The Highway to Quality Leads and Closing Deals
July 13, 2022
In the early months of 2020, twenty-two year-old Gary Parker found himself on a nature walk along a stretch of highway in Canada. As a savvy marketer in the medical spa field, the wide grip of Canadian pandemic lockdowns had quickly turned his thriving business into dust.
Swept off of his feet by the suddenness of his predicament, he turned to nature to clear his mind and found his next venture in the unlikeliest of ways.
“I went for a walk outside, and so I saw these trucks,” Parker said, “just like trucks on the road just driving. I was like, ‘everything is shut down but there’s trucks just moving things across the country.'”
Parker’s verbal description of the moment was enhanced by his scenic Zoom background when he was interviewed for the story. Parking his laptop on the hood of his car next to a real life mountain range along a Canadian highway, he explained that he didn’t have to tell me how that walk felt because he could show me. Moving his laptop camera around to show off tractor-trailers behind him in the distance, the inspiration that had come to him in 2020 was still present.
Though the country was supposedly closed for business back then, he couldn’t help but notice how many trucks were still on the highways shuttling supplies around.
“I’m a bit of a curious guy,” Parker said, “so I started Googling, like, ‘How much for a truck this big?’ and you know, they were like 70,000 bucks, 100,000 bucks. And I was like, ‘how do people even purchase these trucks?'”
Parker went on a research mission and discovered that few people, if any, were buying large trucks outright with cash, that so much of it was done through financing.
“And so I look up ‘what’s financing? How do people get truck financing?’ And then I recognized that other than truck-sales groups, there’s a section of people where their job is just to help people find the right financing methods.”
Parker thought he might be able to work with the latter group, given his marketing background, to help connect truckers with financing, but discovered the market in Canada was relatively small.
“Things really started to boom when I met my first USA client,” Parker said, because the demand in the US for truck financing seemed endless. “…in one day you could generate 100 inquiries of people who wanted financing for trucks,” he said.
Parker soon figured out that trucks were just one market in a wider industry of equipment financing, a rabbit hole of endless opportunity that led him to other big name entrepreneurs in the space like Josh Feinberg and Cheryl Tibbs. Feinberg, coincidentally, was a featured cast member in AltFinanceDaily‘s recently produced equipment finance sales reality show.
Parker found common synergy with both and with their help was further introduced to the entire gamut of small business financing solutions.
“And that’s when I got fully immersed,” he said.
He didn’t want to be a broker or a lender, however, so instead he set out to focus on one very particular area of the process, lead generation. First, he built a system to help others, and then he gravitated towards creating a matchmaking system where brokers could connect with businesses that came to his company for help. The end result is his current company that many brokers have now become aware of, Fundly.
“So Fundly is an online marketplace,” he said, “where we have two things. Right now we have real-time matches, so [merchants] who are looking for funding every single day can come in free-of-charge and submit their inquiries, and we have funding members who can join for $1 a month who can see all these inquiries come in and then decide whether or not they want to pitch or share their profile with someone for five bucks.”
Parker explained it as a Tinder-style system where brokers can see the inquiries but can’t talk to the merchants unless the merchants also choose to engage with them. The upside is that when merchants say ‘yes,’ the brokers get to speak to someone that is interested right at that moment and with them specifically.
But Parker is a marketing guy, not a developer, and the execution of this required additional people to put the vision together.
“So we have a team now. Before when we just started, it was just me,” he explained. “If you’re going to write anything, let them know [about the team], because I have a hard working team who is behind every single thing and it wouldn’t have been possible, the technology wouldn’t have been possible without the team.”
Despite the business being born in Canada, Fundly is only targeting the US market because of its scope. Finding interested business owners is not even the hard part of his job, he explained, but rather the hard part is about educating brokers about how to communicate with businesses.
“I’m trying to teach our community members as they come into our orientation, what they think small business owners care about,” he said.
A big mistake for a broker, he explained, is starting off with a pitch about how many lenders they work with.
“Small business owners do not care about how many lenders you have in your back pocket,” he stated. “We’ve come to recognize a small business cares about one thing, what can you do for them? speak in terms of them.”
He imbues them with this marketing wisdom not just because he wants to improve their success rate, but also because he is adamant about making sure the businesses that come to his company get access to the right people with the right programs and prices. He doesn’t want to see these customers get a bad deal.
That Parker is a 24-year old former medical spa marketer hardly matters to brokers who recognize talent when they see it. When AltFinanceDaily asked a senior executive of one reputable broker shop off the record what they thought about Parker, they responded by saying “he’s a genius.”
