Merchant Cash Advance Now In-Depth

December 1, 2014
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For quite possibly the first time ever, Google has blessed merchant cash advance with its own array of In-depth articles. What are In-depth articles? Why, they’re featured stories at the bottom of the normal search results. The In-depth feature launched in 2013 and has only worked for certain keywords.

Today it appeared for the very first time for the keyword merchant cash advance

in-depth merchant cash advance articles

Since Google experiments constantly and shows different results to everyone, it’s possible that you’ve been seeing this for some time already.

I had this to say about the feature 16 months ago:

If you’re wondering how websites can prepare themselves to benefit from such rich snippets, I published Schema.org Markup and Rich Snippets for the Little Guy back in August 2013.

rich snippets

Businessweek, NY Times, and Forbes… I’m not surprised that they’re the chosen publications. Truth be told, there may not have been enough written about merchant cash advance to implement this feature until now. Consider this a milestone.

Dear Ami

November 19, 2013
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I don’t know Ami Kassar personally, but I read the articles in his NY Times blog, a column dedicated to chastising merchant cash advance companies. In it he yearns for the glory days of 10 year loans at 8% interest for local mom and pop shops. Having been a broker for 3 years myself, believe me when I say I wish rates were lower and terms were longer. It’d be an easier sell. But having also been a very senior underwriter and risk manager, I know exactly why the terms are what they are.

The below post was intended to be a comment on Ami’s latest post, Assessing a Kevin O’Leary Investment on Shark Tank, but it shattered the 1,500 character limit so I’m posting it here. As it was intended to be a comment and not its own post, I did not expand or delve into as much as I wanted.
Dear AmiAmi,

We get it. You don’t think expensive capital is right or moral and in a perfect world where small businesses have perfect credit and a 0% likelihood of delinquency or default, there probably wouldn’t be a merchant cash advance industry.

Unfortunately, the reality is that many small businesses are high risk borrowers for one reason or another. This isn’t because a bank says so but because there is substantial data that shows there is a high likelihood of delinquency or default. Almost all of the small businesses that existed in my neighborhood 25 years ago are gone. They were replaced by new businesses, which were replaced by new businesses, which were replaced by new businesses. To say that a store with 2 years in business and 700 credit in my neighborhood is a safe long term investment would be a huge mistake. Residents tired of eating the same food, local bars lost their cool factor, the CD store got replaced by digital downloading, the supermarket got replaced by one that only sold organic food, and Blockbuster Video is gone. The Exxon became Shell which turned into Gulf which got torn down and rebuilt as a bank. New extensions to a mall 3 miles away damaged 40+ retail businesses on Main Street. A failed health inspection killed a restaurant, bad Yelp reviews killed the bowling alley, and the 78 year old master tailor didn’t relate to the new generation of residents. A flood closed a clothing store for 2 months, a fire killed a coffee shop, and a hurricane wiped away a strip mall.

Shall I keep going? Partners had a falling out, a son ran his father’s cafe into the ground, development killed a farm stand, and increasing rent put a barbershop over the edge.

I’m not knocking small business, just acknowledging that it’s one of the toughest things in this country to manage. God bless the people that try and especially the ones that last decades.

You know what else happens with a lot of small businesses? They declare losses for tax purposes and make organizing financial documents secondary to all else. To a lender, there is a layer of risk built upon a mountain of risk.

You cited IOU Central as a shining example of rate fairness, but failed to acknowledge that they are wildly unprofitable and have teetered on the brink of insolvency for a year. IOU Central is a publicly traded company and I mean them no disrespect, but check out their books. Lending isn’t supposed to be charity.

SBA loans and defaults are synonymous with each other. It’s great for businesses, but the poor economics of them fall on the taxpayers.

There is this belief that merchant cash advance companies are predatory, but the rates they charge are what the market has priced as sustainable for both parties. There’s more than a hundred funding companies offering the same product. You want to know why the competition hasn’t dropped rates to 10% APR yet? It’s because they’d all be out of business. Rates have come down a little bit, but there is only so far they can drop. Small business is risky business.

As a broker out on the street shaking the wary hands of shop owners, I understand your frustration with the high cost. Believe me, the merchant cash advance companies wish they could lower the prices too. Some have done so at their own peril and closed up shop. Others are on their way to that point now. Would you rather only a tiny fraction of small businesses get non-bank financing at a rate in line with your comfort level and let the rest burn? Small businesses of all credit types and financial standings for years have cried, “HEY, WHAT ABOUT US?!” and in response, private companies made access to capital possible. Often times the money is expensive, very expensive. You are concerned that small business owners are making a mistake when they enter into these agreements yet you admittedly lock them into these deals yourself. It seems as though some of your clients would rather have the opportunity to do something positive with expensive money than have no opportunity at all.

I can think of few things tougher than running a small business. The way my old neighborhood looks today is proof of that. I barely recognize the place. You know what wasn’t around 25 years ago? Merchant cash advance companies. Who knows what would’ve happened if they all had access to capital despite a less than stellar credit rating. Some of those stores may have grew, evolved with the changing times, or become franchises. Things might’ve been different. We all want lower rates, sincerely we do. Competition will drive it down as far as it can go and there’s plenty of that today. Once we hit the floor, if we’re not there already, you will have to ask yourself this question. Are you living in a perfect world or the real one? Let the small businesses decide if the opportunity they’re given is one they want to take.

Merchant Cash Advance Industry is Busy at Work

May 16, 2013
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hard workAfter what was one of the wildest two weeks in Merchant (MCA) history, the game-changing news finally subsided, but no one is taking a deep breath. Instead, everyone is busy working their butts off trying to help small businesses grow.

