Addressing Misconceptions in the MCA Business
October 18, 2023
New to the MCA business? Think you got it figured out? Let’s visit some of the stranger beliefs and misconceptions I’ve encountered over the last year. (Not legal advice as I am not an attorney).
My broker/funding company’s legal address as recorded with the Secretary of State or courts is my personal information and no one is allowed to know it or share it on the internet.
False. The business address you place on file with governmental authorities or courts is generally available to the public. If you opt to use your home address as your business address, just know that it will be open to everyone to see and share. Additionally, starting Jan 1. 2024, any broker soliciting merchants that reside in Florida will have to take the additional measure of including their official business address in their marketing to the merchant. So no, you are not entitled to complete anonymity.
I can fund in all 50 states!
But can you though? If you offer loans, there are a number of state laws that govern the legality of that. If you offer MCAs, there are states like Virginia for which you are required to be registered by law (applies to both funders and brokers). There are penalties for not following the laws.
I don’t need any fancy systems to be a funder
Well you’re going to need something. In the not too distant future you will be required to comply with 888 pages of regulations governing how you can collect merchant data all while having to report the details of every single application you looked at in addition to every single deal you declined or funded to the federal government. You also have to explain the rationale for your decision in every instance. This includes MCA and yes it’s a law not a proposal. I hope you’re ready.
MCA is legal so I don’t need to worry about anything
There are legal precedents that guide what can or can’t be done with regards to the purchase of future receivables. Generally speaking (and please consult with an attorney), one’s right to collect is not absolute. See this recent case, for example.
I sent some deals out to some shady funders who have gone MIA and no longer take my calls. The funder is to blame and is bad
Most brokers who cry foul about no-name fly-by-night funders that offered swift approvals and high commissions only to be ghosted are quick to share that they were swindled out of a potential commission. No one likes to suffer through that. However, consider the legal risk now posed to yourself and your client with the information you’ve passed on. In a recent criminal case, an ISO managing merchant documents is alleged to have stolen their identities and obtained dozens of business loans in their names. So ask yourself on a scale of 1 – 10, how confident are you in the person/company you’re passing a merchant’s deal docs to that they will comply with all state and federal laws? Your commission might not be the only thing they steal and that creates legal hazard for you. For what it’s worth, he’s a good guy isn’t a great standard when it comes to legal due diligence.
As always, please consult a qualified attorney. If you are being solicited by a funder that has not sought any legal advice at all and is instead operating by the seat of their pants because they heard this was a good business, you should probably move on to someone else.
This Funding Shop Puts Students on the Phone for College Credit
October 5, 2023
“We figured out the best way is to recruit,” said Khoury.
Chris Khoury, CEO of Cheetah Capital, isn’t just hiring talent; he’s teaching it. He introduced a funding academy for college students in the summer of 2022. It’s an actual internship program that is specially tailored to recruit and train aspiring brokers and sales reps and teach them everything from the ground up.
Starting in the business three years ago, Khoury eventually went on to establish Cheetah Capital. He recognized the challenges in finding quality hires in the industry and decided to tackle it head-on with the creation of the program.
“[The interns] learn various skills such as cold calling, crafting professional emails, and acclimating to the corporate environment,” said Khoury. “Our program aims to provide valuable real-world experience that complements their academic learning to develop in business, marketing, and communication. They also gain experience understanding the world of financial services.”
The program is a collaboration between Khoury, Jonah Farella (Director of Sales & Business Development), and Joe Zampell (COO). The program is split into three “spots” (Spot 1, 2, & 3), where they each mentor 10-15 students and assess them on a weekly basis. Each student has an individual mentoring session each week and a team meeting every Monday.
Based in Boston, Cheetah Capital partners with local institutions such as UMASS, Boston University, Boston College, and Endicott College. Many of these schools have accredited their students with college credits upon validation from their team but interns are also compensated for their efforts.
“For Fall 2023, we’ve taken a slightly different approach,” said Khoury. “Rather than our usual remote/and in person internships, we’ve partnered with local Boston schools for a fully in-person co-op experience. These students dedicate their full semester to Cheetah Capital, working regular 9-5 hours, immersing themselves in a comprehensive professional environment.”
