Small Business
The American Obsession With Startups
June 20, 2012Hi, I was just driving down 3rd Street and I saw an old building that had a For Sale sign on it. So I was just thinking it would be a great place to open a restaurant. It would have a really big outdoor eating area and I’ve always dreamed of owning my own restaurant. Lord knows I love food. I can’t talk long but I Googled loans on the Internet and you guys came up so I wanted to know if I could get a $4 million loan or line of credit to buy the building, fix it up, and make it into a Mexican restaurant, or maybe even Italian! Is that something you could do? I would need the money by friday…
This is the real transcript of a call to a Merchant Cash Advance brokerage. Don’t let anyone tell you that the U.S. is not a capitalistic society. Opportunity and entrepreneurship is so ingrained into the very fabric of our being that even self-proclaimed communists and socialists cast away their utopian worker ideals for the chance and self-satisfaction of turning something small into something big. We’re also an impulsive society, a trait partially due to our obsession with immediate self-gratification, but more to do with the fact that opportunities come and go in the blink of an eye. It is for these reasons that an individual who was taught to do market research, create a business plan, and mull things over is instead flying down the road with one hand on the wheel while the other hand is furiously applying for a $4 million loan to finance an opportunity he thought up 7 seconds ago.
How many other people driving down this road thought the same thing? How many of them have access to that kind of capital? Some might and so for the ones that don’t, the fear that someone is going to beat them to it turns them into unrealistic cash demanding lunatics. It’s true. The full service Merchant Cash Advance shops should probably offer John (the name we’re going to assign to the guy driving down the road) a proposal to help him create a business plan, form an LLC, and obtain the necessary licenses. These services would come with a price, a price that many people like John misinterpret as obstacles to be handled once he’s received the $4 Million. As John continues driving down the road, the dream of starting a restaurant is repeatedly crushed as he makes phone call after phone call to business lenders he found on the Internet. “There’s just no help for startups,” he concludes, and decides to hold off until the economy gets better before giving it another shot.
For 37 minutes that day, John was one of the many millions of startup businesses searching for capital. For the Merchant Cash Advance brokerage, he may have been one of the few hundred phone calls an account rep was bogged down with, while trying to help businesses that have been open for at least 1 year. The account reps have probably heard it all. “I want to start a home-based gas station“, “I need twenty million dollars for a good idea that I can’t tell you what it is because I don’t want anyone to steal the idea“, “I just got an LLC and I need $100,000 to come up with some business ideas“, “I’m gonna start an online shoe store and I need money to buy my first computer so I can get on the Internet.” We’re not poking fun at entrepreneurs since there are plenty of those who are really serious. But for the millions that call first and think second, they’re creating a disease unique to the U.S. It’s called startup fatigue. Business lenders are losing so much money by just talking to non-business owners, that they’ve taken to putting up big signs to ward them off.
The Internet is a great example because the cost of one click to the lender’s website can reach as high as $20. So how then does one tactfully express that their financing programs are for existing businesses only? It’s an art form that many have difficulty mastering. Advertisements, which are usually created to rope people in are instead being crafted to keep people out. “Hey Startups, GET OUT AND STAY OUT!” is the marketing campaign some lenders might be considering rolling out next quarter.
We expect that at this point in our post, startup specialists have already stopped reading and have instead taken to writing us long e-mails explaining how ignorant we are.
“DEAR MPR,
You are dumb. There are tons of startup lenders out there just begging for business.”
We’ll welcome any e-mails like this. Maybe these companies will stop hiding in the shadows and we can finally start helping people.
Raharney Capital, the organization that owns Merchant Processing Resource has a division that connects existing small businesses with financing companies. Coincidentally, they encounter a lot of pre-operational startups and continuously face the dilemma of how to service them.
Their first attempt to refer them out was with Go Big Network, a gargantuan networking service specifically for startups to obtain capital. Their homepage touts:
We help entrepreneurs find funding.
Over 300,000 Startups Have Used Go BIG to Connection with Millions of Dollars in Funding. Join today to connect with our network of over 20,000 investors.
They’ve been around for years and their advertisements can be seen all over the web. Inquiries about referring startups to them for a fee went nowhere as Go Big Network made abundantly clear that they did not want affiliates. Further attempts to refer them the business (even free of charge) went unanswered. It seems that even the startup masters don’t want to deal with more startups.
So we took to LinkedIn discussion groups and replied to the many individuals claiming to be angel investors or startup lenders. All of them backtracked on their original statements, with most eventually revealing that they were really looking for businesses that have been operating two years with positive cash flow. Are they liars? Not really. A young business is technically still a startup. What we did find though is that some Merchant Cash Advance providers are funding businesses that have been open for as little as three months. Not bad! (Check out: Capital Stack, Yellowstone Capital, United Capital Source, and Merchant Cash and Capital)
We thought we struck gold when we joined Startup Specialists, expecting to find lenders swarming the discussions with startup lending spam. Instead, we found no mention of financing at all. Interestingly though, this group was abuzz with activity. Thought you were cool because your post got 1 thumbs up? Thought that nothing was happening on LinkedIn? Some posts in this group are receiving hundreds or THOUSANDS of engaging, thoughtful responses! Sadly, no one seems to know where the money is, but that doesn’t seem to matter to them.
While writing this, our own inbox has grown considerably bigger and our voicemail box more full. Many are reaching out to us with questions about startup financing. The fatigue is slowly starting to set in.
