Small Business

To Fund or Not to Fund in Hawaii

June 1, 2012
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hawaii imageAloha! The Resource’s main operator is “busy” vacationing in Hawaii, hence the long gap in site news. But since we’ve got Hawaii on the brain, we figured now is a good time to discuss Merchant Cash Advance (MCA) financing in a state that practically exists in its own universe.

Ask underwriters from different firms about how they approach applications from Hawaii and you’ll get some opposing views. Some will argue that the distance is too vast to risk their capital. A business tucked away in the middle of a remote Pacific island may feel less bound by their contractual terms since there is a very small likelihood that a funder will fly thousands of miles to enforce it. “What consequences am I really facing from a company light years away in New York City?,” a Hawaiian merchant might ask themselves. This is a negative Hobbesian view that promotes the idea that merchants are inherently corrupt and that they need a fear of recourse to honor their contracts. There’s a reason that the MCA industry feels particularly vulnerable.

The nature of the transaction provides funders with barely any recourse, giving credit to the psychology that being worlds apart is more than just a paranoid insecurity. When MCAs are structured as a sale, it is not possible to report a delinquency to the credit bureaus since no credit has been extended. Lawyers will argue that MCA funders are protected by their iron-clad contracts which grant numerous advantages to the funders in the event a merchant breaches their contract. However, if a funder files a lawsuit in Brooklyn, NY, how likely is it that a merchant in Hawaii will fly there to respond to it?

Merchant Cash and Capital may have had reason to hate the state back in 2007, when they got burned by Hawaii Travel Network, a Hawaii-based travel agency for an amount close to $1 Million. However, they have continued to fund businesses there without prejudice.

At the end of the day, underwriters must leave their fears at home and rely on data analysis to make decisions. When the financial crisis hit, there was plenty of real data to support why funding in California, Nevada, and Florida was a bad idea. Many local economies got beat up really bad. It’s no wonder that when people started losing their homes to foreclosure, they began to forgo all of their financial obligations in order to get by. It was then that Hobbes’ theory of humanity was more appropriately applied, as merchants reverted to a state of nature and put self-preservation above all else. “If the recourse for defaulting on an MCA is just a lawsuit then so be it,” said a hypothetical business owner who had just lost 60% of his 401k and was hiding out from the Repo Man.

While Hawaii wasn’t exactly made a poster child for economic devastation, it was hit pretty hard by the loss of Americans’ disposable income. 80% of Maui’s economy is related to tourism. That means they are inevitably affected by problems on the mainland. However, one factor that makes Hawaii all the more resilient, is its location. In April 2012, the number of Canadian and Japanese tourists combined outnumbered visitors arriving from the eastern half of the United States. So in hard times, Hawaii may go down, but it will not go out!

Besides, while many mainland states are now coming to terms that the economy is still stagnating, Hawaii earned more income from tourists this past April than in any other April in history. Sure, there are problems, political qualms, and flaws in the state’s infrastructure, but it is really not that much unlike the rest of the country (except for the fact that it is way cooler 😛 ). Many of the vacation destinations feel more like America than some parts of mainland America.

hawaii 2So does the MCA industry really have anything to fear in Hawaii? It depends on the risk tolerance. Travel agencies and tour companies have historically been shunned by funders, although that’s changed a lot in the last six months. Even established tour companies can disappear overnight. Tour companies in exotic locations walk a thin line every second of operation. They face constant injury liability, state and local law restrictions, and pressure from the property owners on which the tours explore to meet a certain standard of care. It can’t be omitted that a few bad online reviews can cause all their potential customers to book with their competitors instead. The Internet is the public’s best resource for researching vacation activities. No one wants to book a tour that has poor feedback.

Major resorts and hotels are the lifeblood of local economies there. If a big hotel fails, all the small businesses in the near vicinity will go right down with it. Some of the best restaurants in the state are on the grounds of a major resort, highlighting that nearly everything is tied to tourism. The weather too can be fickle.

If a funder can tolerate those risks, and they’re not unlike many of the other vacation destinations in the country, than we say, go for it! But when a Hawaiian MCA deal goes bad and the business phone number is disconnected, go ahead and file your lawsuit in Brooklyn and see how much good it does. You might end up imagining that the merchant has shrugged off your contract to spend their afternoons surfing instead. You’ll kick yourself for doing a deal in such a faraway land.