Chris Bearden, a current intern from Endicott, discovered the program on LinkedIn and secured an interview with Farella. Considering he is required to complete a 32-hour weekly internship in his senior year, Bearden has decided to cut his teeth in business in the world of b2b finance sales. He actually started at Cheetah this past June despite the internship program not officially starting until the fall. The program, he told AltFinanceDaily, started off with a lot of training and he says it’s prepared him to be able to talk more confidently to business owners and in general. He mused about the “100 different stories” he’s heard daily. “Everyone will tell you something different,” he said.
“The most I’ve made on a sale so far is $8,000 off of one deal,” Bearden shared. “That was really exciting, I can’t really describe the feeling being 22 years old and coming off of a phone call understanding that I just made that much money. But I think one thing that they have taught me at Cheetah Capital is just to keep your head down and kind of keep going…”
Farella, who oversees the program, also started out as an intern himself. As a graduate from Boston College, he was mentored by Khoury and he adapted to the industry quickly. Once he started closing deals and making money he realized, “I’m making more money than I ever have.” Helping the interns in his program at the time later turned into an offer from Khoury on running the program.
“Right now, we cap at around 45-50 [students] and that’s because we only have them for about three months,” said Farella. “But as it grows, and we bring in more managers, what we want to do is kind of offer interns a return offer.”
Offering real-world work experience to students while building up quality employees has felt like a win-win for Cheetah.
“We try to take good well-rounded kids here and teach them what we wish we knew at their age,” said Khoury.
The State of Funding Right Now
September 19, 2023
“The first quarter was actually kind of slow, like abnormally slow,” said Daniel Dias, founder of Small Business Lending Source, a brokerage based in San Diego. “We came off actually a record-breaking year last year. First quarter this year turned out slow and then it was kind of weird. Maybe it was owners who are hesitant to see what’s going on because there’s a lot of uncertainty in the market.”
Dias says things changed dramatically in Q2, however, to the point of setting yet again a new record. And the momentum only continued into Q3.
“This quarter is actually turning out really well,” he said.
It’s also going really well for Greenbox Capital, a small business funding company based in Miami.
“Q3 has been our best quarter this year,” said Jordan Fein, Greenbox’s CEO. “We positioned the company well over the last 8 months, ready for whatever the economy throws our way. We are running lean and growing again.”
Greenbox began to tighten its credit policies late last year, according to Fein and by continuing this strategy into 2023, it has allowed the company to evolve. “Our momentum has been building ever since we tightened credit and refined our spending in Q4 2022,” Fein said.
Optimism is also in the air at The LCF Group, a small business funding company based on Long Island. “Navigating Q3 and approaching Q4, we anticipate our positive trajectory to continue given the consistent demand from merchants,” said Andy Parker, LCF’s CEO. “Despite certain sectors of the economy facing challenges and the appearance of recession indicators, we’ve adapted our underwriting to reflect these conditions without any major tightening of our guidelines.”
LCF recently announced that it had acquired key strategic assets from Reliant Funding.
The LCF Group Acquires Key Strategic Assets from Reliant Funding and Sets Course for a Record-Breaking Year
September 18, 2023New Hyde Park, NY, September 18, 2023 – The LCF Group, the leading capital provider specializing in subprime merchants across all U.S. industries, announced the successful acquisition of select strategic assets and licensing rights for Reliant Funding, a foremost authority in prime funding.
“We’re excited to announce The LCF Group’s successful acquisition of key assets from Reliant. This strategic move not only enhances LCF’s portfolio but also empowers us to offer merchant funding through both ISO partners and directly under the LCF and Reliant brands. With this step, LCF solidifies its position as the leading provider of quick access to working capital for small to mid-size businesses,” shared Andy Parker, CEO of LCF. “We’re making significant progress in our integration, capturing synergies, and realizing the financial advantages of this acquisition. Our focus remains unwavering: to meet the growing funding needs of small businesses nationwide.”
While LCF has resumed funding under the Reliant brand in the direct business, ISOs should stay tuned as the company plans to roll out funding options through the wholesale side of the business with select ISO partners in the coming months.
For information on The LCF Group, visit www.thelcfgroup.com. Learn more about Reliant Funding at www.reliantfunding.com.
About The LCF Group
Founded in 2011 and headquartered in New York, The LCF Group is a seasoned MCA capital provider. The company specializes in funding small businesses across all states, industries, and risk factors. To date, LCF has funded more than 8,000 businesses and receives a glowing 4.7 / 5 star rating from more than 1,000 customers on Trustpilot.
