Meet the Source: How Jared Weitz and United Capital Source became one of the industry’s fastest growing shops
October 23, 2015Jared Weitz came from humble beginnings and nearly settled for a humble fate. But associates say an ordinary, uneventful life wouldn’t have suited him – he works too hard and figures things out too quickly.
Almost ten years ago Weitz, 33, was parking cars to earn money for community college. After finishing at St. Johns University, he almost made plumbing his career. But now he’s CEO of United Capital Source LLC, an alternative-finance brokerage with deal flow of between $9 million and $10 million a month and an annual growth rate of over 65 percent.
Business associates, former bosses and his small cadre of employees all seem to revere Weitz for his honesty and straightforwardness. They consider him a personal friend. They say he continues to grow as a businessman and as a human being while taking pleasure in helping others do the same.
Geographically, Weitz has the good fortune to know where he belongs – the city of New York is in his DNA. “Every time I fly back,” he said, “I’m so happy to land.”
His love affair with the city began in Brooklyn. He was born there and raised in a Brighton Beach apartment in the shadow of Coney Island. When he was 16, the family moved to Oceanside on Long Island.
As the second of six children, Weitz had to come up with the money for college on his own. “My older sister and I had to pay our way,” he said. “Everybody else, my dad was able to cover.” He started school at Nassau Community College, selling cell phones and parking cars at night.
But then came an abrupt change. Once Weitz saved enough money, he transferred to Tulane University in New Orleans to pursue a relationship with a woman who was finishing her studies there. He attended classes part-time, worked as the athletic director at the Jewish Community Center, tended bar in a Mexican restaurant and served summonses for a law firm.
The relationship with the woman fizzled, but Weitz made lasting friendships during his days down south. His old roommate in New Orleans, who now practices law in Atlanta, serves as counsel for United Capital Source.
When Weitz had been in New Orleans for two years, Hurricane Katrina struck. He evacuated to Houston, where he stayed in a Holiday Inn for two weeks before realizing he wouldn’t be able to return to southern Louisiana anytime soon. The magnitude of the devastation was just too great.
Shouldering the duffel bag of belongings he had managed to pack on his back during the evacuation, he returned to New York, enrolled in St. John’s University and began working in sales for Honda Financial Services and parking cars.
Weitz had started school expecting to become a teacher. He had grown up with younger siblings and liked leadership roles, which convinced him teaching would be a good fit.
Still, many of his college jobs had required him to sell. As a bartender, for example, he promoted drink specials. As an athletic director he convinced people to sign up for classes. “Everything that I took to naturally wound up being in the sales, marketing and finance arena,” Weitz observed.
When he was nearly finished at St. John’s, Weitz was parking a car for an acquaintance who offered him a job as a union plumber. Suddenly, he was making $27 an hour and had health benefits. “It was a big breather for me,” Weitz recalled.
He quit his three jobs and labored as a plumber from 7 a.m. to 3 p.m. School started at 3:30 p.m. for him and stretched into the evening. But when he finished his degree, working as a teacher for $35,000 to $40,000 a year no longer seemed attractive.
Besides, his plumbing work didn’t center on toilets. On typical commercial plumbing jobs he did things like install air, medical and gas lines in hospitals. He was reading blueprints and bidding for jobs. A promotion to foreman didn’t seem that far off.
At about the same time, near the end of 2006, a friend, Mike Caronna, landed a job at Bizfi, formerly known as Merchant Cash and Capital (MCC), The company, which had just started and had only a few employees, was looking for underwriters.
As fate would have it, Weitz fell into a conversation with a fellow union plumber, one who had been on the job for 30 years. The older man reminded him that his wages would never climb much higher than they were right now. The veteran plumber then showed the younger man his hands, bent from decades of holding tools. “That got me thinking,” Weitz said.
He asked his friend Caronna to arrange a job interview at MCC. He got an offer and took a 90-day leave from his plumbing job to give the world of finance a try. “After about two weeks, I knew it was for me,” he said of the alternative-finance industry. It was by then the beginning of 2007.
Weitz excelled as an underwriter, and the company CEO, Stephen Sheinbaum, picked him and four others for a sales contest. Sheinbaum gave them some leads and turned them loose. Weitz won the competition but asked his boss to help him gain experience in business development and operations before taking on a sales position.
Sheinbaum was happy to comply. “He is one of the best and the brightest in the space,” he said of Weitz.
So, at age 25, Weitz found himself building a business development department by cultivating relationships with ISOs and persuading them to send business to MCC. “It was amazing,” he said of those days. “That was a big opportunity.”
