March/April 2014 – Issue 2

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Razzle Dazzle Debits & Splits: Daily is the Secret Sauce

By: Sean Murray

A lot of things in life get compounded. Fractures, fractions, problems… Yes, problems. Those seem to compound on a daily basis. Emails too. And voicemails and meetings and deadlines. There’s no end to it. Compounding just sounds like a dirty word.

If a relaxing breakfast is tea and crumpets, then I envision a compounding breakfast as the process of drinking Red Bull chased with coffee while someone screams, “YEAH!!! BREAKFAST!!!” in your face. They’ll punch you in the stomach too, you know for good measure. Things escalate fast when they’re compounding.

But sometimes compounding is good, when it pertains to money for example. Money in your savings account will earn interest. If it is not withdrawn, then that interest will also start to earn interest. It compounds. Yes my dear friend, compounding can be kind to you.

My investment in a mutual fund earns dividends quarterly. They are always reinvested to buy more shares in the fund. I can grow the value of my portfolio without the value of a share going up because reinvesting allows me to acquire more shares. That potentially helps me get a higher dividend payout each time, which allows me to incrementally acquire more and more shares. Compounding in that regard is sweet.

Tea and CrumpetsI personally get excited about quarterly compounding, almost too excited for a guy that hails from the merchant cash advance industry. My money is working for me in that mutual fund, albeit in a slow measured manner. It’s the tea and crumpets of compounding and it makes me feel warm and fuzzy about my future retirement.

Warm is boring and I don’t even know what fuzzy is supposed to be. If you’ve ever wondered what the chef is secretly cooking up in the back, it’s a delicious carbonated beverage called daily compounding and it’s served with a punch that will rock your world. YEAH!!! BREAKFAST!!!

One detail that is often overlooked by investors, journalists, and well… everybody not familiar with the new era of alternative business financing is that many funding providers collect payments back daily. In a textbook merchant cash advance, revenues are retrieved daily via payment “splits” from the businesses they’re purchased from. The new era of lenders have followed that model but with automated bank debits. Today, it is not uncommon for a borrower to make a payment every single day until the loan is repaid.

These new era funding providers have been praised, scolded, and misunderstood by members of the mainstream media without really knowing how their programs work. Take what you knew about traditional lending and put it into a blender. Add 12 ounces of Red Bull. Press Start.

In the world of daily funders, payments are made every day. It was refreshing to see that characteristic singled out in a February 11th Forbes interview with CAN Capital CEO Dan DeMeo. In it he explained that daily remittances are a cornerstone to accepting risk that a bank would not.

Funding providers that deal in daily payments have an incredible hedge against risky investments, the ability to compound their earnings every 24 hours. A small portion of the money funded on Day 1 is returned on Day 2 in the first retrieval from those deals. That money is invested in additional deals right away,

Daily Compounding Interest

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