And besides, he’s not exactly that far off from where he started.
“The machines that some of the brokers finance, like laser therapy machines, stuff like that, I was working on the flip side, from the consumer perspective, having people sign up for high ticket packages from these machines,” he said.
And yet he’s very appreciative of how far he’s come since he went for that walk to reflect on his loss.
“God helped me. It was, it was rough, man. Yeah, not going to lie,” he said. “It was really rough.”
Toward the end of the interview, Parker had already shifted into marketing teacher mode.
“What really sets us apart is psychology,” he said. “Most people think that to get a business owner, you have to hit them and say, ‘Are you looking for the lowest terms? And you know, X, Y and Z??'”
The better approach, he explained, is to tell them that you will get them answers quickly.
“That results in a lot more funding,” he said, “because it’s not making a promise upfront, saying ‘let’s get you funds in 24 hours,’ it’s saying ‘let’s get you answers. And here’s someone to help you find these answers.'”
Consultative Selling in Small Business Finance
October 16, 2019
It’s nearly impossible to teach fiscal responsibility to most consumers, according to researchers at universities and nonprofit agencies. But alternative small-business funders and brokers often manage to steer clients toward financial prudence, and imparting pecuniary knowledge can become part of a consultative approach to selling.
Still, nobody says it’s easy to convince the public or merchants to handle cash, credit and debt wisely and responsibly. Consider the consumer research cited by Mariel Beasley, principal at the Center for Advanced Hindsight at Duke University and co-director of the Common Cents Lab, which works to improve the financial behavior of low- and moderate-income households.
“For the last 30 years in the U.S. there has been a huge emphasis on increasing financial education, financial literacy,” Beasley says. But it hasn’t really worked. “Content-based financial education classes only accounted for .1 percent variation in financial behavior,” she continues. “We like to joke that it’s not zero but it’s very, very close.” And that’s the average. Online and classroom financial education influences lower-income people even less.
The problem stems from trying to teach financial responsibility too late in life, says Noah Grayson, president and founder of Norwalk, Conn.-based South End Capital. He advocates introducing young people to finance at the same time they’re learning history, algebra and other standard subjects in school.
Yet Grayson and others contend that it’s never too late for motivated entrepreneurs to pick up the basics. Even novice small-business owners tend to possess a little more financial acumen than the average person, they say. That makes entrepreneurs easier to teach than the general public but still in need of coaching in the basics of handling money.
Take the example of a shopkeeper who grabs an offer of $50,000 with no idea how he’ll use the funds to grow the business or how he’ll pay the money back, suggests Cheryl Tibbs, general manager of One Stop Commercial Capital, Douglasville, Ga. “The easy access to credit blinds a lot of merchants,” she notes.
Entrepreneurs often make bad decisions simply because they don’t have a background in business, according to Jared Weitz, CEO of New York based United Capital Source. “Many of the people who come to us are trying their hardest,” he observes.
Weitz offers the example of his own close relative who’s a veterinarian. That profession attracts some of the brainiest high-school valedictorians but doesn’t mean they know business. “He’s the best doctor ever and he’s not a great businessman because he doesn’t think about those things first. What he thinks about is helping people. That’s why he got into his profession.”
Entrepreneurs often devote themselves to a vision that isn’t businesses-oriented. “They start a business because they have a great idea or a great product, and that’s what excites them,” Grayson says. “They jump in with both feet and don’t think much about the business side.” The business side isn’t as much fun.
Merchants also attend to so many aspects of an enterprise—everything from sales, production and distribution to hiring, payroll and training—that they can’t afford to devote too much time to any single facet, notes Joe Fiorella, principal at Kansas City, Mo.-based Central Funding. Business owners respond to what’s most urgent, not necessarily what’s most important.
For whatever reason, some business owners spiral downward into financial ruin, bouncing checks, stacking merchant cash advances and continually seeking yet another merchant cash advance to bail them out of a precarious situation, says Jeremy Brown, chairman of Bethesda, Md.-based Rapid Advance.
Weitz advises sitting down with those clients and coming to an understanding of the situation. In some cases, enough cash might be coming in but the incoming autopayments aren’t timed to cover the outgoing autopayments, he says by way of example.
Informing clients of such problems makes a demonstrable difference. “We can see that it works because we have clients renewing with us,” says Weitz. “We’re able to swim them upstream to different products” as their finances gradually improve, he says.
