How The Facebook IPO Affects the Merchant Cash Advance Industry
May 18, 2012
Facebook went live on the Nasdaq earlier today, causing many people to become instant millionaires or billionaires. Yea…soo… how is this in any way relevant to Merchant Cash Advance (MCA)? you might ask. Well, because MCA is the next BIG thing. One of the major winners of the Facebook IPO is Accel Partners, a venture capital (VC) firm that invested $12.7 million in Mark Zuckerberg’s college networking website in 2005. Today, they’re cashing in on billions from that bet. Since then, Accel has repeatedly struck gold by backing wildly successful businesses such as Groupon and Etsy. Many hungry and jealous VCs are looking to jump into any industry Accel likes, to either compete for marketshare or to piggyback on the success.
And that’s how Facebook and MCA are related…
On February 7, 2012 Accel Partners invested $30 million into Capital Access Network (CAN), the holding company of AdvanceMe and NewLogic Business loans. There was some buzz about it in February, but it faded fast. It seems like every day there is a new press release from some MCA firm bragging about how they secured a mult-million dollar credit line. So it’s no surprise that industry insiders didn’t immediately poo themselves in hysterical awe of this announcement.
CAN is also on pace to fund $600 million this year, an astounding figure that makes $30 million sound like a mere drop in the bucket. It’s as if Accel gave them a Starter Advance. 😉
On a more serious note, the rest of the VC and Growth Capital world waited about 3 seconds before pouncing on all things MCA. The frequency in which we’re receiving random calls and e-mails from “investors” about putting money into MCA providers has increased dramatically. A few other funders and large ISOs have shared that they are experiencing the same thing. Right now there is a great chance that there are back room negotiations going on all over the industry between funders that already have millions and investors that have billions.
Raising capital has never been a real problem in the industry, as the Wall Street establishment has been funneling millions into the New York, California, and Florida MCA powerhouse providers for years. Do we really need Silicon Valley to jump into bed with us? Maybe. Although MCA has been around since the late 1990s, there’s been this lingering acknowledgment that most of the small business market that could benefit from financing still doesn’t know that MCA exists. Way too many business owners respond to an explanation of the MCA program with shock, “Wow, I never knew you could do something like that.” That’s a problem and it’s real.
Sean Murray, the founder of Merchant Processing Resource, recently did a presentation through the Manhattan Chamber of Commerce last month to 30 small business owners about MCA financing. The first question asked by one of the attendees after it was over was, “did you come up with this whole concept yourself?” He certainly did not, and it epitomizes that there is still room for exponential growth in a billion dollar industry that is more than a decade old.
Naysayers predicted that the MCA concept would fail years ago, and yet it has grown, mutated, and evolved. Some folks got into this business in their early twenties right out of college, and have literally made a career out of it. It’s quite a picture to see that they’ve grown up, gotten married, and had a few kids only to learn that Silicon Valley is picturing this entire industry as something still in startup phase. But hey, it took Pinterest years before anyone really noticed it.
In 2012, you can apparently still get in early on MCA. If you have stock in an ISO or funding provider, don’t be quick to sell it. It could be worth millions or billions in the future.
At some point in 2014, the Winklevoss twins will probably claim they invented Merchant Cash Advance, a challenge they will lose badly. Not even CAN, the company that did invent it, was able to prove in court that they did. But they did manage to continue their dominance of the industry and they are the ones that caught Accel Partners’ fancy. But the rest of the MCA players aren’t exactly going to wither away and die like MySpace. So the battle is on and there is money to be made.
Target valuation: $100 Billion. Who’s going to get there first?
– AltFinanceDaily
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Read how Merchant Cash Advance could be molded to be more like Silicon Valley: Just Call it a Coupon!
Do You Work in The Merchant Cash Advance Industry?
March 28, 2012It’s a good time to be employed in the Merchant Cash Advance industry. Without doing any formal research on the sweeteners being offered to agents, we frequently see some of the enticing ads:
Share in the Profits!
Get an iPad!
Work with a TRUE DIRECT FUNDER
and so on…
But forget the iPad boys and girls because you can go to the freaking olympics! Someone forwarded us this advertisement from Infinity Capital Funding which apparently is offering anyone that funds over $125,000 in deals through April 30th, two tickets to the 2012 London Olympics, free flights, hotel, $2,000 in cash, and a VIP helicopter tour. We’re inclined to believe that funding 125k will enter you into a raffle to win this package considering medium-sized ISOs could surpass that target with no sweat. Hopefully this plug reaches Infinity and they can clarify this for us.
The last time we saw a sales prize on that scale was in August 2009, when 1st Merchant Funding was offering a free Mini Cooper to any ISO that funded more than $1 million with them in the span of 120 days. Nobody ended up getting the car.
