[Jared_Weitz]

MCA's and daily funder products are less than 5 percent of our business. We offer them to clients when there is no other choice. It's our option of last resort. So I am pretty real @cashguy

Have to be honest here Ami, I get WBL guys calling me all the time pitching the MCA product you offer and they say they're backed by a big fund and they fund all this money on MCA's, etc......

[nwarshaw]

Ami, I think again you fail to recognize that the world is evolving and need based products for the same merchant can sit side by side and be brought in by different distribution channels.
Follow the example below.

Ami fine dining has been in business for 5 years, the owner has a 750 FICO, does $50,000 gross a month or $600,000 gross a year, with 35% coming from Credit Card transactions or $17,500 per month.

Ami, just yesterday found a great opportunity to bid on new furniture for his restaurant, which because of the design will give him 3 new tables, and because he is in a nice suburb, he thinks the nicer update with the extra tables will bring him in an extra $12,000 a month in sales. This is an on line bid, the bid ends in one week and the furniture will cost him $25,000.
Right now Ami is an opportunity need based borrower and a short term MCA even with high cost is ok and will allow him to capitalize on the bid.

3 months later, Ami has a brilliant idea to open a new restaurant 1 city over. now that he is big project guy, a 5,10, or 15 year low cost long turn loan from an Alternative lender, the SBA, or a bank would be perfect, and even though Ami would have out, a deal with an MCA and now this new one, he can afford both for the two months, have the mca paid off, and now have his long term loan.

With now his first mca paid off and his new restaurant open and in year 2 of his long term loan, he has a $15,000 piece of equipment in his new store just break and it is not a warranty item. He needs to fix it and fix it fast or lose momentum in his new store. now he is emergency guy and back calling an mca provider for a very expensive, very short term, emergency fix.

Merchants are needs based borrowers, our industry use to be a one trick pony, but is now becoming A Needs Based Full Spectrum Price and Product - Alternative Lending world, and both short and long money have a place.

[amikassar]

Nathan - your case of the client who can get the new furniture is a great example of someone with a legitimate need for "quick cash" and there is a strong business case that he will make the money back and then some. A year ago, we would have referred this client straight to an MCA or daily debit product. Today, we would encourage the client to go to a longer term alternative lender with no pre-payment penalties. If things work out as planned for the client, his finance costs will be a 1/3 to a 1/2 and his effort will be just about the same. He will also get the money quickly. Based on this, is there any reason in the world (other then lower commission) that anyone in good faith wouldn't recommend our path to the client.

That's not to say that if they aren't eligible for the longer term product, we wouldn't recommend an MCA or a daily debit as a Plan B in this situation. But our first choice would be the longer amm.

[CASHCASH]

He will also get the money quickly.

Realistically how quickly, from start of application to funded? If it is quickly compared to an SBA, that is much different than the speed allowed by short term funding. As with Nathan's example, said merchant would need that money in a few days. This is something a short term advance could accomplish easily, whereas even if the longer term product takes 10 days it may be too long. By nature the underwriting process has to take a little more due diligence since they need to be a more qualified client to get these longer terms, so it seems as if the advantage would still go to the short term advance in this case. Am I wrong in this?

[funding pro]

I guess this is becoming my thing to call bull**** when I see it, but Ami you are so full of **** you cannot even acknowledge when people call you out for it. Comparing a $50,000 SBA loan to an MCA is so far from reality you either have your head so far up your ass you don't know up from down or you are just leveraging your articles to drive business and know it will get you clicks. I am not saying there is anything wrong with latter, but if that is the case, OWN IT. Don't come on this forum pretending like there is some over abundance of SBA banks with lending criteria that match up with MCA/ACH deals. I am willing to bet I have worked with far more people in the traditional lending space than you have in the alternative and can tell you the number of banks willing to even look at a $50,000 SBA loan are far smaller than the number of alternative lenders willing to offer a $100,000 MCA/ACH. All while that product requires no collateral, no personal guarantee (in most cases), with low docs and available in a couple of days. Again, I'm not hating on your strategy, but your trolling and its sad.

