[Sean Cash]

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?

[Sean Cash]

No problem. We just brought on a full-time developer for it.

[miked]

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.

[Chambo]

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.

[John David Helmrich]

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.

[Sean Cash]

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.

[UCSource]

Sneaky Sneaky NPO......

[Capital Stack]

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.

John BTW if you log into the DailyFunder with your Facebook account you can post in in both places. Just an FYI!

[MCNetwork]

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.

[Sean Cash]

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.

[admin]

MCA industry is sizzling Up Fast between Amex, First Data, kabbage, Amazon, Paypal, Wells, Goldman etc.. we are going Mainstream...........

[Chambo]

The issue with going "mainstream" is that all the little guys who have been whacking folks for fees, or offering sub par offers (because up until now they could) will no longer be able to do it. The top tier paper will go to levels that none of the existing funds out there are willing to go (12 month 1.06's? 18 month 1.18's?).

Almost as if we have been guinea pigs for the larger guys waiting a couple years to see if this was a flash in the pan or not. Now they are coming in with big guns and big money.

Should make for some interesting times in the near future.

[Finance1]

The issue with going "mainstream" is that all the little guys who have been whacking folks for fees, or offering sub par offers (because up until now they could) will no longer be able to do it. The top tier paper will go to levels that none of the existing funds out there are willing to go (12 month 1.06's? 18 month 1.18's?).

Almost as if we have been guinea pigs for the larger guys waiting a couple years to see if this was a flash in the pan or not. Now they are coming in with big guns and big money.

Should make for some interesting times in the near future.

Good post. Sometimes I worry about institutions coming in and taking over and other times I don't even blink an eye. It's all about ROI. Coming in with sick low rates is simply asking for a negative ROI. It takes a couple of years (at least 18 months) to really understand what you are getting into. I know that from experience. The book needs to season before you know if your underwriting is up to par and most importantly if you are making the returns you expected. I doubt any cash company of any size entered the market and made the returns they expected going in.

I say bring on Amex and Wells and others. It only makes the industry more credible. Something that the industry has been lacking since it's birth. Amex and Wells etc aren't going after the same clients that make up the majority of our book. I think that applies to most cash companies until you get into the top 10 like AMI, MCC, BFS, etc. They are very big and very thirsty. I would think they would stand the most to lose with larger institutions entering the market.

At the very least, I'm not worried about my company. We're small and don't want a big slice of the pie. I think our desired client is always attainable. Plus we run very low overhead and our capital isn't leveraged. We don't have to pay for it like others. Hopefully that keeps us competitive long into the future.

And I totally agree about interesting times coming up. Look at just the last 2 years and how much has changed. The trends are only getting stronger.

[MCNetwork]

I wonder what commission an ISO would get for selling an Opportunity Fund deal. One percent?

[miked]

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. "

[Chambo]

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

[Chambo]

This will last until people who donate start finding out there's a 15-20% default rate ont he money

[Finance1]

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.

[Chambo]

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.

[Finance1]

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.

[Sean Cash]

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.

[Finance1]

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.

[Chambo]

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.

[MCAVeteran]

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-

[Finance1]

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.