Is the site inspection dead?
One of the strangest byproducts of the automation age is that underwriting tools once deemed absolutely essential are being replaced with APIs, digital verifications, and algorithmic scoring. Speed is everything, but why?
Faster speed through automation allows for scaleability. The promise of speed to a potential customer also encourages them to apply. Working capital can be an impulse decision now. You don’t even need to leave your chair to get $80,000 for your small business. But who’s making sure these businesses are sound… or more importantly, that they even exist?
I learned through conversations at Transact 14 that there is a growing dependency on Google Earth for site verification, more specifically Street View. Really??? Street View?!
While tech heavy funding companies laud real-time data through hundreds of APIs, it’s amusing to think that something like Street View, which might not be updated for months or years at a time, suffices as a site verification. Indeed, Street View still shows Christmas decorations in my home town.
Google Earth can pinpoint the obvious things like showing you something is located in the middle of nowhere:
But can it show you this sign located inside?
And how would you know if the writing was literally on the wall if it just went up yesterday?
Or that everything is completely on the up and up except that the business will be:
If you had the chance to speak with Jason Fullen or Joe Volk at NVMS during Transact 14, you’d know that site inspections performed by real live humans can be done in the same day they’re ordered. Or if you were getting wild at the Quiktrak party, you’d know that many of the older merchant cash advance companies still rely on site inspections, particularly on large deals.
How dumb would you feel if the $150,000 deal you funded looked like this on the inside?
Investigate a little
Who better to know the scoop on the business than the locals? I am reminded of the time a $100,000 deal I worked on where the site inspector commented that a restaurant was actually a front for a brothel that was likely going to get shut down.
I also recall almost funding a $100,000+ supermarket until the site inspection revealed that all of the shelves in the store were empty. I guess that merchant wasn’t lying when they said they needed the money to buy inventory!
And there was my own personal trip to a Brazilian Steakhouse for the final approval on an MCA deal based on credit card transactions. The server politely informed me at the end of my meal that the establishment no longer accepted credit cards as of a few days ago. How convenient…
Can social media be our eyes?
In the social media era, it’s almost as if a million site inspections are being conducted every minute. Can reviewer data be our eyes?
If there are too few reviews or they’re aged, can you rely on all your other data points? Can you trust that the available reviews are from real customers?
Speed is king these days, but ignorance is never in style. One has to consider if they can trust external data versus what they see with their own two eyes. We’ve all seen deals that looked great on paper, but turned out to be complete
After further review of the deal:
Should we fund businesses we never see? It’s your call.
How Kabbage is building a social media marketing empire
Take a look at what Kabbage has cooked up:
Like Kabbage on twitter or Facebook and your approval amount gets extended automatically. This helps Kabbage accomplish two goals:
1. Spread awareness about their brand to the followers of the people Liking and following them.
2. Identify the public social media accounts the business is using so it can monitor what they’re doing.
You can learn about how Kabbage feels about businesses that aren’t using social media in the patent’s summary. Under Description, Section 2:
Social networking is growing at an exponential rate and businesses that are not exploiting social networking sites such as FACEBOOK and LINKEDIN are considered falling behind the times.
So why is this a patentable invention? A merchant’s approval amount is increased automatically by an algorithm that checks to see if a merchant performed the action of Liking or Following. So if you think that’s a great idea and want to do something similar, you’re a bit late. Better Call Saul… I mean Kabbage to license the use of such technology. It works as such:
The above aspects can be obtained by a system that includes (a) approving, by a cash provider, a user for a cash line wherein the user is permitted to receive cash up to the cash line; (b) causing an offer to be displayed on an electronic output device associated with a user’s computer, the offer being to increase the cash line when the user takes a particular action comprising associating the user’s social networking account with the cash provider; (c) determining that the user has taken the particular action; and (d) automatically increasing the cash line.
The term merchant cash advance is explicitly used twice in the patent but it also goes to cover any kind credit line or loan being program. This is actually an incredible patent to be in possession of because it’s such a great idea. Imagine telling a merchant approved for 5k, that they will get an extra $200 just for following you on twitter and another $200 just for liking you on facebook. It may not seem like much on a $250,000 deal but Kabbage does a lot of smaller sized advances where the $400 combined approval bump is a sweet incentive for merchants.
