January 2014 – Issue 1

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You Can’t Ask How Big it is Without Defining What it is

Nobody knows what merchant cash advance is anymore

By Sean Murray

I blame the Green Sheet for everything. Ever since they officially labeled the purchase of future credit card sales a merchant cash advance nine years ago, the term has been a never-ending minefield of ambiguity. In an October 10, 2005 issue titled, Merchant Cash Advances Open Doors, the payments-centric Green Sheet presented this exciting new financial product as an acquisition tool for merchant account sales.

Prior to this, there was virtually no consensus on a name. Merchant cash advance did make sense though as it was typically explained as an advance against future merchant account sales. Folks within the electronic payments industry understood it, but it would haunt them for all time. A truncated version of the term was already associated with payday lending. The connotation of cash advance was short-term consumer lending with a very high rate of interest. Must a merchant cash advance then be the same thing but for businesses?

Journalists and outsiders often thought so. Some of them still do. It didn’t help that the transaction was actually expensive and the delivery of future sales short. It didn’t quack like a duck but it looked like one and that was enough to damn it to hell as the financial crisis swept the nation. Much like Forbes writer Roula Khalaf officially transformed meat salesman Jordan Belfort into the Wolf of Wall Street in 1991, Maureen Farrell also of Forbes set the merchant cash advance industry back almost 5 years with her article, Look Who’s Making Coin Off the Credit Crisis.

To Khalaf’s credit, she didn’t actually call Belfort a wolf, but she did mar his reputation. A similar situation occurred with the analogy Farrell used on March 13, 2008 that literally described merchant cash advance companies as vampires. It was a chaotic time for the industry. There was indeed a wave of undesireables moving in, most of whom were newcomers looking for a get-rich-quick scheme. Thousands of mortgage brokers lost their jobs and they migrated in droves to selling merchant cash advance without having a clue about what it was or how it worked. David Goldin, the CEO of AmeriMerchant documented this period well on his blog.

I was working for one of the funding companies referenced in that article and it was a tumultuous year for my self-esteem. Banks were shutting everyone out, EVERYONE. And yet journalists were telling small businesses to stay away from the only source of capital that was left. Merchant cash advance was the good bad guy. It was easy to hate, but it satisfied a crucial need, capital. It was also a one-size-fits-all deal.

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