[amikassar]

We can get a 3 - 5 year alternative loan almost just as quickly as a cash advance loan (maybe one extra day) - NO problem. SBA's are a different story. But that's not what I am talking about here.

[channin19]

I guess the real question is how much are you charging for your services?

[MCNetwork]

Nathan - your case of the client who can get the new furniture is a great example of someone with a legitimate need for "quick cash" and there is a strong business case that he will make the money back and then some. A year ago, we would have referred this client straight to an MCA or daily debit product. Today, we would encourage the client to go to a longer term alternative lender with no pre-payment penalties. If things work out as planned for the client, his finance costs will be a 1/3 to a 1/2 and his effort will be just about the same. He will also get the money quickly. Based on this, is there any reason in the world (other then lower commission) that anyone in good faith wouldn't recommend our path to the client.

That's not to say that if they aren't eligible for the longer term product, we wouldn't recommend an MCA or a daily debit as a Plan B in this situation. But our first choice would be the longer amm.

Why would you use a long term lender to buy some furniture?? You would only use long term lenders for the high priced fixed cost expenditures. There's no need to carry a 3 year note on furniture purchases when you can have it paid in 6 months with an MCA. Based on your thinking, a business owner would accumulate several long term notes whenever he had relatively small purchases that needed to be financed. And then when he needed to finance a bigger project, he'd be overextended by the small loans that should have been taken cared of sooner rather than later and he wouldn't qualify for the bigger loan. Doesn't make sense to me. MCAs are meant to be used as short term band aids, not long term crutches. When deployed properly, they can work well in conjunction with bank loans. In order to decide between short term and long term money, you have to look at the amount required and calculate the ROI.

[nwarshaw]

Great point and a tale of two worlds. world one is the broker and industry and world two is the merchant.

World one - it will be a commission issue and only a commission issue because their cost to acquire is to high because they are to manual. With deal size at play, some of this will be washed away upfront, but create a gap with less renewals.

World two - 80% of the time, the other 20% will have concerns with reporting to bureaus and the effect on debt to income and liquid credit scores.

I am a big fan of for better scoring merchants getting the acquisition cost low and extending turns and lowering cost. That being said, there will still be reasons even in the good credit world for the short term product as well.

I like the discussion, because I think the only way to solve it may be through innovation with ways to cut the cost of acquisition for even a basic singleton IC. I think this innovation is what is needed, I also think that the industry from bottom to top should not have its head in the sand about the innovation that they are starting to see from San Jose to San Fran. But I keep hearing oh less then 5% would get approved, yet I am seeing 30%. Acquisition cost rather it is long or short money through direct marketing or an ISO is about 8% give or take, and I am seeing it under 2%, to go that long and that cheap defaults will kill, but it is not, no way you can approve a deal that big for that price at that turn and do it that fast, yet it is being done.
As these guys scale what happens? Who knows, but for me it is not about planning 2014 and 15 - but beyond to 5 and 10 years and where do the current products, funders, ISOs, etc. fit in and how do you make sure you can last the long term.

Understanding how to blend the products with the various needs and the various acquisition cost across various distribution channels will be key. Even for ISOs.

One trick sales entities will get hurt or die, and consultative multi-product companies across the need spectrum I think survive - my 2cents

[funding pro]

I guess the real question is how much are you charging for your services?

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[amikassar]

We can get a 3 - 5 year alternative loan almost just as quickly as a cash advance loan (maybe one extra day) - NO problem. SBA's are a different story. But that's not what I am talking about here.

[amikassar]

we average 1.5 percent commission on all of our transactions.

[amikassar]

@narwhaw - i like your thoughtful posts. Glad to see someone is thinking on these boards.

[nwarshaw]

Enjoyed the discussions and playing devils advocate to enhance strategy thoughts

[funding pro]

Despite all your replies still nothing to my first post. It's fine, I just want you to know that I know you're full of ****.
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[amikassar]

Despite all your replies still nothing to my first post. It's fine, I just want you to know that I know you're full of ****.
thhippo.gif

Perhaps you missed it - I am not comparing to SBA lenders. I am comparing to other alternative lenders where I can get the job done for many of my clients at a fraction of the price in just about the same amount of time.