Weitz learned the mechanics of the business. He found that the right ISO can originate good deals and a bad ISO can ruin deals. He learned the politics of when to talk, when to remain silent and when to let someone vent.
Then Weitz and a good friend at MCC, Anthony Giuliano – who’s now managing partner of Sure Payment Solutions – worked out how they could improve the MCC sales effort. They pitched Sheinbaum on the idea of having a second internal sale force, and that led to the birth of Next Level Funding (NLF), a division of MCC.
Weitz and Giuliano each owned 10 percent of NLF, and MCC owned 80 percent. “I’m 26, about to be 27, and I’m like, ‘You did it, Man,’” Weitz said as he looked back.
After about four months, NLF absorbed MCC’s original sales division. Next, Giuliano and another executive, Paul Giuffrida, decided to leave MCC. Weitz felt torn. He felt an allegiance to Giuliano and respected Giuliano’s knowledge of programming – a subject that was alien to him. Yet Sheinbaum had provided Weitz a series of opportunities.
Weitz stayed at MCC but felt he deserved to become chief sales officer. When that didn’t happen, he sold his shares back to the company at a dramatically reduced price to extricate himself from a non-compete clause and set off to start United Capital Source (UCS).
With a five-figure investment, Weitz and his then partner, started UCS in January of 2011 in a 250-square-foot office in Long Beach, L.I. Weitz invested about 90 percent of the money he had saved while working at MCC.
Jon Baum left NLF with Weitz and became the first UCS employee. Within a week or two, Danielle Rivelli, left NLF to join UCS, and Weitz put the remaining 10 percent of his savings into the business to meet the expanded payroll. Today, Baum and Rivelli are UCS sales managers.
The first month UCS was open, it funded $240,000 in deals. “It just felt good to be on my own and start funding deals,” Weitz said. From the beginning of UCS, he won praise from funders for bringing them the right kind of deals with merchants who were likely to repay.
“He really has the pulse of the marketplace and what a lender is looking for,” said Todd Sherer, who handles business development for Entrepreneur Growth Capital. “He doesn’t waste time giving you transactions that don’t fit in your box.”
That’s because doing things right means a lot to Weitz. “He is one of the most straightforward, honest, high-integrity people I have met in the industry,” said Steven Mandis, adjunct associate professor at the Columbia University Business School and chairman of Kalamata Capital LLC.
He’s won the OnDeck seal of approval. “OnDeck has a rigorous and extensive background check process as part of our broker certification process,” said Paul Rosen, OnDeck’s chief sales officer. “Jared Weitz and United Capital have passed our screens and process and are currently active brokers for OnDeck.”
And with time, Weitz has learned patience. He was sometimes short with funders when he started his company but has matured into a pleasant person to deal with, said Heather Francis, CEO of Elevate Funding. “I’ve seen that growth with him,” she said.
All of those good qualities soon came together to help UCS succeed. Within four months of its launch, the company rented a 1,500-square-foot office in Garden City and hired two more people. Next came a 3,200-square-foot office in Rockville Centre and three more employees.
“The company was growing and gaining traction,” Weitz recalled. “I bought out my original partner.” Since then, Vincent Pappalardo has invested in UCS and become a minority partner.
Meanwhile, the lease was expiring on Long Island, and Weitz felt the time had come to move to Manhattan. That would enable the company to draw employees from throughout the region and not just Long Island.
“We decided to bite the bullet and pay the excess money to move to the city because we believed it would be better for the business,” Weitz said. He added two people and rented a 5,500-square-foot space near Penn Station in the Garment District in September of 2014.
Within three months of making the move to Manhattan, business doubled. “Being in a faster-paced environment caused the business to go through another growth phase,” he said. After nine months in the city, UCS is now taking over a whole 8,500-square-foot floor of the same building.
UCS remains a small shop in terms of headcount with 21 people, but the company’s funding numbers equal the output of many brokerages five times its size. Twelve of the UCS employees work in sales, with the others engaged mainly in underwriting, operations and customer service.
Less than 2 percent of UCS’s funding volume comes from broker business. “We self-generate all of our business,” Weitz said, declining to elaborate too much on his company’s marketing efforts.
“My salespeople – bar none – are the best in the industry,” he claimed. “Much like the Navy has the SEALS and the Army has the Rangers, there are groups in the industry that can do triple or quadruple what other people do because that’s just the way they are.” His people fund an average of $750,000 per month per person in new business, while his renewals reps fund well into the 7-figure range per person.
UCS salespeople achieve their results because they have detailed knowledge of the industry, Weitz said. The staff’s understanding of alternative finance doesn’t end with sales but also includes underwriting and finance, he noted. “That’s what makes you a very good and knowledgeable sales rep,” he maintained.