But not everyone in this business is an agent. There are countless underwriters, portfolio managers, secretaries, assistants, callers, bookkeepers, and other individuals that drive this industry day in and day out. It’s important work and we salute you. That doesn’t stop the account managers, sales representatives, and brokers from getting all the attention though. So what IS IT that these brokers do anyway? It depends on who you ask…
This image was created by the staff of Entrust Cash Advance, a veteran Merchant Cash Advance firm in New York City. They’ve been in the industry since 2007 and from what we gather by the image, they’ve got it figured out.
AltFinanceDaily would like to hear more from companies about any incentives, rewards, and prizes you’re offering. Send any information regarding this to webmaster@merchantprocessingresource.com
– AltFinanceDaily
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Merchant Cash Advance On Huffington Post / Just Call it a Coupon!
March 16, 2012An article was published by the Huffington Post today that explained the need for Merchant Cash Advance providers. Though some of it was described in an unflattering light, it conveyed some important messages.
- Real business owners explain that banks both big and small are not interested in lending to them
- One woman is quoted as saying: “If I ever write a book on how to open a restaurant, the first chapter is going to be ‘Banks Are Not Your Friends.'”
- A direct funding provider revealed that demand for merchant cash advances increased by 15 percent to 20 percent in 2011 and that 70% of businesses use more than 1 advance.
Our favorite line and perhaps the most important thing you can take away from this article is the quote by the CEO of AmeriMerchant. “[Merchant Cash Advance] is less expensive than [offering] a Groupon for 50 percent off or putting inventory on sale for 30 percent off.” Isn’t it ironic that the Groupon/e-coupon/social coupon concept is today’s business as usual and is at the same time significantly more costly than what the media considers to be expensive financing?
LivingSocial has 60 million members worldwide and they operate much in the same way that Groupon does. Let’s discuss this. According to wikipedia, Groupon’s business model works as follows:
For example, an $80 massage could be purchased by the consumer for $40 through Groupon, and then Groupon and the retailer would split the $40. That is, the retailer gives a massage valued at $80 and gets approximately $20 from Groupon for it (under a 50%/50% split).
So the 50% discount to the consumer is actually a 75% loss of revenue for the business owner. This practice is publicly accepted as fair, practical, and a way to increase your sales. If that’s the case, should’t financing that costs $2,800 to receive $10,000 be considered a bargain? We think so. Expensive is in the eye of the beholder. The media has a funny way of convincing people that a 75% discount is a great deal but financing costs of 28% are astronomical. Not to say that 28% is cheap, but there is only one reason that low rate bank loans even existed in the first place. The SBA is willing to cover up to 90% of the defaults and charge it to the taxpayers. That’s an advantage the rest of the private sector doesn’t get.
We can’t help but think what would be if the Merchant Cash Advance concept was rebranded as a powerful social marketing tool to drive sales. What if a Merchant Cash Advance provider purchased $12,800 of a store’s future sales in exchange for $10,000 today and then mass marketed that business to local consumers through mailing lists, iphone apps, and website ads to drive customers to the store. That would allow the Merchant Cash Advance provider to recoup their purchase as fast as possible and at the same time create viral growth for the business. The technology already exists and businesses are already willing to accept 75% losses. Isn’t it time they all started getting a lot more bang for their buck?
It’s not expensive when it’s spun that way is it? Sayonara Groupon and LivingSocial! Merchant Cash Advance is the sleeping giant at your doorstep.
– AltFinanceDaily
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United Capital Source Provides Medium-Sized Business With $1,250,000
March 9, 2012
AltFinanceDaily (MPR) has learned and confirmed that New York based funding provider, United Capital Source (UCS) has provided financing to a medium-sized business in the amount of $1,250,000. While the parties have requested to keep certain specifics of the arrangement under wraps, the business is involved in the sale and repair of highly specialized equipment, and has operations and headquarters in multiple states.
While it was not structured in the traditional Merchant Cash Advance sense, it is believed to have been set up with fixed payments. UCS has received a lot of attention in the last six months due to the wide variety of clientele they are servicing. With deals ranging from a few thousand dollars to over a million, they are quickly becoming a top choice for any business in need of capital.
MPR has been doing research to quantify the size of the Merchant Cash Advance industry. In a recent article, the term itself was redefined. We’ve known for some time that there were some larger advances/loans being done within the space but not all of them are being publicized. What we’ve discovered is that it is not unusual for deals to reach as high as $2 million. The recent media attention on CNN and FOX is also an acknowledgment that the Merchant Cash Advance concept has penetrated the mainstream and is no longer an alternative, but the standard.
– AltFinanceDaily
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New to the Merchant Cash Advance Industry? Read first!