[Eddie.deangelis]

Guys I have been reading all these posts and i have to be honest. We have funded / brokered approx 200 deals over the past 5 months and I think the % of those deals that would have qualified for this 3-5 year loan product is well under 5% !! This is the large missing factor. Most of ami's points are irrelevant because 80-90% of cash advance customers are considered too high risk for these products to even touch it. Minimum credit score alone eliminates 75% of these deals that ami would never approve let alone all the tax liens, bankruptcies, negative days , NSF's , short time in business, lack of cash flow, low daily and ending balances, home based businesses etc !!! let's be FOR REAL here !!! These Guys would never get bank money or ami money. We are the savior for these entrepreneurs to grow their businesses ! 90% or better would be auto declined from ami from the door !!! The other few 5-10% of businesses that may qualify and have the time to wait & to do so should be intelligent enough to seek the long term product on their own ! That said I tell my clients if you can get a bank loan or a 3-5 year term loan then I highly recommend that you do. I wouldn't even say it's apples to oranges it much further apart from that. Totally separate and different products !

[MCNetwork]

Very true. In the MCA industry, the % of merchants who would qualify for Ami's long term programs is probably 10-15%.

[isaacdstern]

I would say less...my guess would be closer to 5%

[amikassar]

Does anyone on this board challenge my position that IF a merchant qualifies for a 3 - 5 year loan w/out any prepayment penalty they are better off then with an MCA or daily debit product ? And it takes right about the same amount of time to get the money.

[JSL23]

Does anyone on this board challenge my position that IF a merchant qualifies for a 3 - 5 year loan w/out any prepayment penalty they are better off then with an MCA or daily debit product ? And it takes right about the same amount of time to get the money.

Define "About the same amount of time."

In most instances, the 5-7% of Merchants that qualify would be better off with a long-term program, obviously. Those that do qualify usually don't turn to us in the first place

Your turn: Your blogs I have read explains MCA as if it is a traditional loan, repeatedly applying an APR to it. Why don't you explain that it is technically not a loan? Do you not trust your readers to understand or are you just trying to steer people away from our product?

[amikassar]

@jsl23 because i think that every time a small business owner borrows money or "advances" money which to them is basically the same thing - they should understand the true cost so they can make an intelligent decision about whether or not they're making the best possible decision for their business and livelihood

[JSL23]

If I sell someone $100,000 at a 1.30 the true cost is $30,000. I am purchasing $130,000 worth of future sales for $100,000 right now. Simple. Easy. Sensible for those that need an infusion of cash/capital immediately. All the APR does is make the process a lot more complicated than it really is or should be. If I get them a 12 month term does their opportunity to improve/increase their business justify the $10,000 per month cost? The answer to that is what helps them make the best business decision.

[funding pro]

@jsl23 because i think that every time a small business owner borrows money or "advances" money which to them is basically the same thing - they should understand the true cost so they can make an intelligent decision about whether or not they're making the best possible decision for their business and livelihood

But you continue to omit other factors such as collateral and personal guarantees and docs and all the other factors that differentiate the two products. This is why myself and a few others keep reminding you that you are not comparing apples to apples. All things being equal, a merchant should probably take the longer payment option, but things are not equal and you are either not understanding that or intentionally ignoring it. Have you ever thought that a small business owner may not want to carry debt on their balance sheet for 3-5 years. Or maybe they dont want to put their home up to receive a loan. Or perhaps, if business slows down and they have to close their doors, they wouldn't want to have to file for personal bankruptcy?

It would be great to think that if they didnt want to carry the debt, they would simply take all the cash they were saving and use that to prepay as you mention, but if you know business owners as well as I do than the difference in monthly payment isn't going into their bank account to start accruing interest. It's out the door as quickly as it comes in.

[MCNetwork]

Ami also conveniently doesn't show that a 5 year loan at 8% APR still comes out to a 1.22 factor in the end, which is just slightly better than an MCA for a top tier merchant over 6 to 9 months. True cost of funds is still about the same. And the MCA requires minimal documentation, no collateral or personal guaranty and the merchant can be funded in 72 hours. Plus he doesn't have to carry long term debt on his books. All things being considered, the MCA is the better bet as long as the merchant's cash flow can support it.