As IRS Announces Pause of ERC Payouts, Businesses May Resume Pursuit of Upfront Alternatives
September 14, 2023
Across the web on internet forums such as Reddit, business owners accustomed to telling ERC filing war stories are starting to worry that their checks might not be coming any time soon.
“I spoke with an agent today. She said they received an organization-wide email to stop processing ERC for the time being,” one user reported at the end of August. Some users replied to say that it wasn’t true. But it is.
On July 26, IRS Commissioner Danny Werfel said that the IRS had cleared its backlog of valid ERC claims and is now “intensifying compliance work and putting in place additional procedures to deal with fraud in the program.”
“The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining,” Werfel said.
The IRS later confirmed to the Wall Street Journal that it had in fact slowed its processing of claims. There’s some truth in the assertion that the IRS had cleared out a major backlog before doing this.
In late June, for example, those same internet forums were abuzz with happy check recipients and a rush of optimism that the era of long processing wait times was coming to a close. The shift in sentiment had implications. For Finance ERC, a company that provides business owners with cash upfront in return for buying their future ERC receivables, the impact was immediate.
“[Early in] the summer we saw tremendous demand in our origination levels, April, May, and June, of companies coming to us with the mindset that the IRS was taking too long so they wanted to sell their ERC credit rather than wait,” said David Goldin, a Managing Member of Finance ERC. “And then we saw in our portfolio, which is large checks flowing in from the IRS all at once over the summer, and then we saw our demand for new customers fall off a cliff.”
The IRS cranking out checks had made people reconsider not wanting to wait.
“Psychologically, customers then would say, ‘why would I finance it, I’m going to be getting my check any day, my friend got his check, this one got his check…'”
But since then IRS checks slowed to a crawl, intentionally. And for all the talk about clearing the backlog, there were still 637,000 unprocessed 941-X forms (adjusted quarterly tax forms necessary for the credit) as of September 6th, not to mention that under current law, 2020 tax returns can be amended until April 2024, and 2021 returns can be amended until April 2025.
On September 14th, the IRS upped the ante of a delay to a total pause for new claims. “New claims for the employee retention credit, or ERC, won’t be processed until at least 2024,” the WSJ reported. The headline leaves little room for misinterpretation: IRS Shuts Door on New Pandemic Tax Credit Claims Until at Least 2024.
All of which means that business owners are now back to the waiting game and potentially back to considering upfront solutions. For Finance ERC, the company saw interest suddenly pick up and then accelerate since the first WSJ story came out.
“So I’m not saying the day that article came out, but we’ve definitely seen a spike in demand,” Goldin said. “My thing would be that for anyone that was selling [ERC financing], to think about that again, or those that weren’t selling it and they’re feeling that the MCA market is struggling, it’s too competitive, this is a new opportunity.”
Goldin shared this prior to the news breaking that the delay of ERC payouts had completely paused. Presumably, it would only make businesses more interested in getting the financing.
As he previously told AltFinanceDaily, Finance ERC’s product requires no payments, can be eligible for up to 4-6x of what they would otherwise qualify for with an MCA, and can get it at a fraction of the cost of an MCA. But offering it can’t be done as an afterthought, he explained, even if you’re a big company with a big merchant portfolio.
“…you send out one or two emails you might as well not even send them out at all,” Goldin said.” Unless you’re actually embracing the product in your ecosystem, you know, drip marketing, follow up, you literally have to have a separate team selling it or it won’t work. But the guys that have done it, I know a few MCA guys that have, they’ve crushed it on both filing and funding. They’ve set up a separate group, separate sales guys, and they’re really killing it.”
And so the previous frontier of financing the ERC could now also be the next frontier yet again because of what’s taking place. On one subreddit, now that the reality is setting in, the tone has shifted.
“Has anyone tried contacting their state representative about the delay in refund?” The user began. He then adds that he’s already been waiting a whole year.
Funding Circle US Originated $259M in 1st Half of 2023
September 7, 2023
Funding Circle’s US arm originated $259M worth of business loans in the first half of 2023, up from $214M in the previous half. Those loans are funded “through forward flow agreements with institutional investors.”
The company’s recently filed financial statements say that US loans are “showing good growth.” And it’s with top tier borrowers to boot. It referred to 32% of its first half loans as being “super prime.”
AEBITDA was negative but that’s due to its planned investment to scale the business, the company said.
Yields on their US Loans averaged 5.8%, up from 4.4% over the same period last year.