One is a voicemail from Google, asking us to reactivate our Adwords campaign, something this site experimented with in the past with $100 in free ad credits. In their message, the account rep mentions that they have reviewed our site and can help startup lenders like ourselves create successful ads(what gave them this impression?). In startup-obsessed America, a stable, sustainable, and somewhat aged business is a mythical beast. Even Google has somehow mistaken our small business information site to be startup information. Too many people assume that small business means the act of trying to start a business. “Do You Have An Existing Business?” a bank advertisement might ask. Tons of people who don’t will still answer ‘yes‘ simply because the idea exists in their mind. It’s a beautiful thing in America to think that way, but getting off the ground and generating revenue shouldn’t be like winning the lottery, a game that you’ll never win but is fun to dream about.
We have interviewed writers for our site, some for volunteer positions, others to be paid. While instructing them to use small business as the subject matter, almost all of them revert to writing about starting a business. Marketing companies have also made the same mistake by pitching us their proposal to make cool videos for the site and then go on to create a demo video that talks about starting a business. One company actually asked us to provide a script and still they CHANGED IT to talk about how Merchant Processing Resource is a premier helper of startups. WHAT?!!!
By now, we’re running a high fever and the doctors suspect we have startup fatigue. Eleven more people have left voicemails, to request $300, $10,000, or $100,000,000 because they have this really sweet idea to make a restaurant named Chesster’s, (Chester’s with a double ‘s’) because each dining table will have a chessboard on it with chess pieces. Boo ya!! They haven’t worked out all the details yet but they thought the name was brilliant and oh yea… they need the money by tomorrow.
We’ll refer them to SCORE, a nonprofit association dedicated to helping small businesses get off the ground, grow and achieve their goals through education and mentorship. They may not get financing, but they will get HELP. And that’s really what Americans need. There isn’t a lending problem, there’s a helping problem.
Entrepreneurs like Mark Zuckerberg made it tougher for all of us. His progression went from random idea to scooping up cash from a classmate, to billionaire CEO of a publicly traded empire. He didn’t sit down with a SCORE mentor, do market research, and consult with a lawyer about how best to structure an organization. These are things he would have considered as obstacles to achieving his dream before someone else beat him to it. “I need the money by friday because this is going to be big,” Zuckerberg might have told a Merchant Cash Advance account rep who had heard the same story 97 times that morning alone.
Zuckerberg’s whirlwind success story portrays him as a role model genius, a boy who acted and capitalized on the split second window of opportunity while all the pieces fell into place after the fact. The rest of America so badly wants to replicate that. Too many people envision themselves in an interview with a New York Times reporter two years from now to talk about how they were driving down 3rd Street and the idea of starting a home-based gas station just popped into their heads, prompting them to Google business loans, and the rest of their billion dollar story is history. Similarly, when that doesn’t happen, just as many people chalk up their failure to a bad economy, Obama’s unwillingness to help, or the big bad banks indifference to the little guy.
It’s okay to go slow and get your ducks in a row. Hell, doing it this way is probably more honorable than what Zuckerberg did. You don’t need the funds by tomorrow, friday, or even next week. What you need is proof that you can provide a product or service for a profit and then to carefully plan and structure an organization that will last. Raising money should be a contingency for expanding sales, not for registering your LLC or to solidify an idea.
There’s a reason that the topic of small business is inundated with information on how to start one. So many fail to get off the ground. There are conflicting and sensational statistics that claim that 9 out of every 10 startups fail. In startup-obsessed America, it’s probably more than that. We would argue that John’s wild foray into entrepreneurship started when he spotted available space for a restaurant and failed when his first instinct was to search for lenders. In the meantime, a few financial firms got caught in the cross fire and spent money to answer his phone calls. Both sides were left frustrated since neither got what they wanted.
In today’s world there is a growing anti-startup movement. Americans want jobs to feed their families and lenders prefer to invest only in existing businesses. The problem is that without startups, fewer businesses will become established (bad for lenders) and fewer jobs will be created (bad for Americans). Our only hope then to turn the tide is to embrace the startups, not shun them. The message shouldn’t be: Get lost you potential job creating jerks! Every lender (and Merchant Cash Advance provider) should have a model to assist startups in some way. It’s okay to charge for this service and profit from it by the way. Any potential business owner who enters the startup arena expecting not to pay anything out of pocket is dreaming.
If America associates small business with starting a business, can a lender really parade themselves as a small business champion if their public message is to send startups packing? We don’t think they can. Similarly, individuals need to do their part and calm their impulses. Drawing up a plan, forming an LLC, and obtaining the necessary licenses aren’t annoying obstacles to take care of after the fact. You can’t really expect to raise capital on a wild whim while you’re flying down the street talking about a random building you saw on the side of the road. Imagine how crazy that sounds to a lender?
Patience and hard work, we say. That goes for the entrepreneurs and lenders alike. Let’s help each other, not hate each other. It won’t be easy, but then again success isn’t supposed to be like winning the lottery, a game that you’ll never win but is fun to dream about.
To Fund or Not to Fund in Hawaii
June 1, 2012
Aloha! 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.
So 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!
-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
Facebook 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!
Cool Stuff | ISO Extinction | Ignorant Media
April 27, 2012What’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.
ISOs 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
Banks Conclude Dismal Loan Demand is a Result of Business Wariness
March 23, 2012
Banks 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, 2012An 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.
Our 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