His salespeople don’t just tell a client what he or she wants to hear. They take the time to understand the client’s financial situation. “They know how to read a profit and loss statement, a balance sheet and tax returns,” Weitz said.
ARE THE BEST IN THE INDUSTRY”
While 90% of Weitz’s sales team has a college degree, most of the salespeople have come from outside the industry, he said, noting that one was with Sleepy’s, the mattress company. Another was selling memberships at a gym, one worked for a credit card processing company, two were barbers and one had just graduated from college.
UCS doesn’t make double-digit commissions because the company isn’t over-charging merchants, Weitz maintained. The company does not obtain excess funding that a customer can’t afford or increase the factor rate to dangerous levels, he noted.
“You’re not really helping the merchant” by providing too much capital, Weitz asserted. “You’re sucking the blood out of him before he goes away. That’s not why I’m in business.”
A clean record will also prove beneficial when federal regulation comes to the industry, he said. Integrity in the workplace can also spill over into other parts of a person’s life, Weitz believes.
As UCS grew larger and Weitz grew older, he saw his employees rent their first apartments and then buy their first homes. He learned then that he had taken on more responsibility than was apparent to him at first.
To accommodate the employees he added a human relations department and commissioned a company handbook. He’s also started marketing, finance, operations and other departments.
He’s lost only four employees because he pays them well, respects their time and doesn’t view their youth as a liability.
Meanwhile, talking daily to merchants and hearing about their heartaches and triumphs has humbled and matured Weitz. Seeing how the merchants’ choices panned out or fell short also shaped him and helped him grow up a little, he said.
Weitz has found time in his 70-hour workweek to meet his future bride. They’re planning to wed next year, and he plans to invite his entire staff. “It wouldn’t feel right without them,” he said.
Weitz has skipped the Ferrari, Rolls Royce and mansion because he didn’t feel he needed them. But even without those status symbols, it’s clear that Weitz has avoided settling for a humble fate.
As for what comes next, UCS is said to be developing an online marketplace to take their business to the next level, though Weitz declined to provide specific details about how it will work. “We’re on pace to do more than $100 million worth of deals a year,” Weitz said. “And as far as we’ve come, I feel like this is still just the beginning.”
Yellowstone Capital and Green Capital Join Family of Companies Under New Brand, Fundry
October 1, 2015AltFinanceDaily has confirmed that Yellowstone Capital has restructured through the formation of a new parent company, Fundry. Green Capital is also another subsidiary under the Fundry umbrella.
With Yellow and Green together, the business financing industry just got a little bit more colorful.
Yellowstone’s CEO Isaac Stern and President Jeff Reece have become Fundry’s CEO and President respectively.
“We have a solid foundation and a very successful business model,” Stern said. “But to maintain a position of leadership in this industry, we need to grow and we are evolving.”
Yellowstone Capital has been the subject of several news stories lately, most recently by being approved for up to $3.3 million in tax credits to move their business from New York to New Jersey.
In April, it was revealed that Stern had led a management buyout backed by a private family office that made Stern the only remaining co-founder to retain an equity stake. And in June, the industry learned that the company had originated more than $1.1 billion in deal flow since inception, ranking them high above many of their more well-known peers.
The funding leaderboard which debuted in AltFinanceDaily’s May/June magazine issue and was broadcast to attendees at the 2nd Annual AltLend conference in New York City, was in many ways a turning point for the industry.
“I would think there are many more branded funders that would have made the list but didn’t,” said Arty Bujan, Managing Member of Cardinal Equity. “Most shocking is Paypal’s $500 million.”
Richard Battista, Vice president of Business Development at theLendster commented on the eye-opening figures of the industry’s largest players in general. “This is a reflection of the explosive growth that the industry is experiencing at the present time,” Battista said. There is a huge demand for funding from small businesses, who have consistently expressed interest in trying out new funding options.”
Perhaps the story of Yellowstone Capital’s rise can best be explained by Grant McCracken’s Five Stages of Disruption Denial. McCracken, who is a Canadian anthropologist and author, known for his books about culture and commerce, explained the theory behind these five stages in the Harvard Business Review in April, 2013. They are Confusion, Repudiation, Shaming, Acceptance, and Forgetting.
Yellowstone Capital confused their competitors when they were first founded in 2009 by substituting split-processing payments for ACH to high-risk merchants. Very few people within the industry understood why they were using the ACH network over relationships with credit card processors that everyone else relied on.
That of course led to the repudiation stage where people thought they were crazy and that their model wouldn’t work and segued into shaming where the concept of providing working capital to high-risk businesses was perceived to be something that no one should do.
