When Your Competitors Do Wrong, Do Right
June 1, 2023
“…no matter what industry you’re in there’s always going to be bad apples, and you kind of have to see which way they’re coming from,” said Heather Francis, CEO at Elevate Funding.
Competition within this industry will always exist, fueling the drive of professionals in the field. But how can one compete with a competitor who is actively deceiving the merchant? Furthermore, how can one advise that client to exercise due diligence without appearing to display dishonest intentions? Transparency has become a rising issue separating those in the field for the right reasons from those who are not.
“Companies should be dedicated to conducting their business consistent with the highest standards of ethics and integrity,” said Laura M. Marolla, VP ISO Relations at World Business Lenders (WBL). “We have an obligation to our colleagues, customers, business partners and investors, as well as the communities in which we operate to be honest and forthright in all our business practices and interactions.”
Funding and lending companies working with customers should be forthright about everything, from the amount the customer will receive, the total cost, and what they should expect throughout the relationship. Also they should be consistent with the terminology used so that the customer doesn’t become confused.
Francis explained that terms like “fee” could be interpreted in several different ways. Her company has developed an entire blog dedicated to terminology to help merchants weed out jargon.
“Terminology is very very important because I could understand fee to mean one thing and you could understand it to be different,” said Francis. “And that’s not transparent if we’re speaking a different language, that can be misconstrued.”
Case in point, Francis’s company Elevate offers Revenue-based financing while Marolla at WBL offers loans. On this basis alone, each company’s product works very differently.
“Ongoing education for all staff should be required, during which responsible lending practices should be emphasized and ingrained into the culture of the organization,” said Marolla. “While in the end, each merchant must take responsibility for its business decisions, informed decisions by merchants can be facilitated through transparency in disclosures and responsible business practices throughout the lending process.”
And if a competitor is not being transparent or responsible, Francis said that there is a delicate way to communicate that to the customer.
“From our team, what we do if a merchant says, ‘hey, so and so promised me X, Y, and Z,’ if there are reviews out there that show the other company can’t deliver that, we will send them the link. ‘You can see what previous customers have said, and it seems like they haven’t always been true to their word.’ We can also give the client something to look out for.”
One particular thing she said can be a red flag is if a company tells the customer at the last minute that they’re going to get a lot less than what they originally contracted for, which they have seen happen. Elevate hopes that when a customer recognizes a warning sign that they will remember Elevate’s polite manner of advising them what to have looked out for in the first place.
Francis explained it’s about making them feel free to come back to them, that there’s no hard feelings if it looks like they got a better deal. “‘If you have any questions. If you don’t feel that the person is being truthful with you, we’re happy to answer any questions, or you can bounce ideas off of us,'” is the message they try to leave them with. “We’re just trying to have a relationship so that we can curtail someone who’s lying about what they’re doing.”
How Raising The Debt Limit Affects MCA
May 22, 2023
Every few years, particularly during the administration of a divided government, the threat of a default on raising the debt limit of the United States rears up in the political and economic spheres. While both sides tend to play chicken before ultimately settling on a negotiated outcome that they can sell to their bases, the current debt limit crisis feels more serious as the X date of June 1 looms with no settlement in site.
This crisis has a significant effect on various industries, and amongst them is the merchant cash advance business. MCA companies are heavily relied upon by small businesses for immediate financial needs, and understanding what this crisis means for the industry is crucial for getting through it unscathed.
Let’s compare the current landscape to running a business:
When a company opts to increase its debt limit, it essentially seeks to borrow more money, trading liability for an asset. For example, if the company’s equity is worth 100 billion dollars, borrowing doesn’t change this figure as long as the borrowed amount is an idle asset in their account.
The U.S. government should theoretically operate similarly to a regular company, borrowing only what it can pay back, but with the only growing expenses, when the government borrows money and raises the debt ceiling, it doesn’t always have enough funds for repayment.
In addressing its fiscal shortfall, the government operates distinctly from a conventional business. Unlike a company compelled to confront its financial mismanagement head-on, the government possesses the ability to print additional U.S. dollars. However, this course of action inherently devalues the currency.