The products in that stream begin with relatively higher-cost vehicles like merchant cash advances and proceed to other less-expensive instruments with better terms, says Brown. Those include term loans, Small Business Administration loans, equipment leasing, receivables factoring and, ultimately the goal for any well-capitalized small business—a relationship with the local bank.
Failing to consider those options and instead simply abetting stackers to make a quick buck can give the industry a “black eye,” and it benefits none of the parties involved, Tibbs observes. But merchants deserve as much blame as funders and brokers, she maintains.
Prospective clients who stack MCAs, don’t care about their credit rating and simply want to staunch their financial bleeding probably account for 35 percent to 40 percent of the applicants Tibbs encounters, she says.
Just the same, alt-funders continue to urge clients to hire accountants, consult attorneys, employ helpful software, shore up credit ratings, keep tabs on cash flow, calculate margins, improve distribution chains and outline plans for growth. It’s what helps the industry rise above the “get-money quick” image that it’s outgrowing, Weitz, says. Many funders and brokers consider providing financial advice an essential aspect of consultative selling. It’s an approach that begins with making sure applicants understand the debt they’re taking on, the terms of the payback and how their businesses will benefit from the influx of capital. It continues with a commitment to helping clients not just with funding but also with other types of business consultation.
“It’s not so much selling as building a rapport with clients—serving as a strategic advisor or financial resource for them, identifying their needs and directing them to the right loan product to meet those needs,” says Grayson. “They should feel they can call you about anything specific to their business, not just their loan requests.” He also cautions against providing information the client will not absorb or will find offensive.
Justin Bakes, CEO of Boston-based Forward Financing also advocates consultative selling. “It’s all about questions and getting information on what’s driving the business owner,” he says. “It’s a process.”
Consultative sales hinges on knowing the customer, agrees Jason Solomon, Forward Financing vice president of sales. “Businesses are never similar in the mind of the business owner,” he notes. “To effectively structure a program best-suited to the merchant’s long-time business needs and set a proper path forward to better and better financial products, you need to know who the business owner is and what his long term goals are.”
“It’s taking an approach of actually being a consultant as opposed to a $7 an hour order taker,” Tibbs says of consultative selling. “I like to teach new reps to think of it as if you were a doctor. Doctors ask questions to arrive at a final diagnosis. So if you’re asking your prospective customer questions about their business, about their cash flow, about their intentions of how they’re planning to get back on track.”
Learning about the clients’ business helps brokers recommend the least-expensive funding instrument, Tibbs says. “I really hate to see someone with a 700 credit score come in to get a merchant cash advance,” she maintains. The consultative approach requires knowing the funding products, knowing how to listen to the customer and combining those two elements to make an informed decision on which product to recommend, she notes.
Consultative sales can greatly benefit clients, Weitz maintains. If a pizzeria proprietor asks for an expensive $50,000 cash advance to buy a new oven, a responsible broker may find the applicant qualifies for an equipment loan with single-digit interest and monthly payments over a five-year period that puts less pressure on daily cash flow.
It’s also about pointing out errors. Brokers and funders see common mistakes when they look at tax returns and financial records, says Brown. “The biggest issue is that small-business owners—because they work so hard— make a profit of X amount of money and then take that out of the business,” he notes. Instead, he advises reinvesting a portion of those funds so that they can build equity in the business and avoid the need to seek outside capital at high rates.
Another common error occurs when entrepreneurs take a short-term approach to their businesses instead of making longer-term plans, Brown says. That longer-term vision includes learning what it takes to improve their businesses enough to qualify for lower-cost financing.
Sometimes, small merchants also make the mistake of blending their personal finances and their business dealings. Some do it out of necessity because they’re launching an enterprise on their personal credit cards, and others act of ignorance. “They don’t necessarily know they’re doing something wrong,” Grayson observes. “There are tax ramifications.”
Some just don’t look at their businesses objectively. Take the example of a company that approached Central Funding for capital to buy inventory in Asia. Fiorella studied the numbers and then informed the merchant that it wasn’t a money problem—it was a margins problem. “You could sell three times what you’re wanting to buy, and you still won’t get to where you want to be,” he reports telling the potential customer.
Consultative selling also means establishing a long-term relationship. Forward Financing uses technology to keep in contact with clients regularly, not just when clients need capital, Bakes notes. That cultivates long-lasting relationships and shows the company cares. As the relationship matures it becomes easier to maintain because the customers want to talk to the company. “They’re running to pick up the phone.”