Through it all, Stern and his team believed many of America’s small businesses were still being overlooked and underserved despite non-bank financing and online lending growing by leaps and bounds.
“At what point do we stop helping small business?” Stern said to AltFinanceDaily in response to an inquiry about whether or not some businesses are simply unfundable.
Today, we are in between the Acceptance and Forgetting stages. The ACH debit methodology has almost entirely replaced split-processing and dozens of funding providers claim to specialize in high-risk deals, the very same kind that the industry years ago didn’t understand and resisted.
Yellowstone Capital will serve as Fundry’s ISO relationship arm while Green Capital will serve merchants directly.
“2015 is our biggest year yet, but we really see it as a year of block and tackle work to set up for what needs to be done in 2016 and beyond,” said company president Jeff Reece.
“Yellowstone’s success will simply become the baseline for what Fundry is about to do.”
Through OnDeck Capital, An Industry Wins
December 16, 2014
Call it merchant cash advance, non-bank business lending, or financial disintermediation. Whatever floats your boat. On December 17th an entire financial methodology will be validated, the daily repayment method. Daily payments don’t exist anywhere else in lending but ’round these parts it’s the standard. It’s what makes unbankable businesses bankable.
OnDeck is a lender. They target small businesses. The costs are high. Anyone could feasibly do those things and plenty are doing them, but only a certain segment of fintech companies utilize daily payments and most of those are merchant cash advance companies. OnDeck is a lender but like it or not their core repayment mechanism overlaps with an industry well known for being even more expensive.
Daily payments are so unique and so revolutionary that it hasn’t sunk in to the masses yet. Even the press glosses over this fine detail to instead dwell on things like APRs and social media’s role in approvals. Daily payment and daily repayment look like tech jargon, some kind of code for a backend computer process to hotwire an anomalous rate algorithm.
Daily payments mean borrowers have to make payments every single business day. It’s daily, get it? If the sun rises and it’s not Saturday or Sunday, it’s time to make a payment. I’m not saying there’s something wrong with this. I’m a proponent of this mechanism. It works for business owners that struggle to make a single lump sum payment each month and it works for lenders who need to mitigate and monitor their risk as much as possible.
I feel it’s better to know there was a problem that started yesterday than to learn there was a problem that started 29 days ago. That’s how OnDeck thinks too. And business owners can incorporate the daily deduction into their normal business operations instead of fretting to cover the balance for a big debit the day before a monthly payment is due.
This isn’t just a theoretical design that can’t function in practice. It’s been working for lenders and factors since AdvanceMe (Now CAN Capital) started doing it in 1998. The daily payment methodology has survived the Dot Com Bust and the Great Recession. It’s grown to a $3 – $5 billion a year industry. By some measures, it’s taken a hell of a long time to go this mainstream.
But it’s here. The press will call OnDeck a lender, a tech company, or a combination of both. They’re a sign of the times but they are unique in that they will show the world that daily payments have a place in the modern economy. With OnDeck leading the way, traditional lenders may consider leveraging their methodology to serve categories of risk they usually shy away from.
I’ve never heard of a business credit card that required payments to be made every day. Some might think that defeats the purpose of credit. OnDeck proves it doesn’t. And 100+ merchant cash advance companies serve as a secondary validation. Perhaps there are lenders that have considered a daily payment system previously and feared the political or legal environment was too risky. But OnDeck is making no apology about what they’re doing or how they’re doing it. They’re putting themselves on the open market, surrendering themselves to total scrutiny.
CAN Capital is gearing up to follow them, the pioneers who first experimented with daily payments 16 years ago. And while OnDeck bemoans their loan program being compared to merchant cash advance, CAN is made up of two departments, one of which is undoubtedly a merchant cash advance service provider.
And there you have it. It’s not all about algorithms or tech or using facebook activity to judge a borrower. Those are old ideas now. OnDeck smashes down the door with something completely different, something that nobody is even talking about, daily payments.
December 17th is Wednesday and just about all of OnDeck’s borrowers will be making a payment. A good many of them won’t even notice. That’s the great part about layering it in as a daily cash flow expense. There’s no worrying about it at the end of the month. If they underwrite the borrower financials well enough, it should be completely painless. That’s not always the case, but it’s the goal.
You can’t possibly understand OnDeck until you understand daily payments. With this IPO, an entire industry wins.
Alternative Lending: Big Government and Big Data
May 7, 2014– Professor Michael Barr at LendIt 2014
One of the clear themes of the LendIt 2014 conference was that borrowers are willing to pay extra for speed and convenience. Regulators have taken note of this trend but they’re still supportive of the alternative lending phenomenon anyway. Truth be told, the government is acting like a weight has been lifted off its shoulders. Ever since the 2008 financial crisis, the feds have prodded banks to lend more, but they’ve barely budged, especially with small businesses. Non-bank lenders have relieved them of the stress and all they need do now is make sure everybody plays nice.