For the sake of illustration, consider the worth of the dollar as a fixed entity. Suppose every thousand dollars equates to one bar of gold. If we slice this bar of gold into a thousand pieces, each piece represents $1. When the government initiates the printing of more money, it is essentially the government carving that same bar of gold into tinier segments. Meaning, if sliced in 2,000 pieces, the same bar of that once held the value of $1,000 is now $2,000. The total quantity of gold remains constant, regardless of whether it’s divided into 1,000 or 2,000 slices. However, with increased currency in circulation, each dollar—like every slice—holds less value, thereby shrinking everyone’s piece of the proverbial gold bar.
Now that we’ve explained the dangers of wantonly raising the debt limit, how does this affect MCA companies?
The debt limit crisis’s impact on MCAs is pronounced due to the time-value factor of money.
Suppose a mortgage of $100,000, repaid with interest over 30 years, amounts to $300,000. If the value of the dollar reduces significantly over this period – say by 50% – the bank, despite appearing to make a profit, loses money. That’s because the money they receive later has less purchasing power than the same amount ten years prior.
This reality can be acutely felt in periods of high inflation, such as in 2021 and 2022, where inflation neared 9%, and many felt it was closer to 20%. We all feel it during our grocery shops, the prices of experiences, and in other areas of our lives. Here, $100 can only buy what $80 could a couple of years ago, eroding the value of the interest charged.
At Better Accounting Solutions, a number of the MCA businesses we’re working with are concerned with this rapid devaluation of the money they’re funding.
The key factor to consider is the duration for which the capital will be deployed and how it will be recouped. For instance, if you advance $1 million at a 24% factor rate over 24 months and the debt ceiling is raised causing the dollar value to drop, your returns in the second year might be significantly less valuable despite the factor rate. This depreciation means that even though you’re receiving the agreed-upon returns, the funds’ purchasing power is considerably less, translating into a net loss of what would have been 13.5% over the past two years.
However, if you’re giving out (after careful consideration) riskier short-term advances with higher factor rates, daily repayments, and shorter durations, the situation would be different. Here, you’re receiving your return within, say, six months. Even if the dollar’s value decreases by 20% over a year, you’re less affected because your returns are realized in a shorter time and at higher rates, leaving you with a net gain.
Therefore, the debt limit affects MCA providers significantly, whether it’s being covered in the news or not. The devaluation of the dollar, high inflation rates, and other economic consequences of a debt limit crisis can dramatically impact the returns on cash advance businesses, especially those with longer repayment periods. As a player in the finance industry, it’s crucial to consider these elements when making advances or lending money. By factoring in these variables, providers can better protect their interests, minimize risks, and ensure the stability of their operations even during times of economic uncertainty.
Impact of ChatGPT Era Already Being Felt
May 16, 2023
Anyone that’s ever faced a coding hurdle has inevitably ended up on Stack Overflow, the go-to platform for developers to solicit answers from more experienced professionals about their challenges. Users typically explain what they’re trying to accomplish and paste a copy of the code that’s not achieving the desired result. That’s where the community chimes in, coming forth with their own solutions while other users upvote the best answers. The end result is not just a grateful user but an ever growing public database of questions and solutions available for public consumption. The sheer scope of what’s been compiled has opened up the door for other users to simply find a similar enough question that’s already been asked and copy the answer. It’s a very valuable tool.
Stack Overflow has been around for 15 years but from March to April of this year, traffic plummeted by 17.7%, according to SimilarWeb. Tech blog Gizmodo has suggested that a contributing cause is ChatGPT-4, the OpenAI chatbot technology that can write its own code, edit a user’s code, and even converse about what a user is trying to accomplish. A spokesperson for Stack Overflow confirmed to Gizmodo that ChatGPT was partially responsible for its loss of users. “However, our vision for community and AI coming together means the rise of GenAI is a big opportunity for Stack,” the spokesperson added.
