in the lunchroom when some of your fellow elementary school friends start to giggle. You giggle a little too just because you usually all laugh at things together, even though you’re not exactly sure what the joke was. “Damn,” you think to yourself. “I got all caught up in my bologna sandwich and I missed something.” Soon others begin to laugh. You laugh nervously with them, but take a couple quick glances around the room to try and locate the source of the humor. You spot nothing, but realize the chuckles are spreading like wildfire. Some people are looking at you as if they are suspicious that you might be the only one that doesn’t GET it. So instead you double down on your laughter as if to prove you’re enjoying the joke more than they are. “I’m enjoying whatever it is we’re all laughing at more than you are!,” you say under your breath. This only makes the crowd more raucous and by now everyone is starting to point in your direction.
“Ohhhhh crapppp…”
And then you find out it is you. There you are, sitting in the cafeteria, munching on a bologna sandwich with a grade school level obscenity drawn on the back of your shirt. You don’t know who drew it or when it happened, but you quickly learn it was done in red marker, particularly the kind from the 1980s that smelled like cherry, caused dizziness, and made your nose bleed after 15 seconds. There’s always somebody getting picked on, you just never thought it would be you.
Smells Sooooo Gooddddd
“Ohhhhh crapppp…”
It might be you. Every year or so, the MCA industry welcomes in a couple new big players. There’s always one that funds more, pays more, bends more, and brags more as they quickly cut into the marketshare that established funders have had for years. Suddenly they’re the hottest thing in town, that is until about 6 months later when they start telling their “loyal” broker shops to stop sending in new deals for a while. As the newbie’s joyride comes to an end, the established funders roll their eyes and continue on the way they always have, responsibly.
We’re not here to point anyone out or to suggest that brokers purposely send bad paper to an inexperienced funder. It’s just easy to spot the amateurs. Sadly, most people laugh at them behind the scenes until the funder calls it quits, completely unaware that they’ve been wearing a “kick me” sign on their back for months.
This could be an uncomfortable topic for some, but this rapid rise and fall scenario plays out across many industries. If your business is less than two years old, ask yourself this: Is your success a result of awesomeness or do you smell a tinge of red cherry marker?
—————
Does anyone know what the truth is anymore? These contradictory articles were both published yesterday by reputable news media outlets:
Banks Keep Lending Standards Tight For Small Firms
Fed Says Banks Ease Standards On Business, Consumer Loans
Is affirmative action coming to a funder near you?
Dodd-Frank’s small business lending time bomb
Growth in the usage of MCAs (selling future sales for cash upfront) is taking a huge chunk of market share away from traditional lenders.
Some crusty old reporters remain clueless as to why fewer and fewer businesses are turning to their banks for loans. Professor Scott Shane in BusinessWeek fumbled through his recent 700 word article in which he makes several unconvincing arguments for credit cards as being the new holy grail for business owners. Ultimately, he concedes that the decrease in small loans to businesses might simply be a benign statistical anomaly. This guy is a professor??!! Borrow, Borrow, Loan, Loan, Loan. Some people still can’t imagine a world where leveraging can happen without a borrower and a lender.
—————
Have you ever tried to peg down what exactly is happening in the credit markets? The National Federation of Independent Business has already done a lot of the work for you. A few clues:
- Small-business owners are increasingly employing personal rather than business cards for business purposes
- Fifty-seven (57) percent of small employers attempted to obtain credit from a financial institution in the last 12 months, a nine percentage point increase from 2010 with the demand for lines and cards each rising more than one-third. The demand for line renewals and loans were flat. More attempts resulted in more rejections rather than more small-business owners obtaining credit
- Poorer credit risks were more likely to try to borrow in 2011 than better credit risks, other factors equal. A number of financial factors, such as credit score, differentiate the two groups. Men and owners of larger small businesses were also more likely than their counter-parts to try to borrow
Download the full 76 page NFIB January 2012 report
—————
Some MCA underwriters hate when merchants state they aim to use the funding proceeds for “cash flow” as if its unspecific nature was code for betting on the horses. In the traditional lending world, businesses have been offering that up as a purpose for decades. From the NFIB Report:
– Merchant Processing Resource
https://debanked.com
The Funders of Summer
August 2, 2012What’s new? Who funded? What happened? Merchant Processing Resource will try to give you a glimpse into the Merchant Cash Advance (MCA) universe:
We all know salespeople love to fund, but underwriters?!! This banner hangs on the wall of the underwriting department at mid-sized MCA firm, Rapid Capital Funding:
Holy Moses Batman! $10 Million in a month?! Yellowstone Capital is reporting a new personal monthly funding record of $10,245,000.
There has been an influx of really creative instructional/promotional videos about MCA lately. Cartoons are really “in” right now:
PayPal white labeled a Merchant Cash Advance program in the U.K.
Will the mega banks be next?
It feels like 2006 all over again says First Annapolis Consulting in a recent article:
This seems to be the same bullish sentiment that surrounded the industry in 2006, when there was a constant influx of new MCA providers into the industry and what appeared to be unlimited financial sources. What might be different now is the experience accumulated in the industry during the recession. In the last few years, and as a result of the mounting losses that the industry suffered during the economic crisis, MCA players have implemented more conservative risk management practices and procedures.