Professor Michael Barr, a former US Treasury official, key architect of the Dodd-Frank Act, and Rhodes Scholar, believes the best way forward is to empower consumers. That’s something lenders can accomplish through education and transparency. On transparency, he cited many of the commendable practices that credit card companies and mortgage companies have implemented, but did not fail to note that these were forcibly instituted through regulation (Hint hint…).
When a LendIt attendee asked Barr to name someone in the alternative lending industry that is a great role model for transparency, Barr answered by saying, “I haven’t seen anyone in the industry doing things the way I would do them in regards to education and disclosure.” On the path towards transparency, “the potential is not yet realized,” he added.
While it sounded as if he favored eventual regulation of alternative lending, he offered all in attendance advice to prevent it. “Take the high road to prevent regulatory interest,” he said.
Barr’s sobering presentation also covered the Consumer Financial Protection Bureau (CFPB) and the role they might play in alternative lending, if any. Payday lenders and debt collectors were their primary supervisory targets he said, but added the “the CFPB has the flexibility in the marketplace to address problems before they occur.” That flexibility essentially gives them jurisdiction over whatever they decide they want to be in their jurisdiction.
Sophie Raseman, the Director of Smart Disclosure in the U.S. Treasury Department’s Office of Consumer Policy appealed to the industry in a different manner. “Small businesses are at the heart of the economy. We want to serve you [alternative lenders] better so that we can better serve them,” Raseman pleaded. As part of that, she came bearing gifts, a reminder that the federal government had loads of data available via APIs at http://finance.data.gov. The government wants to make sure we have access to as many tools as possible, most likely to help drive borrowing costs down. If you need to verify someone’s income, Raseman recommended the IRS’s Income Verification Express Service.
The Income Verification Express Service program is used by mortgage lenders and others within the financial community to confirm the income of a borrower during the processing of a loan application. The IRS provides return transcript, W-2 transcript and 1099 transcript information generally within 2 business days (business day equals 6 a.m. to 2 p.m. local IVES site time) to a third party with the consent of the taxpayer.
The irony with this service is the two business day timeline, though I haven’t confirmed if that’s still the case. Delays and archaic data aggregation methods are the exact things alternative lenders are trying to overcome. Kabbage comes to mind as the length of time it takes for them to go from application to funding can be as quick as 7 minutes, a time frame I found to be reality after watching the demonstration by Kabbage’s COO, Kathryn Petralia.
Kababge’s blazing speed is made possible by access to big data, which made Petralia an excellent choice to have on the Big Data Credit Decisioning Panel. She was joined by Noah Breslow of OnDeck Capital, Jeff Stewart of Lenddo, and Paul Gu of Upstart.
Stewart, whose company lends internationally presented the idea of mining not just data on social networks, but the photographs on them. One possibility was measuring whether or not borrowers appeared in photographs with other borrowers known to be bad, or whether or not they hung out with undesirables such as ex-convicts. He was a big believer in association risk, speculating that friends of bad borrowers also made them more likely to be bad borrowers themselves.
Breslow of course said you have to be careful with the noise of social media as there can be a lot of false signals. Does that mean there are big data problems then? Upstart’s Paul Gu said, “we have small data problems” in reference to why there seems to be so much trouble evaluating applicants that have little to no credit history. Gu believes that basic information such as where a borrower went to college, their major, and their grades can be used as an accurate predictor of payment performance and his company has acquired the data to back that up.
Somewhere along in the discussion though the meaning of automation got twisted. OnDeck for instance has an automated process, yet humans play a role in 30% of the loan decision making. Does that mean they are not actually automated? Breslow clarified that aggregating data from many different sources using APIs and computers was automation and that there was still a role for humans. The goal is to make sure that humans aren’t doing the same things that the computers are doing.
“The world’s greatest chess human can beat the world’s greatest chess algorithm,” said Lenddo’s Stewart. “Humans should be pulling what the algorithms can’t think of,” added Breslow. He presented an example of an applicant satisfying all of an algorithm’s criteria but sending up a red flag at the human level. “Why would the owner of a New York restaurant live in California?” Breslow asked. That’s something an algorithm might get confused about. It might mean nothing or it might mean something.
“Algorithms are probabilistic,” Stewart reminded the audience. They spell out the likelihood of repayment, they don’t guarantee it.
For Kabbage, algorithms and automation have been instrumental in allowing them to scale. “I don’t need to hire a lot more people to serve a lot more customers,” Petralia explained.