But what’s a coding forum for nerds and brainiacs got to do with the lending industry? Well, for one thing borrowers were already flirting with asking virtual assistants for help with financial services products before ChatGPT even entered the ring. According to the most recent Smarter Loans survey, 16% of loan applicants surveyed said that they had at some point used Alexa, Siri, or other voice search tools to find information about financial services. None of those come even remotely close to what ChatGPT-4 is able to do. And AI is popular, so popular in fact that ChatGPT became the fastest growing app in history, crushing even the likes of TikTok in pace of growth. ChatGPT already had 100 million monthly users as of February, before its signature ChatGPT-4 model was released.
Therein lies the threat because not only is ChatGPT-4 incredibly adept at making coherent conversation but it is also ready to explain a concept or make a recommendation, just like a very knowledgeable friend would. For example, when asking it to make a list of the top small business funding companies, these were among the names it spit out:
- OnDeck
- American Express (Kabbage)
- Funding Circle
- Credibly
- Square Capital
- National Funding
- PayPal Working Capital
It’s not a vomit of names. ChatGPT-4 was familiar with their areas of expertise. When pressed further it said that OnDeck would help get the cash fast but working with Square Capital might work better if one is processing a high volume of credit card transactions. For strong credit and a large loan, it suggested Funding Circle. After expressing an interest in OnDeck, the AI provided instructions on how to apply via the OnDeck website and a phone # to call with questions. In this real-world example, the AI replaced both the online search and the role of a broker all in one and all within minutes. It can also read the contracts and alert borrowers to certain clauses. When pressed about an unusually high APR, for example, the AI even offers an encouraging explanation for how moving forward could still make sense.
“Be sure to also consider the potential return on investment from using the loan funds,” it said. “If the growth or savings you anticipate from using the loan funds exceeds the cost of the loan, it may still be a good decision despite a high APR.”
eCapital Expands With Two Senior Hires
May 11, 2023MIAMI – May 11, 2023 – eCapital Corp. (“eCapital” or “the Company”), a leading finance provider across North America and the U.K., has reinforced its commitment to delivering specialized finance solutions to small to medium-sized businesses by recently appointing two accomplished Business Development Officers (BDOs) to its team. These new hires bring a wealth of experience to eCapital, as they serve clients across a variety of industries. With a focus on delivering customized financing options, eCapital has been able to distinguish itself in the current market conditions, leading to significant momentum for the company.
The two new hires, Matthew DeBernardo, SVP, Business Development Officer, and Bret Aaron Meuschke, SVP, Business Development Officer, will be involved in managing Factoring and Asset-based Lending transactions as part of the company’s Commercial Finance division. Bringing more than 25 years of industry knowledge, the two seasoned BDOs will prioritize meeting clients’ business and financial requirements while providing exceptional customer service.
“eCapital’s sustained expansion is drawing exceptional talent, such as Matthew and Bret, to our company because of our distinct business model and advanced technology capabilities,” stated James Poston, Chief Sales Officer at eCapital Corp. “Their specialized expertise, combined with eCapital’s extensive resources, will enable us to further elevate our capacity to deliver the quick, adaptable financing options that we are renowned for. Matthew and Bret have already demonstrated impressive results in their new positions, and we are excited to see them continue to thrive as integral members of our team.”
eCapital has been a champion of SMBs for almost two decades, harnessing its profound understanding of finance solutions and its remarkable capacity to cultivate and maintain strong business relationships. By adopting a personalized approach and promoting valuable connections with clients, eCapital offers rapid and hassle-free access to working capital, empowering SMBs to thrive and succeed.
“eCapital’s reputation in the industry along with today’s economic climate made it ideal timing to join the company and support clients in getting the financing they need,” said Meuschke. “eCapital’s business model plus the strength of the team was very attractive and something special I knew I wanted to be a part of as they continue to help solve a major pain point in the market.
“eCapital takes an innovative approach to problem-solving and supporting its customers, which is even more critical now as businesses look for options outside of traditional lending,” said DeBernardo. “I’m excited to put my background in alternative lending and expertise in government contracts to work for eCapital as we continue to support and service customers across North America, quickly getting them the funding they need, when they need it.”
