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  1. #1
    FUND IT! Reputation points: 2147483647 Sean Cash's Avatar
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    Wells Fargo and subsidized cash advances

    Take a look at this from BusinessWeek today:

    "Like a merchant cash advance, an EasyPay loan gives businesses up to $100,000 in a lump sum payment, and collects fixed percentage of the merchant’s daily credit and debit card sales. Unlike cash advances, EasyPay is a real loan, with a fixed simple interest rate that works out to be about 12 percent on an annual basis. At that rate, the nonprofit is not covering its costs."

    A 1.12 is not covering its costs so this non-profit group Opportunity Fund subsidizes the deals. Sounds kind of unfair that the losses are subsidized. How is the rest of the market supposed to compete?

    And what does this mean for the industry from here on out?
    Last edited by Sean Cash; 02-26-2013 at 04:10 PM.

  2. #2
    FUND IT! Reputation points: 2147483647 Sean Cash's Avatar
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    No problem. We just brought on a full-time developer for it.

  3. #3
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    I like how you are trying to get other related industries to all come to one place. if you need help spreading the word, let me know.

  4. #4
    Veteran Reputation points: 120462 Chambo's Avatar
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    I read the article & wondered "subsidized how?" FORWARD LINE subsidizes their super cheap deals with credit card processing residuals. Wondering if this company has another revenue stream.

    Otherwise, start the clock on this puppy, because its days are numbered.

  5. #5
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    Sean I hope you Facebooked, Tweeted and emailed this article directly to the journalist that wrote the original BusinessWeek article. It completely stumps me how no single finance journalist - mainstream - is accurately covering the beat on our industry. But great insight otherwise.

  6. #6
    FUND IT! Reputation points: 2147483647 Sean Cash's Avatar
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    Haha... I did actually post a link to it in the BusinessWeek group on LinkedIn but haven't tried to send it to Tozzi directly. Maybe I should considering he enjoys writing half the story every time.

    Thanks BTW.

    chambo, they're subsidized by donations. The losses are covered by people who donate money to the cause of helping small businesses get loans. That's their other revenue stream.
    Last edited by Sean Cash; 09-10-2012 at 04:52 PM.

  7. #7
    Sneaky Sneaky NPO......

  8. #8
    Senior Member Reputation points: 99342 MCNetwork's Avatar
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    The REAL question is how many merchants actually qualify for 1.12 deals? Maybe 2% of all applicants? The great majority of my merchants fall in the 500-600 FICO range and the average deal size is about 15K-25K. I'd venture to say that almost NONE of these guys would be approved for a 1.12 deal.

  9. #9
    FUND IT! Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by MCNetwork View Post
    The REAL question is how many merchants actually qualify for 1.12 deals? Maybe 2% of all applicants? The great majority of my merchants fall in the 500-600 FICO range and the average deal size is about 15K-25K. I'd venture to say that almost NONE of these guys would be approved for a 1.12 deal.
    That's the "thing" about Opportunity Fund. A 550 FICO Merchant can potentially qualify for a 1.12 factor rate. To provide financing at this cost, especially to risky businesses will incur losses overall. Opportunity Fund will gladly lose money on their loans and advances because they accept donations to make up for it. That's the nature of their charity.

    So if they end up a million in the hole at the end of year but receive a million in donations, they break even.

  10. #10
    Senior Member Reputation points: 99342 MCNetwork's Avatar
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    I wonder what commission an ISO would get for selling an Opportunity Fund deal. One percent?

  11. #11
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    if 12% a year requires subsidies, how are these guys doing it? I got a random email from a company called IOU. 15% a year and a 6% commission paid to the reseller.

    "IOU Central offers:
    • We are offering 14.99% interest rates on our 12 month loans.
    • Reduced cost to borrow upon early repayment.
    • Simple Interest business loans up to $100k.
    • Pay 6% to our reseller partners on each closed loan.
    • Easy paperless application and closing process – no faxing docs for closings.

    We utilize a cash flow approach to underwriting and don’t have anything to do with credit cards or processing. "

  12. #12
    Veteran Reputation points: 120462 Chambo's Avatar
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    Quote Originally Posted by miked View Post
    if 12% a year requires subsidies, how are these guys doing it? I got a random email from a company called IOU. 15% a year and a 6% commission paid to the reseller.

    "IOU Central offers:
    • We are offering 14.99% interest rates on our 12 month loans.
    • Reduced cost to borrow upon early repayment.
    • Simple Interest business loans up to $100k.
    • Pay 6% to our reseller partners on each closed loan.
    • Easy paperless application and closing process – no faxing docs for closings.

    We utilize a cash flow approach to underwriting and don’t have anything to do with credit cards or processing. "
    1) You ever tried gettign something funded with IOU?
    2) If they take in private money (which they do) and promote 6-12% a year return to investors, it is totally doable

  13. #13
    Veteran Reputation points: 120462 Chambo's Avatar
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    This will last until people who donate start finding out there's a 15-20% default rate ont he money

  14. #14
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    Does is come as any surprise that these crazy low rates are only offered by new companies? Swift is big on their 14.99 product too. I had a shakey credit restaurant client that got offered a 14.99/6 by swift and asked me to match it. I said no thanks and go with the swift deal.

    If these funders can stay in business and make money then good for them. The mca/unsecured loan biz is very risky. It's all fun and games till deals start going south. My guess is they either adjust rates to match defaults or go out of business. I know first hand that this is not a get rich quick business. It may look like it is from the outside but once you are inside you see the world differently pretty quickly.