UPDATE 5/16: RapidAdvance has acquired the operating assets of ProMAC. First Instance of consolidation that we’ve been predicting would happen this year. See news release detailing the acquisition HERE.

There is just loads of capital available right now and the technology is catching up quick to support the mass deployment of it. A writer for the American Banker believes that the MCA industry is even beginning to threaten community banks.

Many community bankers would be open to using online applications and other technological tools to make faster loan decisions, says Trey Maust, co-president and chief executive at the $121 million-asset Lewis & Clark Bank in Oregon City, Ore. But most community banks use a business model that requires more hands-on interaction with borrowers, he says.

Hands-on is another term for driving back and forth to the bank for appointments, having the bankers visit your business, all the while they try to sign you up for other bank products, like checking accounts that incur a monthly fee.

Who’s at Work
We know some of the major industry players but it’s interesting to see who else is doing significantly large volume. Pearl Capital recently reported funding $7 million in a single month and United Capital source came in at a tad shy of $4 million in just this past April. These are firms you may have heard of already, but they’re now sitting at the big kids table.

What the Generals are Saying
If you haven’t been paying attention to the DailyFunder.com forum, 4 Chief Executives have contributed to the site in a very meaningful way by sharing their thoughts on the MCA industry at large. This is the kind of wisdom you would normally get in bits and pieces through occasional citation in the Green Sheet or other publications, but the full monty has materialized in the very exclusive CEO Corner. Some key highlights from what they’ve shared so far:

Excerpts from Jeremy Brown, CEO of RapidAdvance:
Those of us that have been in this business for 5 years or more – Rapid started in 2005 – are excited at the positive press we get today vs. several years ago and how we are becoming embraced and accepted as a mainstream product. More PE firms, banks, and others want to invest in or lend to the industry. Those groups have always been intrigued by the returns in this industry but the conversations are different today.

One thing I think will be different next year are fewer deals offered over 12 months in payback period. When you look at the data over an extended period of time, 18 month term loans don’t make sense for the merchants that are funded. It’s not the most efficient use of funds, limits the ability for the merchant to renew and the longer term deals are far riskier. (See: Year in Review and What Next Year May Bring)

Isn’t that the point of a 6 month MCA – to meet a current need and have the merchant be able to draw again in 4-6 months for the next capital need? That is the problem with the 15 – 24 month deals that are being offered to merchants today. Our industry is based on providing working capital to merchants. By its very definition, working capital is less than 12 months. Longer term deals are permanent capital, even when they are repaid over 15-24 months.

it was no surprise when the economy tanked in late 2008 that the merchants in our portfolios at that time took a major hit to sales and therefore the funding companies losses increased by 50% or more on their outstanding portfolios. So what happens when the next recession – big or small – hits and funders have portfolios out to 24 months? It doesn’t take an MBA from Harvard to figure out that answer. (See: Working Capital or Permanent Capital

Haven’t gotten into the industry myself in 2006, I can totally validate the complete 180 in press coverage. I’ve put all my energy into MCA and it’s gratifying to finally hear the praises so many years later.

Excerpts from Steve Sheinbaum, CEO of Merchant Cash and Capital:
The industry already services hundreds of thousands of small business merchants with cash advances for growth and other purposes based upon monthly credit card receipts. For years this has been the basic model of operation. But, what about the substantial number of businesses that require quick and easy access to capital who don’t accept credit cards or don’t produce enough in monthly credit card receipts to qualify under the normal MCA guidelines? Tens of thousands of businesses could use the capital infusions the industry provides daily but either don’t think they’ll qualify or, because of our lack of creativity, the industry hasn’t produced a means of addressing their needs. These businesses would make great customers but because of the rigid requirements we have in place to protect our livelihoods we’ve left money on the proverbial table.

That’s not the case anymore. (See: Creativity in the C-Suite…Another way to Fund!)

In regards to advances on gross revenue instead of just credit card payments, he’s absolutely right.

Excerpts from Andy Reiser, CEO of Strategic Funding Source:
the most important part of any deal is the people. We rely heavily on the relationships we have with the client and most importantly with our ISO partners and ISO syndicate partners who invest side by side with us. Valuing these relationships is far more important than relying solely on the numbers and how sophisticated our technology is.

Over our 8 year history, we have noticed that the performance of a deal has more to do with the relationship we have with our ISO partner and ISO syndicate partner, then with the deal itself. We have all kinds of tools available to help us analyze the potential success of a deal – FICO scores, due diligence checklists, signed affidavits, warranties and representations, scoring models, algorithms, etc. And yet, some of the ugliest deals on paper have been some of our best performers, while some of the most attractive deals on paper have been nothing but trouble. (See: Business and Baseball Fantasies)

During my time as a head underwriter, I witnessed the exact same thing. Solid referral partners had solid performing clients even if they didn’t look so good on paper. Likewise, the shakier resellers had clients that underperformed across the board, including the deals that looked cleanest.

Excerpts from Craig Hecker, CEO of Rapid Capital Funding
As each MCA company grows and creates a positive reputation, we all grow as an industry…together. But as our popularity grows, however, so does our competition. We already know that Amazon, eBay, and Google are stepping into the market, and AMEX is looking to expand their short term financing portfolio. These big business industry leaders will help build our brand of finance and benefit our portfolios, but I also think it is fundamental that we market ourselves as the alternative to big business finance and identify ourselves with the small business owner. (See: Small Business and How MCA Can Bridge the Gap to Success

We’ve got some big names in the industry now, whether they are financing the merchants directly or backing the funders that do the financing. I agree that you need not be intimidated by competing against these established brand names. Positioning yourself as the funder next door, people that have walked a mile in the merchant’s shoes (literally) can actually be a strong advantage.