“Let the data speak for itself,” Breslow proclaimed. And there is a lot of statistically interesting data. “People with middle names perform better than people without them,” added Breslow.
For Gu, borrowers with degrees in Science, Technology, Engineering, and Mathematics fare better than their academic peers, though he wouldn’t reveal which major is #1. That information, while probably available to OnDeck, likely plays little or no role. “There is a lot more data to analyze on the business side than the consumer side which is why [things like] the social graph is a little less relevant,” Breslow said.
In the end, lenders don’t need to go on a wild data goose chase to learn all about their prospective clients. Kabbage applicants for instance are asked to provide their online banking credentials in the very first step of the applications. “A lot of people would be surprised as to the amount of data borrowers are willing to share,” Petralia proclaimed. Indeed, many alternative business lenders and merchant cash advance companies are analyzing historical cash flow activity using third party aggregating services like Yodlee, something that requires the client’s credentials.
During Kabbage’s earlier demonstration, some members in the audience worried that factors such as deposit activity could be gamed. Petralia assured them that their algorithm was sophisticated enough to detect manipulation and at the same time explained that they analyzed far more than just deposit and balance history.
Perhaps all this technology though has gone overboard. Is it possible to predict performance just based on what the applicant says? Believe it or not, “the language someone uses is an indicator of default probability,” Stewart said. But even that kind of detection has become automated. “Lenddo uses semantic analysis. People tend to use different words when they’re desperate.”
Who knows, a year from now getting a loan might be as easy as picking up your phone and saying, “Siri, send money.” Just make sure to delete all the photos of you hanging out with criminals off your phone first. A lender might use them against you.
Is it Just us or are the Deals Getting BIGGER?
October 15, 2012
Two years ago, it was easy to say that the average Merchant Cash Advance (MCA) deal was about $20,000 to $25,000. The claim used to be, funding up to $250,000! And yet very few companies would actually go that high when it came down to it. But now?
A million here, a million there… It’s all just business as usual. Nothing to see here everybody. Go on Tozzi, write another article about how MCA is for minuscule retailers that can’t get approved for a low limit credit card. Whether you call it MCA, Merchant Financing, or Merchant Lending, there’s no doubt that capital has become more accessible to businesses across the country. And the amounts being disbursed are getting BIGGER.
On October 12, 2012, Rapid Capital Funding (RCF), a mid-sized funder in Miami, FL provided $1,250,000 to a national convenience store chain. RCF published an official company announcement about it, but we actually got wind of the deal a week before it closed. AltFinanceDaily staff is friendly with the folks at RCF, particularly with their lead underwriter, Andrew Hernandez. Hernandez is an industry veteran, with five years of MCA underwriting experience under his belt. So while RCF hasn’t had the reputation for taking on big paper in the past, we can’t say that we’re shocked that they’re marching down that path.
Other big deals this year in the MCA space:
United Capital Source – $1,250,000
YellowStone Capital – $751,000
Do you think we’ll be seeing more of this? Send us your comments.
– Merchant Processing Resource
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North Dakota Law Regulates “Alternative Financing” as a “Loan”
May 30, 2025The state legislature in North Dakota recently passed House Bill 1127. This bill made a simple amendment to a 1970s-era law called the Money Brokers Act (“MBA”).
Despite its name, the MBA is not limited to brokers. It is the primary law regulating consumer and commercial lending in North Dakota. It applies to any person engaged in the act of arranging or providing loans. Such persons are called “money brokers” in the MBA.
This amendment adds a two-sentence definition of the word “loan”. When this amendment takes effect, the MBA will define “loan” as follows:
“Loan” means a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which the person borrowed. This includes alternative financing products as identified by the commissioner through the issuance of an order.
Is this is a big deal? Yes. Here’s why.
Until now, the MBA has always defined the term “money brokering” to include the act of providing “loans” but has never defined the term “loan”. As a result, forms of business financing that are not typically considered loans – such as factoring or revenue-based financing (also sometimes called “merchant cash advance”) would not be subject to the MBA. Adding this new definition of “loan” to the MBA creates significant risk that alternative forms of business financing will become subject to the regulatory burdens impose by MBA.
Those burdens are significant. The MBA requires money brokers to obtain a license from the North Dakota Department of Financial Institutions (“DFI”). The MBA also caps the maximum amount of fees and charges that can be impose by a money broker at a rate of 36% per year.