  15. #15
    Veteran Reputation points: 120462 Chambo's Avatar
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    Quote Originally Posted by Finance1 View Post
    Does is come as any surprise that these crazy low rates are only offered by new companies? Swift is big on their 14.99 product too. I had a shakey credit restaurant client that got offered a 14.99/6 by swift and asked me to match it. I said no thanks and go with the swift deal.

    If these funders can stay in business and make money then good for them. The mca/unsecured loan biz is very risky. It's all fun and games till deals start going south. My guess is they either adjust rates to match defaults or go out of business. I know first hand that this is not a get rich quick business. It may look like it is from the outside but once you are inside you see the world differently pretty quickly.
    Just like On Deck did. When they first came out, they offered 12 month 1.09's. Then it dropped to 6 month 1.12's, then 1.18's. Now you see 1.25's to 1.35's offered by them & they are STILL not profitable.

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    Quote Originally Posted by Chambo View Post
    Just like On Deck did. When they first came out, they offered 12 month 1.09's. Then it dropped to 6 month 1.12's, then 1.18's. Now you see 1.25's to 1.35's offered by them & they are STILL not profitable.
    I often wonder what the big cash companies books really look like. I'm not implying that they are in the red or anything. Outstanding receivables vs actual remittance is a decent spread. You have to keep sending deals out the door fast and furious to stay far in front of losses. Once you stop sending money out the door and let things wind down it's a whole different look.

  17. #17
    FUND IT! Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by Finance1 View Post
    I often wonder what the big cash companies books really look like. I'm not implying that they are in the red or anything. Outstanding receivables vs actual remittance is a decent spread. You have to keep sending deals out the door fast and furious to stay far in front of losses. Once you stop sending money out the door and let things wind down it's a whole different look.
    Good point. One of the things I ask some companies when they tell me that their bad debt is "low" is how they calculate their bad debt.

  18. #18
    Veteran Reputation points: 120462 Chambo's Avatar
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    Quote Originally Posted by Finance1 View Post
    I often wonder what the big cash companies books really look like. I'm not implying that they are in the red or anything. Outstanding receivables vs actual remittance is a decent spread. You have to keep sending deals out the door fast and furious to stay far in front of losses. Once you stop sending money out the door and let things wind down it's a whole different look.
    You would be surprised how many of these companies are operating in the red. More, many more, than you think.

  19. #19
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    Quote Originally Posted by sean bash View Post
    Good point. One of the things I ask some companies when they tell me that their bad debt is "low" is how they calculate their bad debt.
    Yea, no kidding. We typically run 5% of every dollar that goes out the door goes sour and that's totally manageable. It comes in peaks and valleys though. Some months are almost flawless while other are riddled with bad accounts. I don't think you get in trouble until you start hitting 8-10%. Although our overhead is exponentially lower than the big guys and we plan to stay that way.

  20. #20
    most companies that tried to do low rates and undercut competition as their core model ran into collection issues and shut down. ipayments tried to do this with ifunds (their inhouse mca at the time) for awhile and that didnt last as a simple example. i dont think they ever recovered commissions to brokers...you really need to have a blend of rates that align with the risk profile of the customer. some should get lower rates, some should get higher rates, some should get shorter payback periods, some should get longer..-all based on factors most established funders have found performs well. risk based pricing-

  21. #21
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    Quote Originally Posted by jack View Post
    Care to share how to make your overhead exponentially lower?
    lol- i'm under a gag order on the subject...


    It's easy really. Depends on what type of model you run. A biggie is cost of the money itself. We're 100% funded internally so we don't have any borrowing costs. Second, we don't do iso business. Everything is direct and our closing rate is high because we're very competitive. Our rates are a bit better because we don't have to build in commissions. The biggest issue is cost to acquire and that took a heck of a lot of trial and error before figuring that part out. But we finally figured out how to acquire new business affordably (this is a secret I take to the grave. LOL).

    Another thing is how big do you want to get? We don't want to get that big at all and we don't need to. We can run our entire business model on 10 employees. Labor overhead can eat a business alive.

  22. #22
    do you feel like if you are not constantly trying to grow that you might getting eaten up in this business? I don't mean that in a harsh way or to infer that bringing on more people automatically means expanding. it's just been my experience that once you find that perfect operating state, some external factor comes in and shakes it all up and you'll wish you never got too comfortable.

  23. #23
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    Quote Originally Posted by cashman View Post
    do you feel like if you are not constantly trying to grow that you might getting eaten up in this business? I don't mean that in a harsh way or to infer that bringing on more people automatically means expanding. it's just been my experience that once you find that perfect operating state, some external factor comes in and shakes it all up and you'll wish you never got too comfortable.
    I wouldn't say we feel the need to constantly grow to stay consistent. But we do have to pay close attention to the ever changing landscape of programs and rate structure. It's not hard to take a small slice of the market share out there. Anybody with guts can do it. There are plenty of deals to go around for a small funder. Trying to become big like MCC, AMI, BFS, etc is extremely challenging nowadays.

    I do agree about never being too comfortable. No matter how clear the picture is there are always curve balls. I was complacent with my previous company to some extent. I thought I had it all figured out and then the entire industry imploded. Big life lesson there.

  24. #24
    In the famous words of Heraclitus’s- The only constant is change- never stay complacent in business...

  25. #25
    Finance1, the previous industry you were in was mortgages?



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