Marketing in this industry is expensive and this is one of the more innovative models I’ve seen.
Just as the Merchant Cash Advance industry is beginning to enjoy positive publicity, Google has the potential to set the momentum backwards by pushing terrible results. I’m going to post some Penguin 2.0 epic fails over the next couple days. So check in every now and then to see what’s new. You can also send screenshots of any epic fails you find to firstname.lastname@example.org
Epic Fail #3: Page 1 for the search of Business Cash Advance Companies
Epic Fail #2: Page 3 for the search of Business Cash Advance
Epic Fail #1:
According to Google’s Matt Cutts, Google Penguin 2.0 was fully implemented on Wednesday afternoon. Notice a difference in the search queries today? We’re noticing a lot of activity in the MCA industry. Using a nice little hack, we’ve created a way to track all the responses on Google+ that are specifically tied to Matt Cutt’s blog announcement. See what’s being said below:
Almost 1 year ago to the day, I wrote a piece titled How the Facebook IPO Affects the Merchant Cash Advance Industry. In a most fitting way to commemorate this anniversary, it was reported early this morning that Google Ventures and Peter Thiel are investing in On Deck Capital (“ODC”) through additional Series D Financing. Thiel is especially symbolic in this case as he was the first outside investor in Facebook back in 2004.
But don’t expect Jesse Eisenberg to be called upon to play Noah Breslow or Mitch Jacobs in a movie about small business lending just yet, as the ODC story is a tad less revolutionary than facebook. Or maybe it’s not. Google Ventures is not one of the usual backing suspects in the MCA industry, but their involvement in this case is a perfect validation of my prediction 1 year ago.
Merchant Cash Advance financing turns 15 this year and split-funding goes back more than two decades, but the best of times are just beginning. On September 19, 2012 I bid farewell to an era and made my case for the one I foresaw on the horizon. Facebook wasn’t the first social network on the Internet, nor was their concept original, but they changed how we interact with strangers, friends, and family members online forever. There is a familiar trend with ODC and even Kabbage, two names that every journalist appears obligated to mention these days when writing about Main Street. Perhaps their technology based approaches send a tingle up the leg of the mainstream media or maybe they’re just really changing the game. They definitely appeal to the Silicon Valley crowd in a way that the old guard of Merchant Cash Advance companies apparently do not.
“Old guard, did you just say old guard?!”
Contrary to urban myth, On Deck Capital and Kabbage are not taking on small businesses all by themselves. They are but a fraction of the overall alternative business lending market with the leaders being anything but old guard. Debt and Equity are pouring into these firms and there are no signs of it letting up any time soon. I can’t go a day without a fund, lender, or investor reaching out to me in some way with the hope that I can steer them to a funding provider in need of a capital raise. Their options to get in now are running low and my advice to them is to set your sights lower on ISOs. The big funders have got capital covered and the ISO market is the next gold rush.
The industry can’t grow without originations and most funders depend on some level of ISO business (a few entirely) to hit their benchmarks month after month. So the funders do their job well, but the lead generators are driving a large percentage of the growth.
In March, I attended the Search Marketing Expo in Silicon Valley. In a sheer twist of fate, at the same time a Merchant Cash Advance guy like myself was touring the campuses of Facebook and Google, it appears that Facebook and Google were busy touring the campuses of a Merchant Cash Advance company.
The connection between Silicon Valley and alternative business lending is beginning to run deep, very deep. I think we’re soulmates. Only time will tell.
May 3, 1:00am: I underestimated how easy it would be to make frequent updates. Wednesday was fantastic. I uploaded a couple dozen photos and updates all at once earlier today over on DailyFunder. As soon as the show was over, I found myself on Bourbon Street at the Discover party followed by the Priority Payments party. Both were a great time.
Photos and updates from the ETA
May 1, 1:00am: Great start to the show this evening. Merchant Cash Advance providers and alternative business lenders continue to have a very strong presence in the payments industry. The booths I saw include: RetailCapital, NextWave Funding, Merchant Cash Group, On Deck Capital, Capital Access Network, Strategic Funding Source, American Finance Solutions, Swift Capital, MotherFund, and Principis Capital. GRP Funding and Paramount Merchant Funding are also on the exhibitor list but I didn’t spot their booths yet. That’s pretty substantial and it omits the major presence of Merchant Cash Advance companies that aren’t exhibiting. I bumped into Merchant Cash and Capital and walked the floor a bit with David Rubin of Capital Stack.