With this new definition, the North Dakota Department of Financial Institutions (“DFI”) can now issue an order designating any financing product as a loan subject to the MBA. Does the DFI intend to regulate revenue-based financing? That’s unknown at this time. The Commissioner of Financial Institutions provided a memorandum to the legislature stating that the new definition would allow DFI to ensure that North Dakota’s citizens “will have access to new lending products, without sacrificing safeguards”. It is possible that the Commissioner is intending to focus on consumer financing products and not commercial financing. Even if that’s the case, that’s small comfort.
There is still a problem with this law because the first sentence of the definition is simply too broad. It states that a “loan” includes a transaction with the following two features:
1. There is a contract by which a sum of money is delivered to another.
- A typical revenue-based financing is structured as a purchase of a merchant’s future revenue at a discounted purchase price. The purchase price is a sum of money delivered to the merchant.
- Invoice factoring transactions also involve a delivery of funds in the amount of the face value of the invoice minus a discount and/or a reserve.
2. At a future time, the person receiving that money agrees to return an “equivalent” sum.
- In revenue-based financing, the merchant agrees to deliver the purchased amount based on an agreed-upon percentage of the merchant’s revenue stream. Arguably this is a “sum of money” equivalent to the purchase price advanced to the merchant.
- Factoring is a bit more complicated. In recourse factoring, a factoring client sometimes is required to repurchase an invoice from the factor if the invoice is not paid on time. The repurchase price is based on the face value of the invoice. Arguably this is a “sum of money” equivalent to the face value of the invoice minus a discount and/or a reserve.
Even if the DFI does not order that revenue-based financing or factoring are loans, a North Dakota court could take the position that the definition of “loan” is now so broad that these products are already loans under the revised MBA. No DFI order is needed.
If a North Dakota court concludes these products are now subject to regulation under the MBA, including its 36% rate cap, then this opens the door for North Dakota businesses that obtain financing to sue any provider that imposes charges that effectively exceed that rate cap.
It’s not clear whether the North Dakota legislature understands what it just did. This amendment was part of a legislative package that was primarily focused on data security. The addition of the “loan” definition would be difficult to find if you weren’t looking for it. House Bill 1127 passed with almost unanimous support. Did all those legislators understand that this law could drive away products that offer working capital to businesses that badly need liquidity and don’t have access to a bank line of credit? I doubt it.
Does this mean that providers of alternative financing should stop funding in North Dakota? That’s a business decision. We’ll certainly be watching to see if the DFI provides any guidance on any kind of “alternative financing” product it considers to be a loan. But providers of revenue-based financing and factoring should start thinking about whether they might need an MBA license North Dakota and whether they can live with the MBA’s 36% rate cap.
According to the North Dakota legislature’s website, this change in the MBA is likely to take effect on August 1, 2025. That gives you some time to think about whether North Dakota is still a viable market for your financial products.
Why MCA Companies Need Syndicators
March 21, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
The merchant cash advance (MCA) business is all about balance—managing risk while keeping capital flowing.
Many funders hesitate to bring in outside capital, especially if they already have a line of credit. The thinking goes: “If I have my own money, why should I split the profits?” But that perspective overlooks the key benefits syndication brings—not just in terms of capital but also risk mitigation and overall profitability.
The biggest advantage of working with syndicators is the ability to do more deals while spreading out risk. The more deals you fund, the more you diversify, which naturally increases your stability. If you’re advancing your own money, you’re taking on 100% of the risk. But with syndicators, that exposure is shared. Even if you already have a line of credit, using syndication means you’re not tying up all your liquidity in a few high-risk advances. Instead, you’re spreading your capital across more opportunities, reducing the chances of any single deal tanking your portfolio.
Syndication also creates a financial buffer through fees that MCA companies collect upfront. Syndicators don’t just bring in money; they pay to participate in your deals. Typically, they compensate the funder in one of four ways: paying an upfront fee (usually 3-5% of the RTR or 5-7% of the principal), paying part of the fee upfront and the rest as the deal is repaid, covering a portion of the origination fee, or splitting the profits at the end of the deal. These fees give MCA companies immediate cash flow, which helps offset risk before repayment even begins.
Consider this: if you fund a $100,000 deal and syndicators take on 50% of it while paying a 4% fee, you’ve immediately reduced your exposure. You’re technically in for only 48% of the deal, not 50%, because that fee cushions your position. On a larger scale, this compounds into significant risk reduction. If your default rate is 15% and syndication lowers your risk by just 5%, that’s a major improvement. A 10% default rate instead of 15% can be the difference between profitability and loss.
Origination fees further sweeten the deal. Some MCA companies split origination fees with syndicators, while others keep the entire portion from the syndicator’s investment. For example, in a $200,000 advance where the syndicator puts in $100,000, a 10% origination fee would total $20,000. If the funder keeps the entire 10% from the syndicator’s portion, that’s $10,000 of instant income—reducing risk right away. This means that even before payments start coming in, the MCA company is in a stronger position.