November 2, 2011Thinking about starting a career in the Merchant Cash Advance industry or becoming a funding source? We’ve compiled some tips from the people already on the inside. Comments were gathered and organized from an insider discussion board at MCAForums.com
5 THINGS YOU NEED TO KNOW
1. You will apparently need a pair of these:
2. You will need training from those with experience. You can’t get into this market without being familiar with its complexities. Having financial experience, mortgage experience, etc. will help but is not enough to make it without additional training.
– WHAT WAS SAID: “until you learn how each company operates and understand the products, this market is way too competitive to not have support.“
3. The market is extremely competitive.
4. Partner up with companies that fit your needs and capabilities.
– WHAT WAS SAID: “You’ll have to find the MCA companies that fit your ethics. They’re all different, good, bad, fast, slow, flexible, inflexible, etc.“
5. Offer alternative products. A Merchant Cash Advance is not the right fit for every business. You will need to provide or refer alternatives such as SBA Loans or Micro Loans if the situation warrants it.
Funding Floodgates Reopen
September 20, 2011If you’re a business owner, it’s time to get ’em while they’re ~HOT! Small business funding is BACK and more available than they’ve been in years. And guess what? Because we’re just a news site, we’ve got no reason to douse you with a cheesy sales pitch. There’s a lot of money out there right now and that’s the truth.
Merchant Cash Advance (MCA) continues to dominate the alternative financing market but a few new options are changing the landscape. You might call them ‘alternatives to the alternatives’, deals that are based on MCA but have all the bells and whistles of a loan; Fixed time frame, a payment schedule, and even personal guarantees! The underwriting criteria generally requires a set of recent healthy bank statements and semi decent credit credit (yes, your credit still matters) to qualify. Beyond that, it’s up to the individual lender to present their respective checklist of closing documentation. This usually includes some combination of a business property lease, applicant ID card, business permit, and a recent tax return. That’s it. Oh, and the wait time? Expect a week long process if you’re quick on the draw with paperwork.
Two years ago, there wasn’t much variety in the MCA space. Business owners could shop all they wanted but the underwriting and cost structures were essentially identical everywhere. Now there are factor rates that range from from 1.20 to 1.65. It’s more merit based than it used to be. The higher credit rating, stronger cash flow businesses can earn something better than the one-size-fits-all 1.35 factor rate of yesterday. On the same token, the complete credit averse can grab a shot at financing too, but at a steep price.
But there’s more to it than just cost, there’s also the setup:
Don’t want to switch your merchant account?
Stay where you are: There’s a significant chance your merchant processor already has a contract with the MCA provider you’ve chosen. Often times your sales representative may encourage you to open a new merchant account for the lower discount fees and to have a higher degree of control if problems arise. Ultimately, a new merchant account is not essential if you want a MCA.
Leverage your strong cash flow history: If you’ve managed to keep a large positive balance in your bank account for the last few months, your MCA provider could simply extract the agreed percentage from there, rather than directly through the merchant account.
Lock it up: A Lockbox provides the MCA provider with peace of mind by obtaining their payments without the risk of Non-Sufficient Funds from the debit method but also allows you to keep your merchant account. It’s frequently used as a compromise for businesses that are legally prevented from changing their merchant account(i.e. franchisees), but are too cash flow weak to qualify for direct debit payments.
But the buck doesn’t stop at the many ways you can do MCA. You’ve got options!
Merchant Loan: An actual loan based on your credit card sales history. A percentage may still be withheld from each card sale but a periodic or an end-of-term lump sum payment will be applied as needed to ensure the loan is completed within the time frame allotted.
E-Bay/Amazon Loan: Get a loan based on your sales history on Ebay.com or Amazon.com. The largest lender of this type is Kabbage.
Cash flow loans: We described these in the 2nd paragraph. Expect cost ratios from 1.12 to 1.55 and term lengths between 4 and 24 months.
How can you find the floodgates?
You can refer to the directory of direct MCA providers but can check out alternative lenders such On Deck Capital, ForwardLine, Kabbage, and Sure Payment Solutions if you want to diversify your options.
Kennesaw based funding provider, AdvanceMe expects to fund $1 Billion in the next two years. That’s nearly as much as the entire MCA industry did in the last two years combined.
2009 was a year full of “I should’ves” as in “I should’ve obtained financing before the financial crisis.” Cash is finally available to small businesses again and although it is more expensive than it used to be at the local bank, there may never be a time where the process is this quick, approval is this easy, or where your credit score is weighted this lightly. We’re not the salesman here, just the messenger. If there was any project you were remotely considering, now is the time to make a move… Don’t wait until the funding levees have been restored.
– AltFinanceDaily
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