What’s Next?
We’re pretty confident there will be more big headlines in the near future but for now we can’t confirm or say anything. DailyFunder.com is also lining up additional industry captains to participate in the CEO Corner and I’m sure there will be plenty of nuggets for us all to dissect. They’re probably the best source of MCA information that you can possibly get.

Stay tuned.

– Merchant Processing Resource
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ETA Expo Recap

May 3, 2013
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FUNDEDRecap of the ETA Expo as it pertains to Merchant Cash Advance:

  • Just about every funder has an ACH program or is working on implementing one.
  • Many funders are licensed lenders or are working to become licensed in the states where it may be necessary. There actually seemed to be a lot of excitement about this. Funders are finding comfort in being subject to state mandated regulations as it probably raises their legitimacy and it will make their businesses easier to value when trying to raise money or sell.
  • The ACH repayment market will be larger than the split-funding market this year. There’s no doubt in my mind about this. That means that ACH funding is now the primary protocol behind Merchant Cash Advance.
  • Almost everyone is working hard to build up their technology. I got a personal demo of RetailCapital’s ISO/Agent system in addition to Capital Access Network’s new CapTap. Both are great. Capital Stack also has a beautiful platform.
  • Stacking is the issue of 2013 as I heard that word uttered probably every 30 seconds for a whole week. I know the NAMAA folks are talking about it but I don’t know what the consensus is. It’s important to keep in mind that many funders aren’t NAMAA members and that affects NAMAA’s ability to dictate policy. Capital Access Network, the largest funder in the industry isn’t even a member.
  • Speaking of NAMAA, they refaced their website and it looks A LOT better. I see only 14 members listed but it’s my understanding that there are closer to 20 of them.
  • Factor rates are all over the place. Swift Capital has a new 1.099 program, which has got to be the first one to fall under the 10% threshold aside from Amex’s Merchant Financing. Higher risk deals however still operate in the 1.49 and up range. There is no one-size-fits-all product anymore.
  • There were several direct lenders walking around that I had never heard of and they are apparently doing significant monthly volume. More and more people are getting into the funding business.
  • It’s exhausting trying to keep up with the news surrounding On Deck Capital. They are on a very deliberate path and what we keeping seeing and hearing is them just checking things off on their to-do list. I bullet-pointed my theory on DailyFunder in response to a few posts.
  • Discover and Priority Payments threw great parties.
  • New Orleans has a lot of charm.

Make sure to check out my updates and photos that I’ve finally posted from the ETA Expo on DailyFunder and feel free to add your own if you were there.

Dozens of photos from the show

Also read: Soul Mates: Merchant Cash Advance and Silicon Valley VCs

Beyond Merchant Cash Advance: An Interview With Karlene Sinclair-Robinson

March 24, 2013
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Guest: Karlene Sinclair-Robinson

plansPeople come to me for advice on business lending quite often. I’ve spent years helping small business owners obtain financing, many of whom were turned down previously by a bank. And so the story has been told that if traditional lending doesn’t seem to be an option, there is an excellent Plan B, Merchant Cash Advance (MCA). The characteristics of an MCA have changed over the years though, by a wide margin.

At one point in the past, they were discernibly different from a loan, and most often structured as a purchase of future credit or debit card sales. Factoring costs amongst funding providers were relatively uniform, and advances were estimated to completely pay off in 8 months or less. It’s different now. MCA has since been semantically broadened to include non-bank financial service programs that are structured as a loan. Factoring or interest rates costs vary widely, and terms can go out as long as 18 months. 

But maybe you knew all that, and so when the follow up question becomes, “Sean, how else can I raise capital besides MCA?” I resort to throwing out buzz words such as Venture Capital financing or Peer-to-Peer lending. Oh I can tell you how these things work but certainly not with the amount of details that I could about MCA. As some folks depend on me to help them out and list all of their options, I find myself promising to send them “something” through e-mail later.

As I started drafting one e-mail, I began to wish there was a comprehensive book, one that I could simply recommend as an easy read to newly minted entrepreneurs and wise old business owners alike. It turns out that such a book exists and it’s got tons of tips that I hadn’t even thought of; It’s called Spank the Bank, by Karlene Sinclair-Robinson. I was so glad to have found it, that I went off in search of Karlene, hoping that she would be able to answer some of my questions. Luckily, she was nice enough to respond!

Sean: Karlene, I can tell you from my experience in the MCA field that a lot of people looking to start a business hope that MCA is the answer when the bank turns them down, when in fact it is not. You list many alternative funding options in your book, so if an individual were interested in starting a restaurant or brick and mortar retail business, what 4 options would you recommend they try? Which one do you think they should try first?

Karlene: Sean, thanks for reaching out to me and spreading the word about my book, Spank The Bank. In response to your question, it reminds me of a jigsaw puzzle. Why you might ask? This is due, in part, to the type of business, industry, how much financing they need and who the new entrepreneur will be. There are variables that must be considered in order to decide on the best financing solutions. So, in order to help a restaurant startup or retail business, they should consider the following, if appropriate:

  • Equipment Lease or Vendor Financing
  • Franchise Financing
  • Microloan or Peer-to-Peer Lending
  • Private Commercial Loan

The great part about alternative financing is the ability to use more than one option at the same time to gain the financing needed.