After being in Hawaii for just a week, I received a phone call from a friend to update me on MCA industry events. Truth is, I didn’t care what he had to say. It’s way too nice here to care about what’s going on elsewhere. If our website goes down next week, you may start to imagine that we have shrugged off the Resource to spend our afternoons surfing instead.

Don’t laugh, because you would be right. The rules change when you’re thousands of miles from the rest of the world. Mahalo and Aloha!

court day

-deBanked
https://debanked.com

Note: No Hawaiians were injured during the course of this blog post.

How The Facebook IPO Affects the Merchant Cash Advance Industry

May 18, 2012
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Like Merchant Cash AdvanceFacebook went live on the Nasdaq earlier today, causing many people to become instant millionaires or billionaires. Yea…soo… how is this in any way relevant to Merchant Cash Advance (MCA)? you might ask. Well, because MCA is the next BIG thing. One of the major winners of the Facebook IPO is Accel Partners, a venture capital (VC) firm that invested $12.7 million in Mark Zuckerberg’s college networking website in 2005. Today, they’re cashing in on billions from that bet. Since then, Accel has repeatedly struck gold by backing wildly successful businesses such as Groupon and Etsy. Many hungry and jealous VCs are looking to jump into any industry Accel likes, to either compete for marketshare or to piggyback on the success.

And that’s how Facebook and MCA are related…

On February 7, 2012 Accel Partners invested $30 million into Capital Access Network (CAN), the holding company of AdvanceMe and NewLogic Business loans. There was some buzz about it in February, but it faded fast. It seems like every day there is a new press release from some MCA firm bragging about how they secured a mult-million dollar credit line. So it’s no surprise that industry insiders didn’t immediately poo themselves in hysterical awe of this announcement.

CAN is also on pace to fund $600 million this year, an astounding figure that makes $30 million sound like a mere drop in the bucket. It’s as if Accel gave them a Starter Advance. 😉

On a more serious note, the rest of the VC and Growth Capital world waited about 3 seconds before pouncing on all things MCA. The frequency in which we’re receiving random calls and e-mails from “investors” about putting money into MCA providers has increased dramatically. A few other funders and large ISOs have shared that they are experiencing the same thing. Right now there is a great chance that there are back room negotiations going on all over the industry between funders that already have millions and investors that have billions.

Raising capital has never been a real problem in the industry, as the Wall Street establishment has been funneling millions into the New York, California, and Florida MCA powerhouse providers for years. Do we really need Silicon Valley to jump into bed with us? Maybe. Although MCA has been around since the late 1990s, there’s been this lingering acknowledgment that most of the small business market that could benefit from financing still doesn’t know that MCA exists. Way too many business owners respond to an explanation of the MCA program with shock, “Wow, I never knew you could do something like that.” That’s a problem and it’s real.

Sean Murray, the founder of Merchant Processing Resource, recently did a presentation through the Manhattan Chamber of Commerce last month to 30 small business owners about MCA financing. The first question asked by one of the attendees after it was over was, “did you come up with this whole concept yourself?” He certainly did not, and it epitomizes that there is still room for exponential growth in a billion dollar industry that is more than a decade old.

Naysayers predicted that the MCA concept would fail years ago, and yet it has grown, mutated, and evolved. Some folks got into this business in their early twenties right out of college, and have literally made a career out of it. It’s quite a picture to see that they’ve grown up, gotten married, and had a few kids only to learn that Silicon Valley is picturing this entire industry as something still in startup phase. But hey, it took Pinterest years before anyone really noticed it.

In 2012, you can apparently still get in early on MCA. If you have stock in an ISO or funding provider, don’t be quick to sell it. It could be worth millions or billions in the future.

At some point in 2014, the Winklevoss twins will probably claim they invented Merchant Cash Advance, a challenge they will lose badly. Not even CAN, the company that did invent it, was able to prove in court that they did. But they did manage to continue their dominance of the industry and they are the ones that caught Accel Partners’ fancy. But the rest of the MCA players aren’t exactly going to wither away and die like MySpace. So the battle is on and there is money to be made.

Target valuation: $100 Billion. Who’s going to get there first?

– deBanked
https://debanked.com

Read how Merchant Cash Advance could be molded to be more like Silicon Valley: Just Call it a Coupon!

LIKE THE MERCHANT CASH ADVANCE INDUSTRY ON FACEBOOK!