I met the guys behind Super G Funding which lends money against residuals. They’re great guys and they have such a unique role in the industry.
I think every funder I spoke with was quick to mention that they do 12 month deals and either offer direct debit repayment or will have it soon. The ACH train has disrupted the split-funding market pretty severely though many funders continue to do big numbers via split.
Nobody seemed to have an appetite for low FICO score deals (500s and below) except for Merchant Cash Group and Capital Stack which target the higher risk market intentionally. And when I say “don’t have an appetite for,” I literally mean when asking a funder if they do below 500 credit, the answer is some version of “HECK NO!!”
Overall tone, and perhaps its because opening night included open bar, but it was very optimistic. Most funders seemed intent on expanding and are eager to service as much business as possible. I definitely get that sense that there is a real focus these days on the bigger fish ISOs ($1 million+ in referral business a month). When newbie brokers enter the space, funders spend an enormous amount of resources developing them and many times they just don’t pan out. Either the brokers don’t have the capacity to do more than a handful of deals, or they just don’t “get it.”
If you’re a mom and pop ISO and you have just 1 or 2 deals a month, it’s more difficult these days to get time and attention from a funder. Capital is flooding into the industry and everybody wants partners that can produce volume. From a resource standpoint, the “1 and done” reps are not an efficient use of time.
Big ISOs have a lot of negotiating power at their disposal these days. In the last 7 years, it was good to be an ISO, then hard to be an ISO and now it’s good again. Many things in MCA have a weird way of going full circle. Hope to see you on Wednesday.
Apr 30, 1:00am: Merchant Processing Resource will be publishing updates as often as we can from the ETA Expo in New Orleans. I am very excited to be down here. Earlier today I had the opportunity to eat beignets at Cafe Du Monde, visit the French Market District, and take a ride on the Natchez Steamboat on the Mississippi River. But starting Tuesday, it’s all business. A schedule of events can be found on the ETA’s website.
You can follow along with everyone else in town on twitter using #ETAExpo2013 or #ETAExpo13
and of course via the DailyFunder Merchant Cash Advance iPhone App.
Some pre-conference tweets:
ETA Expo 2013 on Twitter
Storified by Sean M· Mon, Apr 29 2013 22:21:50
Here’s to learning, networking, and having fun!
– Merchant Processing Resource
The Small Business Community on Google Plus recently broke 1,000 members and to make the most of it, we’re kicking off the first ever Small Business Chat. The chat events will be held weekly, and each week it will cover a different topic.
Come meet and share with likeminded people about how you became an entrepreneur, what makes you tick, wild stories, personal strategies, and more! Thinking about going off on your own? Not sure if you have what it takes? Circle Up and have fun.
I’ve watched this happen a lot over the last several weeks, particularly on Google Plus. Businesses both large and small join a community, start posting links to their blog and then they get banned. Some are posting crap and others are posting genuinely good content, but the good content is being pushed on people and nobody likes that.
Communities and forums exist for discussion, not for marketers to disseminate their blog posts with titles like 10 ways for small businesses to maximize profits. Now there are a few instances where it makes sense to post a link to your website, but only if it truly results in a healthy engaging debate and shares. If that doesn’t happen, then you’re probably in trouble.
I have actually had to watch a few people I know in financial services get the boot in communities, and there was nothing I could do to help them. Their brands have literally been BANNED from talking amongst their peers and potential customers and that’s probably the worst thing that can happen. I’ve all seen hundreds of small businesses make the same mistake, younger businesses that have finally decided to give social media a shot, only to be shown the door 10 minutes after they jump in. It’s disheartening. Many communities don’t offer a warning, so the best chance to let sometime know the basics of human interaction, is to do it before they join anything. If you were thinking of joining a community or have been banned by one, particularly on Google Plus, I’ve written up a little road map titled: Banned from a Google Plus Community?