Sean: You list Peer-to-Peer lending in your book as an alternative. I am familiar with Prosper.com, but are there any others that you know of? Do you have any tips to make such a lending campaign successful? 

spank the bankKarlene: Great question. Yes, there are more Peer-to-Peer lending sites. Prosper.com is one of the two major sites I mention in the book. LendingClub.com is the other site borrowers should consider. They have funded over U.S. $1.5 billion as of this month. LendingClub.com hit the billion $$$ threshold on November 5, 2012, and so, in the space of just over 4 months have financed more than $500 million in loans. What is so unique about both sites is the maximum amount they can lend. Prosper lends up to $25,000 while Lending Club goes up to $35,000. Are they making a difference? Absolutely! By the way, this is not just a U.S. phenomenon, it is happening worldwide. Checkout Kiva.org

Sean: You mentioned that a website is important to alternative financing sources. I find this very interesting and agree with you completely. I have gone so far as to suggest to my peers in lending that in 2013 and beyond, it does not make sense to approve a business that does not have  a website, even if the business looks decent on paper. There is even one specialized MCA firm that I know of that actually evaluates the amount of Likes and Followers you have on social media in the application process. For a very small business that just needs to get their web presence up and running, how much do you think it would cost to do this and would they need to hire a designer or programmer? 

Karlene: Thanks for agreeing with me on the website factor. I believe it should be a part of the due diligence process. In order to help those who are in need of website development, I suggest you check with you local area SCORE offices, Small Business Development Centers, Women’s Business Centers or other business affiliated sources that can give you a good reference to a web designer or use networking sources to help you find a competent one. Depending on what must be on the site, the price can range from $500 to as high as $10,000. No startup business needs to pay that much. Use a budget that is in line with what you need first; then add on what you want at a later date. Be sure to carefully read the web designer’s contract that outlines what they are going to do and the cost to you. Pay for services based on work completed. Most will require a down payment.

Sean: A tough question now. Is it feasible for an entrepreneur that literally has no capital of their own to invest in their startup to go out and raise 100% of the funds to see it through? I ask because I have heard this story a lot. “I have a great business plan but I have no funds to make it reality.” Do they need to save up their own money first to get started? Even alternative lenders like MCA firms prefer for a business owner to be personally financially invested. It makes them more confident that the owner will never give up. 

Karlene: This is a great question Sean. Let us add to the question – how much are they seeking? Again, the type of business will also determine the funding possibilities. However, let me make this very clear: startups need to come to the financing table with something to back them. Whether you are using savings, family and friends, or your IRA, having some money in the transaction or added collateral appropriate to the financing option to be used, makes it more likely that the financing request will be approved.

Sean: I’ve heard all the rumors about SBA loans; That they take 6 months to get an approval, 9 months to get the funds, that the bank can change their mind at the last minute, etc. But i’ve also heard it can happen in a matter of days. What is the real story here?

Karlene: Yes, I have to agree, there are a lot of rumors or myths about the SBA. Since I do not work for the SBA nor any banks providing SBA guaranteed loans, I cannot give the facts on this question. However, I can say this: since all financing requests (traditional and non-traditional) goes through due diligence phases from pre-qualification, initial approval, committee review (if appropriate) to final approval for transfer of funds, depending on all parties involved, it can be fast or it can be slow. When borrowers are unwilling to provide financial records or don’t have the required collateral to make a transaction work, this can delay or stop the deal. I often tell borrowers, lenders are in the business of lending, the more qualified transactions they can approve; they will do so. If the borrower is not on par with their financial records, this can also slow down the process.

Sean: Great answer. I agree that part of how long an application process takes is on the shoulders of the applicant. The more prepared they are, the faster it should be. Any final words?

Karlene: Sean, I appreciate the invite to shed more light on this topic of alternative business financing. You offer a product that many non-banking customers can use. Finally, I’d like your audience to take from this conversation, if nothing else, the fact that they do have options available to help them. So when banks say ‘no’, they’ll know where to go.

Sean: Thanks so much for taking the time to speak with me personally and for answering several questions that tons of small business owners and even peers in my field find themselves asking at some point. You are doing so many good things out there to help people and your book is excellent.

After our interview, I also got to sit in on a twitter talk show in which Karlene was a special guest. The show was #SmallBizChat, a weekly event at 8pm EST. You can read the extended interview between the host and Karlene at http://succeedasyourownboss.com/03/2013/where-to-go-when-the-bank-says-no-finding-alternative-funding-for-your-small-business/. I intend to join as many future events as possible. So if you stop by, please say hello. I am @financeguy74.

ksrKarlene Sinclair-Robinson, dubbed “The Queen of Business Financing” is the Bestselling Author of ‘SPANK THE BANK: The Guide to Alternative Business Financing’. She is considered a foremost expert on ‘Alternative Business Financing’ for startups, small businesses and struggling entrepreneurs. She is a speaker, instructor, business consultant and principal of KSR Solutions, LLC, based in Northern Virginia.  She is also a top Twitter Business Financing source to follow via @KarleneSinRob. Website: http://www.SpankTheBankNow.com.

Letters from the Frontline

February 12, 2013
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crazed chefI’ve worked in the alternative business lending industry for quite a while and I’ve noticed something off about many of the marketing campaigns. Some lenders have gotten so caught up in the funding that they’re losing sight of what it’s like to run a small business. Admit it, we’re all a little rusty even if we were once small business owners ourselves.

