[isaacdstern]

http://www.isoandagent.com/media/pdfs/17Oct2013ISOAgent.pdf?ET=isoandagent:e17961:882694 a:&st=email

[isaacdstern]

http://www.isoandagent.com/news/Are-Fast-Cash-Advances-Better-3015738-1.html?ET=isoandagent:e17961:882694a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=PSO_ISO_101513

[isaacdstern]

Andy Reiser from SFS and I were both interviewed for this article

[Sean Cash]

great article. I like the contrast of opinions. Also Andy makes an interesting point here about this:

"Reiser says it’s like trying to get funding for two pizza restaurants: One makes good pizza, and one makes horrible pizza. Even though a lender might be less willing to give money to a company that reputedly makes bad pizza, that kind of information isn’t something you can incorporate into an automated cash advance application."

I think that to a degree, even that kind of determination can be automated thanks to yelp, google, and other review sites where customer feedback can be parsed, sorted, and analyzed. But still, having talked to thousands of merchants, it's incredible what you can learn just by talking to the owner, especially when you are the underwriter asking the tough questions. There are business owners with 750 FICO that haven't the slightest idea what they are doing. There are business owners with 500 credit, no social media presence, and a foreclosure that continue to crush the local competition because they know their business better than anyone else. I think no matter how automated things get, a merchant interview is a necessity.

[Gini Co]

Wait, does he actually go and eat the pizza to see if it's good? What a horrible analogy / article.

[miked]

lol. WE ONLY FUND DEEP DISH MERCHANTS.

[isaacdstern]

I was misquoted on one thing...she says it takes us 2 weeks to fund deals...its much closer to 2 days...lol

[isaacdstern]

andy and i.jpg

Great view of times square from Andy's new office earlier this morning

[mfs01]

This program would be great for a preapproval for the sales agent to pin the client down. But a TRUE approval cannot come until the documents, credit, etc.. are reviewed by an underwriter.
We used to have a "cookie cutter" underwriting system when I was in the mortgage business and it worked well for the sales agents and getting pricing, but in the end look what happened there.
This Automated system is a great Idea and will help the sales agents, but I don't think an computerized algorithm is enough to calculate the risk of a cash advance deal (at least not for me).

[sfscapital]

Great photo!!!

[mfs01]

But again, a great tool for sales agents to use for submissions and give clients an approximate approval number until an actual underwriter can take a look at the file.

[mfs01]

Great View!

[Gini Co]

This program would be great for a preapproval for the sales agent to pin the client down. But a TRUE approval cannot come until the documents, credit, etc.. are reviewed by an underwriter.
We used to have a "cookie cutter" underwriting system when I was in the mortgage business and it worked well for the sales agents and getting pricing, but in the end look what happened there.
This Automated system is a great Idea and will help the sales agents, but I don't think an computerized algorithm is enough to calculate the risk of a cash advance deal (at least not for me).

If not an algorithm, how do you calculate risk or provide risk based pricing? Your good judgement? It's not that you don't have a human underwriter confirm and verify the inputs to the scoring/risk model; and interviews are part of that process. But to say that you can tell if a person "knows their business" from an interview and therefore is credit worthy is a joke. The merchant interview is a 0/1. If the guy is sketchy, you don't give him anything, otherwise you fund according to the model. I hope everyone is just kidding here and that you're not 'lending' money on your good judgement.

[HeatherF]

You could always flip a coin... heads to fund or tales to fund at a higher rate and shorter term.

[isaacdstern]

everyone has their own criteria for what deals to fund and what deals not to...all I was saying is to to take human touch completely out of the underwriting process just makes no sense to me....what about items that cant be automated like verifying a landlord...just cut that out?

[mfs01]

Good point Gini Co.

[Sean Cash]

But to say that you can tell if a person "knows their business" from an interview and therefore is credit worthy is a joke. The merchant interview is a 0/1. If the guy is sketchy, you don't give him anything, otherwise you fund according to the model. I hope everyone is just kidding here and that you're not 'lending' money on your good judgement.

I agree that it's a 0/1, the merchant doesn't have to be sketchy though, he can just be clueless. I've been on plenty of merchant interviews where the guy "sounded nice" but had no idea what the margins on his products were, didn't know what he was going to use the money for, had no idea why his sales had fallen, had just inherited the business from a family member or had been thrust into ownership and didn't know a single thing about his product.

Using good judgment from a good underwriter on a borderline deal is sometimes all you have. The deal looks pretty bad on paper, so let's talk to the owner. If he's clueless or sketchy, 0, if he's got all his ducks in a row, 1.

I know that Discover Bank does merchant/consumer interviews just to get approved for a credit card. If they don't like you, 0. If they like you 1. The underwriter is then judged the on their portfolio's performance. Discover pulls a lot of Data too and it still comes down to good judgment sometimes.

[Chambo]

I have had dozens of deals that looked like crap on paper, but turned out to be great (and multiple renewing) clients

[mfs01]

Chambo, I understand that it can be the case if the business is just starting out and they have a great new concept that you may like and just decide to roll the dice on them. Is that what it was in these cases you're talking about? If not, what convinced you to do the deals if they looked like crap on paper.

[MCNetwork]

Doing deals that look like crap on paper is not a winning strategy in the long run. It just shows a little desperation in getting deals funded.

[Sean Cash]

Doing deals that look like crap on paper is not a winning strategy in the long run. It just shows a little desperation in getting deals funded.

This whole industry is rooted in funding small businesses that look like crap on paper. At least it used to be.

[Chambo]

Chambo, I understand that it can be the case if the business is just starting out and they have a great new concept that you may like and just decide to roll the dice on them. Is that what it was in these cases you're talking about? If not, what convinced you to do the deals if they looked like crap on paper.

That was not the case. They were either SIC codes that were unorthodox, or yeah, there were bank issues or credit issues, but after lengthy talks with the merchant, decided to go with my gut (and in several cases, fight like hell with the funds) and it worked out, in some cases EXTREMELY well.

and these merchants turn out to be extremely loyal too

[mfs01]

MCNetwork,
I don't think anyone's desperate to put money out there without doing the proper homework and having some confidence in knowing it'll coming back.

[mfs01]

I'm sure you'll have those customers for life. You helped them when no one else will.

[Gini Co]

So the moral of the story is that a bunch of people are funding small businesses based on a judgement call rather than using statistical models, and that works for them..in some cases