Cool Stuff | ISO Extinction | Ignorant Media

April 27, 2012
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What’s new in the Merchant Cash Advance arena?

Cool Stuff
FundersCloud is making waves in the industry with their Peer2Peer/Crowdfunding platform. We’ve finally gotten a chance to speak to their team, do a walkthrough, and aim to release an independent review of their cloud next week. However, for the moment we would like to take this time to gloat that another one of our predictions is being proven right.

On December 1, 2010, we explained that the Direct Funder model was quickly becoming a thing of the past. (The Direct Funder Model is Sooo 2009). How many of your friends and colleagues have at some point considered leaving their current job to go and start a funding company? Tired and worn down agents are all prone at some point to say “screw this! I want to be the funder so the agents can send the deals to ME instead!” Now it makes increasingly less sense to start a funding company. Why would you do that when you can just syndicate on your own deals or on the deals of other funders? You can earn the same return they enjoy but without having to pay the nasty overhead. In some aspects, being the funder has disadvantages, unless they’re making a hefty amount on management fees.

merchant valueISOs Facing Extinction
According to an article in ISO&Agent Magazine, it’s not practical to compete on just price anymore:

The internal threat lies in continuing to base the ISO business model solely on selling card services at the lowest price and failing to offer the latest payment technology, Helgeson cautioned the packed session room.

“They should be talking innovation,” Helgeson said of ISOs. “If they’re only talking rates, they’re already out of business”

Basically, if two merchant account representatives walk into the corner deli and one offers to lower the processing rates by 15 basis points and the other offers a state of the art POS cloud that can accept payments through the merchant’s smartphone, home computer, and in-store touch screen device, what’s going to happen? So many merchants have been tricked into higher rates under the guise that their rates would be lower that they’re beginning to tune out the low rate pitch already anyway. They want the technology now.

Could the same issue begin to plague the Merchant Cash Advance industry? In the last two years, new funders have popped up with the strategy to acquire marketshare by undercutting the competition. That works until the next guy undercuts the first guy, and the next guy undercuts the second guy. Pretty soon, we’ll have funders purposely operating in the red just to have a share of the market. Some are bleeding red ink already but not because they want to be. 🙁

They key is to give merchants added value with the financing program. This doesn’t mean trying to sell them insurance and warranties and trying to pass this off as some kind of value. Those are junk costs and extra fees for the funder, not value for the merchant. Anything you can contribute that would drive more customers to their business or make their business operate more efficiently is value.

Ways Merchant Cash Advance Companies Can Provide Additional Value to Their Clients:

  • Provide them with POS software
  • Provide them with SEO services to increase their exposure to customers in search engines
  • Create a custom tailored marketing campaign for them to reach more customers
  • Create and execute an e-mail marketing campaign for them that would be sent to either previous customers, potential customers, new customers, etc.
  • Rent a few billboards and allow merchants to opt-in to have their business advertised on these billboards
  • Copy Groupon
  • Etc., etc., etc.

If you can’t come up with anymore ideas here on your own, you’ll probably be out of business by 2015. If the items you add to this list include ways to make yourself more money and not the merchant, you’ll probably be out of business by 2015.

Ignorant Media
In our own opinion, the petition set up to automatically e-mail the Huffington Post in response to their article about businesses having no choice but to pawn jewelry was a success. The Huffington Post may feel differently because they didn’t respond to us at all.

It figures that websites that receive millions of views daily really don’t bother to care about actual facts or information. They’re entertainment sites and for-hire PR mechanisms. Every time we see a friend’s company mentioned in the news, we shoot them an e-mail or call them up to offer them congratulations on getting noticed. They always respond with some version of, “Don’t congratulate me. I had to pay $30,000 to some PR company to try and buy placement.” Oh well… At least there’s the Merchant Processing Resource to fulfill all your Merchant Cash Advance information needs. 🙂

– deBanked
https://debanked.com

Starter Programs For Merchants That Don’t Process Credit Cards?

April 19, 2012
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Just when we thought that Merchant Cash Advances couldn’t be any more accommodating to the small business world, one company is applying the starter advance concept to practically the entire spectrum of merchants. A starter advance, a higher risk transaction than those traditionally conducted in the industry, is a concept that was made popular by 1st Merchant Funding several years ago. While it was still limited to merchants that accepted credit cards as a form of payment, it offered applicants that had been in business for less than a year, had below 500 FICO, or sporadic sales to start with something small.