I started working as a deli clerk when I was 15 years old and continued to do it part time until my senior year of college when I began waiting tables at a restaurant instead. I could definitely tell you a few things about the daily grind and the epic drama that happens in the back of the house on a Friday night, but it’s been a while since I lived it.

But don’t you own a small business now? Yes, I do. I’ve been a part of two successful Merchant Cash Advance start-ups and I went off on my own full-time near the end of 2011. These days I have vendors, invoices, customers, contractors, accountants, and lawyers to deal with. I have monthly financials to reconcile, servers to monitor, and office rent to pay. But let’s be honest, my experience doesn’t really translate if I’m on the phone with a merchant that just had a waitress quit, a 12-top walk out on the bill, and an oven break, all while a health inspector is doing an unannounced review. Yeah, something about THAT is a little different than my day-to-day routine.

Sometimes we need to take a step back and stop trying to find the algorithm that best calculates FICO scores and monthly cash flow figures and start analyzing small businesses for what they really are. That led us to an interesting idea; Why not have actual merchants spell it out for us? What better way for us to connect with the retailers and service people of the U.S. than to have a two way dialogue right here on MPR?

Starting today, we’re announcing our experimental Small Business Corner, aka The Frontline. A small group of actual retail store owners or managers are going to contribute regularly with stories, tips, and advice about what it’s like for them. I think it will be insightful for us, as well as for the other small business owners that visit our site.

As the alternative business lending industry gets more saturated, shouting from the rooftops that you have “cash available with fast approvals!” isn’t a way to connect with the actual businesses that may benefit from a cash infusion. I’m guessing we’ll learn what does. These contributors are free to write what they want, so there’s no telling what’s in store. We hope you enjoy it.

Visit the Frontline

– Merchant Processing Resource
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What The Heck Happened to the Merchant Processing Resource?

August 26, 2011
Article by:


We’ve had a lot of design changes implemented to our site in the last year. We hope this is the last one. Thank you for your patience!

Bottom line: Our previous web host sucked (Webs.com). Their dns servers were always down late at night and on weekends for “maintenance.” Their site building tools would crash 90% of the time and their technology is so old that it was impossible to do pretty much anything other than post a blog.

So we found new hosting and prepared ourselves to move the site in its original format but Webs.com disabled our access to FTP, making it impossible to retrieve our files. It appears they did this to discourage us from leaving them. That was the last straw.

So without FTP access, we were stuck with figuring out how to move thousands and thousands of pages. Not to mention, we figured out that Webs was hosting many files remotely, so we wouldn’t have been able to access most of our content anyway.

We got creative and reverted back to primitive programming on the OS X unix terminal, using curl –O commands against our sitemap to download our site through http into individual files.

So now we have the raw data, but the CSS stylesheets are gone. That means the pages are up but they’re styled like it’s 1994. Ugly, ugly, ugly.

In the next week (that’s what we say but it will probably take longer), we intend to repost that content into our wordpress theme. The old files will probably be given a 301 redirect to prevent ’404 File not found’ errors for indexed urls.

deBanked has big plans for the rest of 2011 and 2012, especially with the amount of traffic we were getting while using the old, useless format.

In the meantime, you can forward all questions to webmaster@merchantprocessingresource.com


Update 8/24 All old articles have been republished to the site in a readable format. Their dates/timestamps are still wrong but the original urls are intact.

Electronic Payments Industry changing Forever – All Points Bulletin!

August 23, 2011
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Electronic Payments Industry Changing Forever – ALL POINTS BULLETIN
Posted on December 17, 2010 at 8:36 PM

Attention business owners and to all those employed in the merchant processing and Merchant Cash Advance industry. The world is changing and not at the ‘global warming will one day kill us all’ pace. It’s happening right now. Remember that little thing called the Wall Street Reform and Consumer Protection Act that passed in July? There was a little itty bitty part in there that we so happened to broadcast and critique in detail on our site, known as the Durbin Ammendment. Take a look the law’s summary, particularly #3. On the evening of December 16th, the Federal Reserve Board delivered an early Christmas present to all the debit card networks and big banks. The gift contained the government’s proposed debit card fee changes, or as some bank executives might tell you, “they mailed us 10 sticks of dynamite.” If you’re serious about this business, read through the 176 page document that every news agency is trying to sum up in 3 paragraphs.

Visa’s stock plunged on the news

Debit cards accounted for 35% of all non-cash transactions in 2009. The proposed changes seek to cap the fee charged for accepting a debit card to a maximum of 12 cents. According to the report issued by the Board, here’s what businesses are paying now:

“Networks reported that debit and prepaid interchange fees totaled $16.2 billion in 2009. The average interchange fee for all debit transactions was 44 cents per transaction, or 1.14 percent of the transaction amount. The average interchange fee for a signature debit transaction was 56 cents, or 1.53 percent of the transaction amount. The average interchange fee for a PIN debit transaction was significantly lower than that of a signature debit transaction, at 23 cents per transaction, or 0.56 percent of the transaction amount. Prepaid card interchange fees were similar to those of signature debit, averaging 50 cents per transaction, or 1.53 percent of the transaction amount.”

Debit interchange fees have always been assessed as a percentage of the sales amount. The larger the transaction size, the higher the fee. Debit cards are most frequently used for smaller purchases but a flat cap on transaction fees regardless of transaction size is a game changer. Now twist this with the fact that interchange fees are almost disappearing altogether and one needn’t think too hard about the unintended consequences.

MasterCard issued a statement immediately. “Experience demonstrates that consumers, not banks or payments networks are the biggest losers as a result of this regulation,” said Noah Hanft, MasterCard’s general counsel. “This type of price control is misguided and anti-competitive, and in the end is harmful to consumers.” Visa hasn’t provided any useful feedback at this time but has openly condemned the report.