About eCapital Corp.
eCapital is committed to accelerating access to capital for companies in the United States, Canada, and the U.K. By leveraging a team of over 700 experts and proprietary, industry-leading technology, eCapital is creating the future of business funding. With a full suite of products such as freight factoring, invoice factoring, lines of credit, asset-based lending, payroll funding, and equipment refinancing, eCapital ensures businesses have the funds they need to do more. Through its Transportation, Staffing, Wellness, Healthcare, Factoring and ABL divisions, eCapital delivers customized funding solutions for over 80 industries. To learn more about eCapital, visit eCapital.com.
Amazon’s Seller Lending Program Receivables Cool Off
April 30, 2023
According to documents purportedly obtained by Business Insider in January, Amazon had planned to increase its business loan operations in 2023, estimating that its loan receivables would eventually exceed $2B. Instead, the receivables figure has been slowly going in reverse, according to an examination of the company’s regular quarterly earnings reports. Amazon’s seller lending receivables hit a high of $1.4B in Q3 of 2022 but then ticked downward to $1.3B by year end. In Q1 of this year, those receivables had gone down again to $1.2B.
Amazon’s Seller Lending Receivables
2016: $661M
2017: $692M
2018: $710M
2019: $863M
2020: $381M (covid)
2021: $1B
2022 (Q1): $1.1B
2022 (Q2): $1.3B
2022 (Q3): $1.4B
2022 (Q4): $1.3B
2023 (Q1): $1.2B
Not counted in these figures is financing to Amazon sellers conducted through a third party. Amazon teamed up with Parafin on merchant cash advances, Lendistry for Business Loans, and Marcus for lines of credit, for example. Data on funding from these parties is a little more difficult to come by.
Who’s Speaking at Broker Fair
April 28, 2023
Broker Fair 2023 will take place on May 8th at the Hilton Midtown in New York City. This year’s sessions cover a diverse and timely array of subjects that will help any broker or funding shop prepare for success. They include:
- How to Determine a Product Fit
- Transacting Deals in 2030
- Expanding Your Funding Arsenal
- Investing in Deals
- Optimizing Your Brokerage for Success
- Debunking Industry Myths
- The State of Funding
- ERTC and Other Value Added Products
- Preparing for the New York Disclosure Law
Who’s Speaking?! Check it Out!
FOR ISOs ONLY: HOW TO Make Money Financing ERC Refund Claims in 5 MINUTES OR LESS!
April 24, 2023
You just received a call from one of your favorite merchants saying they had “good news” and “bad news.” When you asked what the “good news” was, they said they had just filed for their ERC refund claim and were getting back $550,000. When you asked what the “bad news” was, they said they wouldn’t be getting the check from the IRS for 6 to 12 months, and needed $120,000 to cover their payroll in 5 days. WHAT WOULD YOU DO?
If all you simply said was “no problem- send me a few banks and we’ll take a look at getting you a position,” that would be WRONG! Why? Because you’d be LEAVING $$MONEY ON THE TABLE! Here’s why:
After you have helped Mr. Merchant solve his payroll problem by getting him a position, he’ll keep asking around until he finds “someone else” who can help solve his “other” problem which is HOW TO “monetize” his ERC refund claim and convert it to CASH!
Let’s take a quick look and see how much money you’d be “leaving on the table”- at minimum!
But before we do, let’s look at what you SHOULD HAVE said to Mr. Merchant. Something along the lines of, “thanks for reaching out because we ACTUALLY have a “two-part SOLUTION” for you. The first thing we’re going to do is look at a position to help cover your payroll.
Then, we’re going to bring in our ERC Funding Specialist to identify options for converting your ERC refund claim to CASH, instead of you having to wait 6 to 12 months for the check from the IRS. We only charge a nominal 2% PS fee which we don’t collect until AFTER you’ve been funded. Fair enough?