Capital Stack is now offering a starter advance to businesses that do not accept credit cards by structuring the repayment via direct debit ACHs. Small businesses only need to have been in operation for three months to be eligible. With options like these, it’s hard to imagine how big banks will ever be able to compete. Can they really expect a small business to wait 2 – 4 years before ever getting their first line of credit? That’s madness! You can learn more about Capital Stack’s program by watching their video clip or by visiting their website.

The Media Wants to Know Where People Can Find Loans

April 6, 2012
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Huffington Post ran an article yesterday that claimed the subprime lending markets have collapsed and disappeared. The focus is on personal loans but goes on to explain that business owners have basically no options other than pawn shops. OH REALLY??!!

Huffington Post includes this note in the middle of the article:

Where have you gone when you needed to borrow money and have bad credit? Email money@huffingtonpost.com

Use our pre-populated form that will automatically e-mail Huffington Post on your behalf.

Subject: Re: Borrowing Money With Bad Credit

Body: Dear Huffington Post,

Merchant Cash Advance financing firms have previously and continue to help small business owners with good credit as well as bad. Every business has opportunities and options to choose from. There are a wide range of costs and repayment options. I am e-mailing you to let you know that [YOUR COMPANY NAME HERE] can help fund businesses with bad credit.

Thank you,
[YOUR NAME HERE]
[YOUR COMPANY HERE]
Petition completed through https://debanked.com

FORM CLOSED as of 12/12/12.

/////

Terms of form use: You may only submit the form once and you may only enter in your own information. You agree that an e-mail will be sent to Huffington Post on your behalf.

Banks Conclude Dismal Loan Demand is a Result of Business Wariness

March 23, 2012
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Banks CluelessBanks are lending again but businesses aren’t taking the money… Surprised? We’re not. According to an article in the Wall Street Journal, “much of [last year’s] loan growth comes from lines of credit, not traditional loans. And instead of tapping available credit to power up plants, open factories and hire people, businesses are waiting.”

All of the statistics used to conclude about what businesses are or aren’t doing relied on data provided by the nation’s largest banks.

  • Bank loans to businesses grew 10 percent last year after dropping 19 percent in 2009 and 9 percent in 2010, according to the Federal Reserve.
  • Analysts are watching bank loan growth closely because it provides clues about whether companies are preparing to hire.

With the blind assumption that banks are the only institutions that provide financing to small businesses, experts are inferring faulty conclusions.

  • Wells Fargo assumes businesses are uneasy about the future.
  • JPMorgan reports that businesses just don’t want to use the money.
  • Chase Bank believes that small businesses have enough money of their own and don’t need loans.

It seems that yet another one of our predictions is coming to fruition. What the banks conclude is wariness, is a direct contradiction to what is being experienced in the Merchant Cash Advance industry: an incredible, insatiable, all consuming demand for for working capital.

Dear Banks,

Small businesses are more confident than they’ve been in a long time.

Sincerely,
The Merchant Cash Advance Industry and Micro-Loan Providers

Why just yesterday, Yellowstone Capital announced the closing of a $1 million deal for a health care service provider. This is right after they financed a trucking business for $751,000. Millions of dollars are literally being poured into small businesses DAILY. United Capital Source recently finalized $1.25 million for a mid-sized business and these are just a few of the deals we’ve caught wind of. If we ran a story every time a large Merchant Cash Advance deal funded, well there would be so many stories that our web servers would crash. And because these deals are not being closed by Chase, Bank of America, or any other national financial institution, the Federal Reserve, major banks, and Wall Street Journal analysts assume that (a) businesses must not be getting financing and (b) businesses must not want capital.

Both are absolutely false. Prediction: The Wall Street Journal will run the following headline two years from now:

Economy and Small Businesses Experience Phenomenal Growth While Bank Lending is at an All Time Low. Experts Stumped.

Other News: President Obama Proposes New Legislation to Allow Him to Run for a Third Term in Office.

Everybody will know the reason for this except the big banks who will conclude that some kind of miracle has happened.

– deBanked
https://debanked.com

Merchant Cash Advance On Huffington Post / Just Call it a Coupon!

March 16, 2012
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An article was published by the Huffington Post today that explained the need for Merchant Cash Advance providers. Though some of it was described in an unflattering light, it conveyed some important messages.