The Board acknowledges that some card issuers can’t even cover their own costs with the 12 cent transaction fee in effect. This Board’s direct response to this dilemma is that they simply don’t care. “An issuer with costs above the cap would not receive interchange fees to cover those higher costs. As a result, a high-cost issuer would have an incentive to reduce its costs in order to avoid a penalty.”

Thank you Federal Reserve for the feeble minded, anti-capitalistic solution. “Just lower your costs or we’ll fine you.” The outrage is warranted because the proposal isn’t really a proposal at all. This is the new order granted to the government after the passage of the Wall Street Act back in July. The payment networks and banks may comment on this proposal but effective July 21, 2011, this simply becomes law.

This is the equivalent to forcing all the businesses in America to lower their retail prices under penalty of law as the solution to dealing with consumers whining about the recession.

Additionally, the Board constantly refers to the life cycle of a debit sale to being a 4 party transaction. There is:

* The bank that issued the card to the customer
* The customer
* The business that the customer shops at and uses the debit card
* The acquiring bank that the business uses to accept debit cards

The payment networks are what allow the acquiring banks to communciate with the banks that issued the debit cards. The networks have costs associated with their service, infrastructure, and overhead. The 12 cents per transaction is the combined total that can be charged between both the acquiring bank, payment network, and issuing bank. There’s not a whole lot to go around.

While the Federal Reserve and congress are patting themselves on the back and high fiving eachother for saving the economy (by sticking it to the big banks), the end result will be the loss of millions of jobs, the elimination of debit cards, an increase in other bank fees, the end of all debit rewards programs, the end of electronic payments quality, the end of electronic payments assurance, and the collapse of the free market economy. Give me a high five. Not!

Here’s what will happen and why:

* The Board ignores or does not understand the electronic payments industry business model. The debit card business is not a 4 party transaction. The acquiring bank party encompasses multiple layers and parties in itself. Acquiring bank —> Payment Processor —> Indepedent Sales Office —> Sales Agents. Debit transaction costs are marked up at each level to create a competitive marketplace. The electronic payments industry employs millions of people. With a 12 cent cap and no markup abiliity, those millions of workers will lose their jobs overnight.The majority of this business is commission based, with processors and sales agents directly taking home solely what’s generated on the markup of debit/credit fees of their clients.This is probaby the most blatent and incredibly obvious oversight. There can be no competitive market because costs are fixed and there can be no sales because there is no money for anyone to earn on markups. National unemployment will rise several percent over the course of a few months.
* Rewards debit cards can no longer exist. Card issuing banks currently pay their customers rewards by charging businesses more for accepting a rewards card transaction. Since a bank no longer has that ability, rewards cards can no longer exist.
* Debit cards become a moot point for banks. With no profit incentive to put them in the hands of customers and no ability to compete on price, there is no incentive for debit networks or cards to continue.
* Quality, fraud protection, and assurance will suffer. Banks whose own costs are higher than the imposed cap face fines by the Federal Reserve unless they cut costs. Therefore the government is not only incentivizing poor quality, but in fact making it mandatory.
* Ever hear of too big to fail? This industry is too big to be messing with. These are the actual national and international money networks through which trillions of dollars move through every day. Mandating poor quality, eliminating all competition, and removing profit incentives will de-evolutionize the flow of money altogether.

The Board will review and allow comments through March 31st, at which point this industry will meet its maker. Yes, it’s that’s serious.



Merchant Processing Resource Upgrades

August 23, 2011
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The contributors of the Merchant Processing and Merchant Cash Advance Resource community would like to thank our visitors for stopping by and all your feedback. In fact, we now have so many daily visits that our web hosting bandwidth was maxing out. This has forced us to upgrade the site (That means pay $$$) to ensure the success and growth of our free resources and articles.

Some of our visitors are reporting technical difficulties or malfunctioning widgets throughout the site. We apologize and have plans to fix them at some point. Keep in mind, we are credit card processing and advance funding professionals so we are doing our best with learning web programming in our free time!

Our domain now supports private e-mail. You may contact us with questions, concerns input, articles, at webmaster@merchantprocessingresource.com

For those that didn’t know, our community includes the following:

  • The Ability to submit your own articles – Submit Here
  • A community discussion forum on merchant processing – Forum here
  • A community discussion forum on merchant cash advance – Forum here

Thank you!

-The Resource

Did Somebody Say the End of the Credit Card Industry?

August 23, 2011
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We check our site’s inbox once a day and usually receive some compliments, feedback, or industry secrets. But over the last two days, more than 15 people e-mailed us this link: The End of Credit Cards is Coming. This was followed by a barrage of comments such as “Does this mean the end of the Merchant Cash Advance industry as well?” or “It looks like your site topics are going to be obsolete.”

If any industry is poised to take a hit as a result of this “payment evolution”, it’s likely to be the manufacturers of plastic and magnetic strips. (The companies that make the cool shiny holograms on the back may also suffer.) If you actually READ through the article, it discusses an industry progression towards contactless payments. A contactless payment is still an electronic payment and it involves the same networks and banks. Saying the declined use of physical rectangular plastic cards will result in the end of the electronic payments industry as whole is like saying that the less frequent use of flutes and banjos will result in the end of music.

