January 2014 – Issue 1

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And with that said, we’ve defined it all over again. How big is the industry you ask? Here are some of the names you mustn’t exclude:

CAN Capital

OnDeck Capital


RapidAdvance (Now part of the Quicken Loans family)

PayPal ‘s Working Capital Program

American Express’ Merchant Financing Program

As of the moment I’m writing this, there is enough data to suggest that CAN, OnDeck, and Kabbage collectively funded about $1.5 billion in 2013. The other 3 big recognizable brands aren’t even necessarily the next largest. There is an entire landscape of funding providers that put out $50 – $200 million every year without breaking a sweat; Merchant Cash and Capital, Strategic Funding Source, Business Financial Services, and AmeriMerchant to name a few. With more than 100 funding companies in existence today, it’s impossible to measure merchant cash advance funding volume at anything less than $3 billion annually. My calculations seem to be in line with a number offered by Marc Glazer, the CEO of Business Financial Services, in a January 7th Wall Street Journal article. How much is actually outstanding at any given time is another story, but at least we have a starting point, a definition.

It hasn’t done interested investors any good to hear that until now the size of the industry was approximately $1 billion a year with a margin of error of plus or minus a billion. That kind of loose speculation might be acceptable for an industry in its infancy but merchant cash advance transactions originate all the way back to the late 1990s. This business is as old as Google but it’s suddenly on everyone’s radar. Maybe that’s because here we are years after the financial crisis and banks still aren’t lending to small businesses. Non-bank corporations, some of them literally mom & pop-sized are playing the role of bankers. One thing is for certain though, small businesses aren’t going to fund themselves.

Rumors still abound that this financial market is one of suit-wearing cowboys on Wall Street operating in a regulatory abyss. But when you pull away the curtain, you’ll find household brands such as PayPal and American Express.

Even Amazon.com’s relatively young business loan program has a merchant cash advance feel to it. Follow the money upstream in this industry and you’ll encounter Goldman Sachs, Wells Fargo Bank, Google Ventures, Thomvest Ventures, Peter Thiel, and other respected capital players. That’s about as wild as it gets. Even Forbes changed their position albeit after a lifetime had passed. On April 10, 2013, Cheryl Conner published, ‘Money, Money’ – How Alternative Lending Could Increase Your Company’s Revenue in 2013 in which she conceded there was good in this financial service after all.

Today’s industry looks like a duck but quacks like the next Facebook. Somebody’s eventually going to go public. It’s said that there will be a Lending Club IPO this year, which is relevant because they’re also a non-bank small business lender. If they and other peer-to-peer lenders compete against merchant cash advance companies directly, would it become necessary to include them in industry size estimates? Maybe, maybe not. Without the trademark daily payment, I think it’s fair to say that merchant cash advance and peer-to-peer lending would belong to the same Kingdom but make up different Phyla. Should we count lenders with weekly programs too? Should we count traditional factors?

An ever-expansive scope impairs the ability to make assessments. I think we draw the line at funders that deal in payments daily. It is my belief that weekly funders and monthly funders are exempt from the label of merchant cash advance… for now anyway. I have no doubt we will need to redefine it all over again. Until then…

Daily funders funded at least $3 billion to small businesses in 2013. DF

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