  • Real business owners explain that banks both big and small are not interested in lending to them
  • One woman is quoted as saying: “If I ever write a book on how to open a restaurant, the first chapter is going to be ‘Banks Are Not Your Friends.'”
  • A direct funding provider revealed that demand for merchant cash advances increased by 15 percent to 20 percent in 2011 and that 70% of businesses use more than 1 advance.

Merchant Cash Advance SaleOur favorite line and perhaps the most important thing you can take away from this article is the quote by the CEO of AmeriMerchant. “[Merchant Cash Advance] is less expensive than [offering] a Groupon for 50 percent off or putting inventory on sale for 30 percent off.” Isn’t it ironic that the Groupon/e-coupon/social coupon concept is today’s business as usual and is at the same time significantly more costly than what the media considers to be expensive financing?

LivingSocial has 60 million members worldwide and they operate much in the same way that Groupon does. Let’s discuss this. According to wikipedia, Groupon’s business model works as follows:

For example, an $80 massage could be purchased by the consumer for $40 through Groupon, and then Groupon and the retailer would split the $40. That is, the retailer gives a massage valued at $80 and gets approximately $20 from Groupon for it (under a 50%/50% split).

So the 50% discount to the consumer is actually a 75% loss of revenue for the business owner. This practice is publicly accepted as fair, practical, and a way to increase your sales. If that’s the case, should’t financing that costs $2,800 to receive $10,000 be considered a bargain? We think so. Expensive is in the eye of the beholder. The media has a funny way of convincing people that a 75% discount is a great deal but financing costs of 28% are astronomical. Not to say that 28% is cheap, but there is only one reason that low rate bank loans even existed in the first place. The SBA is willing to cover up to 90% of the defaults and charge it to the taxpayers. That’s an advantage the rest of the private sector doesn’t get.

We can’t help but think what would be if the Merchant Cash Advance concept was rebranded as a powerful social marketing tool to drive sales. What if a Merchant Cash Advance provider purchased $12,800 of a store’s future sales in exchange for $10,000 today and then mass marketed that business to local consumers through mailing lists, iphone apps, and website ads to drive customers to the store. That would allow the Merchant Cash Advance provider to recoup their purchase as fast as possible and at the same time create viral growth for the business. The technology already exists and businesses are already willing to accept 75% losses. Isn’t it time they all started getting a lot more bang for their buck?

It’s not expensive when it’s spun that way is it? Sayonara Groupon and LivingSocial! Merchant Cash Advance is the sleeping giant at your doorstep.

– deBanked
https://debanked.com

What Ever Happened to Gradual Change?

March 13, 2012
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Recession lightswitchDid we really go from one extreme to the other?

CNN 8/25/10: Credit Card Debt at 8 Year Low
NY Post 2/26/12: U.S. Credit Card Debt Nearing Toxic Levels (U.S. Consumer Debt at highest point in a decade)

In 18 months, we managed to go from barely using our credit cards to TOXIC LEVELS! So much for gradual change. On August 25, 2010, the Dow Jones reached an intraday trading low of 9,925. As we write this article, it’s currently priced at 13,177.

The unemployment rate in August 2010 was 9.6%. Many believed that figure to be understated. In February 2012, it was 8.3%.

The headlines change so quickly that we’re starting to wonder what the heck is actually happening in this country. Every story announces that something is either the best thing in history, the worst thing in the world, on the verge of destruction, or never seen before. Many people are not even sure how to interpret these fluctuations. Does it mean that we’re in the middle of a full blown recovery or are we experiencing pre-storm volatility as we near the cliff of a catastrophic depression?

In August 2010, the average price of a gallon of gas was under $2.81. Today it’s over $3.71. And consumer spending is increasing but only because Americans are going deeper into debt. Meanwhile the the demand for business loans is increasing, signaling that the private sector is optimistic and preparing for growth.

Don’t take our word for it but the stock market is probably the best indicator of what all this data means. Using the efficient markets hypothesis as a basis, we believe that the recent surge in stock prices indicates that we are on the path to recovery. When the experts realized that the economy was on track to perform well, the market immediately priced stocks as if things were already great. That’s why you can’t beat the market. By the time you’re ready to make a trade, the price has already changed. Today’s Dow means tomorrows success.

It’s time to jump on the recovery bandwagon!

Right?

– deBanked
https://debanked.com