All sarcasm aside, this progression towards contactless payments indicates the merchant processing industry is on the verge of an explosive rebirth. Here’s why:

Equipment Sales and Leases

New technology to accept contactless payments will be required. If plastic cards are slowly phased out, retailers will have absolutely no choice but to purchase or lease equipment to accept contactless payments. (Sales and Leasing boom)

Increased Interchange profits for banks

The growth of contactless payments will likely cause Visa and MasterCard to increase certain interchange categories. They will rationalize this by providing proof that contactless security costs more.

New Payment Networks

Every merchant needs to accept both Visa and MasterCard branded cards in order to survive. In some regions of the country, it’s also important to accept American Express. Though American Express charges merchants more, they can’t afford not to have it. That being said, the above referenced article mentions the formation of a new super power payment network called ISIS to rival the current players. ISIS was formed by AT&T, T-Mobile, Verizon, Discover and Barclays Bank. Since ISIS is indepedent from the other payment networks, they will be able to create their own “interchange” and cost structure. I am inclined to believe that costs will not be lower than what’s commonplace in the current marketplace.

Increased Electronic Payments Usage

For the past 4 years, we’ve been lectured repeatedly by the government, teachers, and financial experts that credit cards are bad. During that same time period, we’ve also celebrated the importance and efficiency that phones/smart phones have brought into our lives. Blackberries, iPhones, Droids, texting, apps, skype, and wireless internet are the bread and butter of our daily lives. So what is the public inclined to infer with phones capable of making electronic payments?

  • Credit Cards Payments Bad
  • Smart Phone Payments Good

As long as Smart Phone is Good, consumers don’t need to feel guilty over their usage of credit. I’m sure we’ve all seen the debt counseling talk shows where they take an out of control spending housewife and force her to cut up her credit cards. She cries a little, acknowledges her problem, and then in a symbolic gesture of triumph, cuts up her cards. The entire charade portrays the plastic card as the perpetrator of the woman’s debt problems. One thing I don’t expect to see any time soon is a woman being lectured by a debt counselor to smash her iPhone with a hammer to stop her out of control spending. “In order to conquer your debt, I want you to go home and burn all 5 of the Droids on your family plan.”


Join the thousands of people who are breaking their scissors on their phones, buying new scissors, and then smashing their phones with a hammer. Say “Forget it to Credit” because there’s no app for your spending problems!

Those rectangular plastic cards may be on their way out but contactless payments are going to bring billions to the merchant processing industry. Happy processing!



New Look for Merchant Processing Resource

August 23, 2011
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deBanked has officially updated the site’s look and feel. We have moved away from the gray background/white text to make our articles and content easier on the eye. We hope you agree with the changes and would appreciate any comments or feedback. E-mail us at webmaster@merchantprocessingresource.com


4 Additional UCC Filing Names Used by Merchant Cash Advance Providers Added

August 23, 2011
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Our database of Merchant Cash Advance UCC filing names has been updated to reflect 4 more companies. They are:

  • BizFunds LLC – Cleveland, OH
  • Max Merchant Funding – Chevy Chase, MD
  • Mother Fund – Rockwall, TX
  • Smart Choice Capital – Brooklyn, NY

Contact inforrmation and UCC names can be found HERE.

No New SBA Loans Being Accepted. Don’t Understand? We’ll Draw You a Picture

August 23, 2011
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On September 27, 2010, the Small Business Administration(SBA) temporarily sweetened the deal on the popular 7(a) loans. As part of the Small Business Jobs Act, government backed default guaranties rose to 90% and many of the major fees were waived.

By late December, the funds for this program had been fully allocated and exhausted. But the announcement was poorly communicated, resulting in thousands of unsuspecting bankers and applicants left stranded and confused. To deal with the drama, the SBA set up queues, where applicants were either placed on standby to take the place of a cancelled Jobs Act loan or to be transitioned into the regular 7(a) loan without the deal sweeteners.

But leave it to the SBA to underestimate the intelligence of their clients. Worried that bankers and business owners might not understand the concept of closing one program and offering them another, they drew a picture.

Actual image being used on SBA.gov to explain the status of Jobs Act loans

In case the phrase “No New Loans Being Accepted” is obscure and cryptic, we can decipher the message using the Daily Transition Phase Alert meter. It’s a state of the art, super genius meter, that was handcrafted by NASA scientists, and topped off with the modern pizazz of a traffic light. Green is GOOD. Red is BAD. Big dollar sign GOOD. Small dollar sign BAD. If the meter is yellow, speed up and try to beat the light but make sure there are no cops behind you first.

Bankers should start using this system en masse. Instead of an outright decline, they can simply inform applicants that their lending ability is in Phase Red. Persistent businesess can take their chances in the underwriting process and battle it out using the Daily Transition Phase Alert meter 2.0.  Left foot on $. Right hand on. But watch out for blue because blue is very bad! Blue automatically allows the bank to raise your business checking account fees and increase your credit card processing rates.

The Amazing Daily Transition Phase Alert Meter 2.0!

While your bank is busy playing games with you (they’re not just mind games anymore!), alternative financial firms such as Merchant Cash Advance providers are busy funding applicants in less than 7 days on average. The process is easy, only minimal paperwork is required, it’s credit score flexible, and every business is doing it these days. Want to find out the status of your Merchant Cash Advance application? We’ll hand draw you a picture:

Choose your funding source wisely…

– The Merchant Cash Advance Resource


Say Goodbye to Debit Cards

August 23, 2011
Article by:

Originally Published on March 11, 2011.

We’ve been saying it since December 2010, that Debit cards will cease to exist when the new Wall Street reform laws go into effect. On February 18th, we argued that the cost of a debit card transaction would shift from the retailer to the customer. You can view that article here: Debit Card Costs May Be Put on The Consumer – Don’t Make us Pay!.