The company’s newer product “Flexipay” was highly touted in its first half financials. Flexipay works like a line of credit. Once approved for a line, you provide invoice details to Funding Circle and they’ll make a secure payment in your name.
“We’ve seen good growth in US Loans and FlexiPay is showing great momentum as we expand our offering to access a larger market and serve more of our customers’ needs,” said company CEO Lisa Jacobs.
Loan Volumes Strong, Approvals Cautious in Small Business Finance Space
August 22, 2023
In this current environment, small business finance companies are proceeding cautiously.
“In 2022, the company’s turndown rate stood at 8%, but it has surged to 12% this year,” said David Miles, VP and Director of Credit for Eastern Funding. Eastern Funding primarily serves coin laundromats, grocery stores, and car washes but also operates two subsidiaries that focus on assets like commercial vehicles & tow trucks and fitness & wellness equipment. While Miles said that loan volume has remained strong, the percentage of transactions being turned down has increased.
“…I think that’s fairly indicative of the market or the environment that we’re currently in, which is high interest rates,” said Miles. “You have consumers that are carrying a lot of debt and it’s somewhat of a precursor to a potential downturn or recession.”
The circumstances are being felt all across the lending spectrum. According to a recent consumer lending study from the Federal Reserve, the overall rejection rate for credit applicants was 21.8% in June, the highest level in five years. That study looked primarily at mortgages, credit cards, and auto loans.
But in the commercial universe where Eastern Funding operates, the sentiment seems to be matching the shift in the numbers. On a recent quarterly earnings call, for example, Lightspeed CFO Asha Bakshani said of their MCA program, “There’s tons of demand. We’re just taking our time intentionally given the macro.” On unsecured business loans, Enova CEO David Fisher recently said that “we’re just not convinced the risk/reward is there right now, again, given the uncertainty in the economy, an extra few percentages of origination growth for us this year is pretty inconsequential.” Both Lightspeed and Enova are also still experiencing strong volume despite the conservative approach.
“We’ve definitely seen credit quality go down compared to prior years but that’s the main challenge,” said Miles of Eastern Funding. “And we want to make sure that especially in this environment, that we continue to make good loans, we make loans that don’t go to collections, that don’t go to work-out, and we don’t experience any losses across any of the three divisions.”
One challenge of being cautious, however, is communicating the situation to potential customers who may still be stuck in the mindset of 1-2 years ago.
“Our focus is on making sure that the people that do have credit authority, that they’re well aware of the environment that we’re currently in, and that there is enhanced risk just to do with the macroeconomic environment that we’re operating in,” Miles said.
Alliance Funding Group Upsizes Corporate Note to $39 Million
July 25, 2023Tustin, CA – Alliance Funding Group (“AFG” or the “Company”), one of the largest privately-held equipment finance companies in the U.S., today announced the successful upsizing of its corporate notes to $39.0 million. The new issuance was assigned a BBB rating by a nationally recognized statistical ratings organization (NRSRO). Proceeds from this transaction will be used for working capital purposes and to finance growth, including potential future acquisition opportunities.
AFG is a market-leading vendor direct specialty finance company that provides small-ticket and middle-market equipment leasing, financing and working capital solutions to a broad range of businesses throughout the U.S. Since inception, the Company has funded more than $2.0 billion to over 25,000 businesses.
“We are grateful for the continued support from a core base of institutional investors that have demonstrated strong conviction in our growing platform,” said Brij Patel, founder and President of AFG. “As competitors tighten their credit boxes, we recognize an outstanding opportunity to pick up market share, both organically and through potential synergistic acquisitions.”
Brent Hall, Senior Vice President – Capital Markets, stated: “Following our successful securitization placed earlier in the year, this recent financing helps further fortify our balance sheet. We are experiencing significant demand from our customers and this additional capital will enable us to continue to meet their financial needs in a volatile economic environment.”
Brean Capital, LLC served as the Company’s exclusive financial advisor and sole placement agent in connection with the transaction.
About Alliance Funding Group
Alliance Funding Group was founded in 1998 and has grown to become one of the largest privately held equipment finance companies in the U.S. AFG provides leasing and financing solutions to a wide variety of businesses across a defined spectrum of credit types. AFG currently operates out of its headquarters in Tustin, California with offices in Los Angeles and Carlsbad, CA, Portsmouth, NH, Austin, TX, and Tacoma, WA. For more information, visit: www.afg.com.