Underwriters industrywide are also reporting that stacking, splitting, double funding, and fake statements are on the rise. It certainly brings back some nostalgia for veterans and not the good kind. A screenshot of a current ad on craigslist that is directed at bad apple merchants:
A new chapter opened for Merchant Cash Advance (This is soooo last month but a great read if you missed it).
http://greensheet.com/emagazine.php?issue_number=120602&story_id=3088
Is the loan shortage a banking problem or a merchant problem? Ami Kassar makes the case in his New York Times column.
“Where are the leads? I need the leads. Can you tell me where the leads are?” We literally get asked daily where to get leads from. We recommend:
http://SmallBusinessLoanRates.com
http://meridianleads.com
By the way… for every company that says cold calling doesn’t work, there’s a company getting rich doing just that. Same goes for SEO, mailers, e-mail blasts, PPC, and so. Marketing is an art form. Just because it doesn’t work for you, doesn’t mean it doesn’t work period. Keep doing what you’re doing. Too many ISOs/agents/marketing directors abandon campaigns after 30-60 days. Practice makes perfect!
Have you abandoned social media? We ask this question: What looks worse to a prospect?
Not having a business twitter account or having one but failing to tweet at all in the last 8 months?
Not having a business blog or having one but failing to add any new blog posts in over a year?
We didn’t spend much time researching hard data but we would surmise that freshness is a psychological component to a prospect’s shopping experience. If a business blogged regularly on their site up until May, 2011 and then stopped, might a merchant think the entire business itself is abandoned or gone? Is a facebook fan page with 1 post from 8 months ago a positive or negative selling point? WE SAY: If you build it, maintain it. Nothing brings down your presence on the Internet like abandonment. We understand that smaller companies might not have the manpower, time, or creative energy to write informative articles or engage people through social networking, especially when it’s hard to measure the results and value it creates. Consider the value you might actually be losing by projecting to the world that you have given up. It’s like operating a store with a sign out front that says “THIS BUILDING HAS BEEN CONDEMNED” even though you are actually open for business. If WE stopped posting articles for a year, would you still come back several times a month?
Here are two examples of MCA firms that keep it FRESH!:
http://unitedcapitalsource.com/blog/
http://takechargecapital.com/category/blog/
Don’t you just love MCA? We do! Visit our site again soon.
– Merchant Processing Resource
https://debanked.com
Smart Small Business Owners Have After Sales Strategies
July 27, 2012
We all want to be successful small business owners. And that means being a Smart Small Business Owner. Part of being a Smart Small Business Owner (SBO) is understanding the importance of designing and implementing effective after sales strategies.
SBOâs know that it really isnât about attracting customers. Keeping that pipeline of potential customers flowing is really just a basic cost of doing business. You can be pretty darn successful when it comes to attracting customers. You can be pretty darn successful converting those prospects into making a purchase. But whatâs really going to grow your business isnât only attracting and converting prospects into customers â itâs building strategies into your business model that pull another couple rabbits out of the customer hat: repeat and referral customers.
The term âAfter Sales Strategiesâ should not be confused with selling extended service or product subscription programs. Not that these arenât something to consider as they both represent excellent additional revenue streams. Itâs great to sell a customer a jar of face cream â it is even better to sell them a pre-paid jar of face cream for a year. Itâs wonderful to conduct a home inspection for a client before they purchase a home â itâs even better to sell them a pre-paid seasonal inspection service.
However, thatâs not the kind of âafter sales strategiesâ weâre talking about. What weâre going to address here are a category of after sales strategies that do some pretty important things when it comes to growing your small business:
⢠Improve Customer Satisfaction
⢠Improve Customer Retention
⢠Increase Positive Word of Mouth
It Pays to Act in The Best Interest of Your Customer
But first we need to talk a little bit about exactly what type of âAfter Sales Strategiesâ weâre talking about here. Simply put, these are strategies which, from the customerâs perspective, are âfreebies.â Theyâve already pulled out their wallets and handed over their cash and then receive a pleasant surprise: the business theyâve already handed their money over to does something in their best interest without trying to sell them something else in the process.
Hereâs a really simple example of how powerful after sales strategies can be.
You decide to try out a Greek restaurant youâve never been to before on date night with your spouse. You order your meals and theyâre pretty good. No complaints. The server is friendly and attentive. The dĂŠcor is nice. Youâre in the process of signing your check. Youâre not overly wowed, but you might come back. Maybe, if you happen to be hungry and in the area at the same time.
And then you get a nice little surprise. Your server approaches your table and places two small cups of Greek coffee accompanied by two small, yet perfect squares of baklava.
You say, âWe didnât order desert, Iâve already signed off on the check.â
Your server says, âOh, this is just a little treat with our compliments to top off your meal. I can put it in a box if youâre ready to go.â
You donât even like baklava (but your wife does) and youâre not sure how youâre going to feel about Greek coffee. But there is one thing youâre sure of now â youâll be coming back. There were those rolled grape things on the menu youâve always wanted to try. When you show up at work on Monday you tell your friends about the great Greek restaurant you took the wife to over the weekend. Hearing about the free dessert, a few of them ask for directions. On Friday, a group from the office runs over to catch lunch.
That coffee and dessert was a simple, low cost, yet effective, after sales service strategy. As a result you:
⢠Were more satisfied
⢠Planned on making another purchase
⢠Told others about your great experience
All three of the above are certainly responses youâd like from your customers after theyâve bought from you. Which leads us to a great question all you SBOâs out there should be asking yourselves right now:
âWhat are some simple, low cost, yet effective after sales service strategies I can put into place?â
Article By: Annie
https://debanked.com