We were right on the mark. Today JPMorgan Chase announced that debit card carrying customers would soon be subject to a purchase cap of $50 – $100 per transaction. As a result, a huge chunk of the U.S. population would no longer be able to make an average size purchae. The new video game system? Too big. A computer? Too much money. A bar tab? Better bring cash…

The reason for such a dramatic change was provoked by Debit card reform. In July 2011, the Federal Reserve will begin enforcing a maximum debit card transaction cost of 12 cents. For card issuing banks, payment networks, acquirers, and ISOs, this 12 cents is too low to be profitable, let alone sustainable. As a result, banks must make up for the loss by charging consumers.

For more information, check out the CNN article.

– deBanked


Two Additional Direct Funders Added

August 23, 2011
Article by:

Two direct providers of Merchant Cash Advance have been added to the directory. They are:

  • Empire Merchant Advance
  • Genesis Capital Enterprises

That brings the total to 29.

Merchant Processing Resource Will Be Closed for Summer Break

August 23, 2011
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deBanked / Merchant Cash Advance Resource will be closed for a summer break through June 21st. We have given our editors and authors some time off. You are still welcome to chat openly in the forums. A moderator will check in from time to time. We would like to thank all of our readers for checking in with us and look forward to sharing more useful and insightful news when we come back.

Happy summer!

– deBanked


We’re Back! – Updates Soon

August 23, 2011
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Posted on June 21, 2011 at 11:37 PM

We’re back from break and will be rolling out content again as usual. We may need a few days to catch back up though!

– The Resource

Bank Loan Advertisements are nothing but a bait and switch

August 23, 2011
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We stay in touch with many people in the financial industry, and not just Merchant Cash Advance. Back in late March we learned that lending was so tight, that credit cards were barely attainable. That was when the unemployment rate was 8.8% and as of May 2011, it’s back up to 9.1%. That was when the economy was expected to grow by 2.9% in 2011 but is now on pace for 2.7%. The point? If it was impossible to get a loan back in March, then how much worse could it get?

An insider shares it can get worse, much worse. Our friend Tim (name changed) is the manager of the small business lending unit of a major national bank. Any loan less than $1 Million dollars is considered to be for small business. Tim’s unit is on track to do more loans this year than last year and none of them are going to retail stores or restaurants. Did we hear that right?

“Retail stores and restaurants are too flakey to give money to.” That wasn’t just his opinion either because that’s actually part of the bank’s underwriting policy. They are completely prohibited from lending to those business types. So we had to ask…

What if they had 25 years in business? Declined.

What if the guarantors had 800 credit? Declined.

What if they had $5 Million in cash reserves in the bank? Declined.

What if…? Declined. Declined. Declined.

There is no criteria that would make them eligible, period. Tim admits that the interest charged on a loan is not profitable by itself anyway so to take any degree of default risk even if it’s small, is not worth it. Instead, they rely on their loan clients to open a business checking account with them, use their merchant processing, and sign up for other services on which they can charge fees and earn income. Their unit has an average turnover time of 3 months from the time the application is submitted to the time the loan is funded.

“We usually get a jump on setting them up with all our services right when they apply for the loan, so we can start earning on them right away,” Tim said. We wondered why they wouldn’t let restaurants and retail stores apply then. “Oh we let them apply for loans… we just don’t tell them they’re declined until after we’ve locked them into other fee generating services. They’re unlikely to pack up and change banks after that so it works out for us.”

There’s a term for this tactic and it’s called a ‘bait and switch.’ There really seem to be no loans for the businesses that need them, an assertion bolstered by the Small Business Administration’s 2011 1st Quarter report. Lending to small businesses has fallen by $15 Billion.

So where’s the money?

There are still alternative sources available, but we’ve yet to find anything that rivals the speed and flexibility of a Merchant Cash Advance (MCA). Too many small businesses hold out the hope that a bank will help them and pass up the opportunity to obtain alternative financing like a MCA. But how many missed opportunities will it take until it’s too late? How many businesses will sign up for checking accounts and expensive merchant processing, only to find out that no loan is coming and all they’ve acquired is an expensive long term contract for no value in exchange.

If you’re a restaurant or retail store, you can research our directory of verified funding providers HERE. Don’t wait for the bank to approve a loan they’re not allowed to approve and instead get what’s most important, the capital to grow.

– The Merchant Cash Advance Resource


Debit Card Reform to Be Finalized June 29th

August 23, 2011
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Posted on June 28, 2011 at 12:14 AM

The Federal Reserve is scheduled to finalize debit card reform on June 29th as dictated in the Durbin Amendment of the Wall Street Reform Act. The rough draft of the legislation that was issued back in December 2010 mandates a 12 cent cap on interchange fees. Interchange is the array of fees paid to the banks that issue the cards every time their cards are used.

Proof Interchange Reform Will Fail

There is some speculation that the Fed may raise the cap to an amount slightly higher than the original 12 cents. Ultimately, banks stand to lose billions of dollars over the next year since the law takes effect on July 21, 2011. We will update you on the outcome.

– deBanked


New Look and Feel for the Resource

August 23, 2011
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Posted on July 13, 2011 at 1:37 AM

Notice anything different about us? We’re better looking now! We got tired of the old raggedy blogger look and have upgraded to a sleeker, cleaner, more web browser friendly format. There are other reasons for our sudden change of skin but we’ll reveal the reasons for that in a few weeks…

It’ll be good. reallll good…