Profit-sharing models also offer advantages, particularly for MCA companies that want to keep more control over the deal structure. In these setups, syndicators don’t pay an upfront fee but instead share in the profits at the end. This allows funders to leverage external capital while still maintaining higher margins on successful advances. Some models even combine a profit split with an upfront syndication fee, offering the best of both worlds—immediate cash flow and long-term upside.
The bottom line is simple: syndication makes MCA portfolios stronger. It adds a layer of protection, reduces risk, increases deal volume, and injects capital upfront. A stronger, more diversified portfolio leads to more stability and, ultimately, higher long-term earnings.
For any MCA company serious about growth and sustainability, working with syndicators isn’t just an option—it’s a necessity. Overlooking these benefits in the name of not wanting to share profits shows a short-term mindset that may cost more in the future.
How Mike Brooks Battled in the Ring and Won Top Broker in Equipment Financing
March 6, 2025
“Equipment Financing is HUGE,” declares Mike Brooks, CEO of New York-based Best Connect Capital and recent winner at Broker Battle 2025 in the equipment finance category at AltFinanceDaily CONNECT MIAMI. If his name sounds familiar, it’s probably because he appeared on stage as one of six finalists in the previous year’s competition. He refused to give up after his loss and returned this year for round two, leading to him securing a title and prizes along with it. To hear him tell it, it had been a long road to get there.
When Brooks got his start as a 27-year-old broker in 2015, for example, he had technically been battling in a ring for most of his life already.
“I had [boxing] on my mind in high school, without any influence,” says Brooks, “and I walked into a gym one day and the rest was history.” That history includes 60 fights in just amateur-level boxing, resulting in 45 wins and 15 losses. When he followed that at the pro level he went 11-2-1.
“I started fighting at the regular club shows, the Golden Gloves, the metro tournaments, national tournaments, and at one point, I was ranked number seven in the whole country,” Brooks recalls. “I beat some really good fighters, lost to some really good fighters and I made it to the highest levels in the country.”
Some of those fights even aired on live TV. As he bobbed and weaved for years in the ring, he started to think about what a possible career in business might look like afterwards. When that day came, he went to work for a local financial service company on Long Island who taught him about helping small businesses access working capital. Eventually he realized it was a business that he was uniquely suited for and now he runs his own company doing it.
First, there’s the endurance aspect, he explains. There’s a lot of calls, leads that don’t pan out, and heartbreak that hits when deals get declined at the finish line.
“A very small percentage of people can be a successful broker,” Brooks says. “You have to be able to take rejections all day long.”
To that point, Brooks noticed that as the industry grew he was not the only broker offering revenue-based financing to a client. Sometimes there were even as many as four or five other brokers talking to the same client at the same time, which meant that he wasn’t going to win every one and he did not want to bend his ethics just to eke it out. That’s when he started considering another approach and expanded his offerings.
“An equipment financing deal was my first big check during [the covid] lockdowns,” Brooks says. It was a $200,000 deal for a packaging plant. The terms were very attractive and he had the help of an equipment finance veteran who mentored him through it. When it worked out, he knew he had something very big in his arsenal and he’s been offering it ever since to anyone that qualifies for it.
“I said to myself anybody that needs equipment, this is a no brainer right here,” Brooks recalls of it. Now Brooks says when there is competition, he’s almost always the only one asking questions about equipment and the only one prepared to actually move forward with a deal tied to it. Of that experience, Brooks says he’s realized that some brokers have become so accustomed to the mindset of telling customers to take a specific deal, that they don’t stop to consider what they actually want. So his approach is to go in and diagnose what it is they’re trying to do first and then advise them of their options accordingly. And that’s what he does day after day.
At Broker Battle 2025, it was very much like time spent in the office. He was expected to be his normal self, but on stage in front of a large audience, while three judges played the role of prospective client and asked him questions about what they should do. The end result of it all was that Mike Brooks, former fighter in the ring, walked away as the Broker Battle champion in the equipment finance category in 2025.
“It felt amazing to be able to showcase what I do on a daily basis,” Brooks says, making it a point to say that even the venue took note of his win and offered him a personal congratulations on social media.
In the final photo-op on stage with his prize check, Brooks was the epitome of his dual life—the suit and tie spoke of business, while the cigar and sunglasses hinted at his former life in the ring. “I was a crowd pleaser,” he jokes. “You want to be like ‘bam bam bam’ and the crowd to be like ‘AHHHH!!!’ I want them to do that. I had a great time at AltFinanceDaily.”