Plus, we’re ALSO going to arrange an early pay discount on your position in case you elect to use some of the proceeds from the ERC to pay it off early. The savings alone will help reduce your financing costs.
Now let’s take a look and see how much money you’re leaving on the table. First of all, assuming you make 10 points on the position, on $120,000 you’d make $12,000.
Now let’s look at ERC financing. Your PS Fee of 2% on $550,000 would equal $11,000, almost as much as you’d make on the position, and BEFORE adding any referral commission on the ERC side!
In other words, if you simply took “LESS THAN 5 MINUTES” to tell Mr. Merchant you have a 2-Part Solution versus one, you could potentially DOUBLE your money on the deal, right? RIGHT!
But here’s the question: how do you know what ERC funder is the “best fit” for Mr. Merchant? And what questions do you need to ask to make that determination? (Topic of one of my future articles)
The bottom line is, just like with MCAs where one size “doesn’t fit all” – which is why you typically work with more than one funder – ERC funding works the same. Why not apply the same rule?
But here’s the real dilemma: you have a stack of deals on your desk right now and simply don’t have time to identify ERC funders, and even if you did, you don’t have time to become an “instant expert” and know what questions to ask! So now, WHAT DO YOU DO?
One option is to work with a “trusted” ERC Funding Specialist. These are professionals who not only have the ERC funding relationships but know how to pre-qualify Mr. Merchant to determine which ERC funder is the best fit. In addition, they work with all parties “in the weeds” through underwriting, due diligence, final approval, and funding. In a nutshell, while obviously, they can’t guarantee ERC funding no more than you can guarantee MCA approval, the odds of getting the deal across the finish line are typically greater, particularly when there are issues with approval.
And all YOU have to do is two things; (1) TAKE 5 MINUTES OR LESS to tell Mr. Merchant about your two-part solution and can GET PAID when they get funded and (2) ask EVERY OTHER lead, prospect, and client the SAME QUESTION- “By the way, have you already applied for your ERC refund?” and if so, ask “would you like to get your refund now versus 6 to 12 months later?”
And if they haven’t applied yet or have questions about the ERC, tell them you can arrange a 15-minute call to determine their eligibility.
BOTTOM LINE- If you don’t “ask for the order you’ll never get it,” and it only takes “5 MINUTES OR LESS to do so.”
SBA Lifts SBLC Moratorium
April 11, 2023
It’s official. The SBA is lifting the moratorium on licenses for Small Business Lending Companies (SBLCs), ending the 40-year pause that began in 1982. The SBA is also adding a new type of lending entity called a Community Advantage SBLC while also removing the requirement for a Loan Authorization in the 7(a) and 504 Loan Programs.
The 37-page rule, which is slated to be published in the federal register on April 12th, included the SBA’s analysis of all the comments it had received, including the criticisms. Some argued, for example, that opening up the doors would allow the unscrupulous world of fintech to participate in the market. The SBA was unmoved by this, countering that existing participants already rely on fintech.
“SBA has for many years provided oversite to non-depository entities participating in the SBA business loan programs,” the SBA said. “This includes SBLCs, non-federally regulated lenders (NFRLs), 504 Certified Development Companies (CDCs), and Microloan Intermediaries. In fact, most all lending institutions incorporate the use of financial technology in their delivery of loans and other financial products.”
One such fintech that has been eager to become a participant, issued a prepared statement on the decision earlier today.
“Funding Circle applauds the Biden Administration for ending the SBA’s 40 year moratorium on licensing additional state and SBA licensed and regulated non-depository lenders thus ending its lender oligopoly in favor of competition and innovation,” said Funding Circle. “This is an opportunity for the more than 8,000 community banks and credit unions that don’t offer 7(a) loans to partner with Fintech lenders to offer affordable loans quickly in underserved communities. Congress should now focus on ensuring SBA has the resources necessary to license more than three new lenders in its SBLC program in order to increase competition and distribution of government guaranteed loans in underserved communities.”
The SBA also published new rules on April 10th that will amend various regulations governing the 7(a) and 504 loan programs.