The conversations that don’t hinge on funding usually center on Forward Financing learning more about the customer’s business, says Solomon. That include the client’s needs and how they’ve used the capital they’ve received.
“We have our own internal cadence and guidelines for when we reach out and how often and what happens,” says Solomon. Customer relationship management technology provides triggers when it’s time for the sales team or the account-servicing team to contact clients by phone or email.
Do small-business owners take advice on their finances? Some need a steady infusion of capital at increasingly higher cost and simply won’t heed the best tips, says Solomon. “It’s certainly a mix,” he says. “Not everybody is going to listen.”
Paradoxically, the business owners most open to advice already have the best-run companies, says Fiorella. Those who are closed to counseling often need it the most, he declares.
Moreover, not everybody is taking the consultative approach. “New brokers are so excited to get a commission check they throw the consultative approach out the window,” Tibbs says.
Yet many alt-funders bring consultative experience from other professions into their work with providing funds to small business. Tibbs, for example, previously helped home buyers find the best mortgage.
Consultative selling came naturally to Central Funding because the company started as a business and analytics consultancy called Blue Sea Services and then transformed itself into an alternative funding firm, says Fiorella. Central Funding reviews clients’ financial statements and operations between rounds of funding, he notes.
Consultations with borrowers reach an especially deep level at PledgeCap, a Long Island-based asset-based lender, because clients who default have to forfeit the valuables they put up as collateral—anything from a yacht to a bulldozer—says Gene Ayzenberg, PledgeCap’s chief operating officer. Conversations cover the value of the assets and the risk of losing them as well as the reasons for seeking capital, he notes.
No matter how salespeople arrive at their belief in the consultative approach, they last much longer in the business than their competitors who are merely seeking a quick payoff, Tibbs says. Others contend that it’s clearly the best way to operate these days.
“The consultative approach is the only one that works,” says Weitz. “Today, everything is about the customer experience. People are making more-educated, better informed decisions.” What’s more, with the consultative approach clients just keep getting smarter, he adds.
The days of the hard sell have ended, Grayson agrees. Customers have access to information on the internet, and brokers and funders can prosper by helping customers, he says. “Our compensation doesn’t vary much depending upon which product we put a client in so we can dig deeper into what will fit the client without thinking about what the economic benefit will be to us.”
Even though the public has become familiar with alternative financing in general, most haven’t learned the nuances. That’s where consultative selling can help by outlining the differing products now available for businesses with nearly any type of credit-worthiness. “It’s for everybody,” Weitz says of today’s alternative small business funding, “not just a bank turn-down.”
Humans vs. Bank Statements – An Underwriting Journey
June 8, 2017
Automation hasn’t replaced humans yet when it comes to reading bank statements in the alternative small-business finance industry. ISOs, brokers, funders and underwriters still fend off drowsiness and ignore the risk of eye strain as they pore over months of paper or electronic documents.
Many consider the drudgery a necessary part of the business. A merchant’s bank statements can reveal negative balances and commitments to previous loans or previous cash advances – any of which can indicate a bad risk, observers say. Moreover, detecting altered statements can expose fraudulent attempts to obtain credit, they add.
So why not dispense with the tedium and possible tampering of reading paper statements and pdfs? Instead, interested parties could simply obtain the login credentials for a credit or advance applicant’s bank accounts and explore their banking records firsthand. But a mixture of fear, fraud and expense often prevents that direct and relatively simple approach, multiple sources contend.
“Merchants simply don’t want to give up their username and password to enable someone to log into their bank account,” says Sam Bobley, CEO of Ocrolus, a company that specializes in automating the reading of paper statements and statements that have been converted to PDFs. Fear of somehow falling victim to an electronic robbery may be at the root of that reluctance, many in the industry agree.
Whatever the source of the hesitancy to share login information, the wariness usually seems more pronounced at the beginning of the underwriting process than toward the end, notes Arun Narayan, senior vice president of risk and analytics at Strategic Funding Source Inc., a New York City-based direct funder. “I don’t think that’s a problem after the commitment to fund,” he says, “but it is a problem before the commitment to fund.” Funders can try to leverage their market power to urge brokers to obtain a username and password from a merchant, Narayan suggests. But he admits that approach works only some of the time.
Merchants who have had a bad experience applying for loans or advances or are submitting their first application exhibit the most fear of surrendering login credentials, according to John Tucker, managing member at 1st Capital Loans, a broker with headquarters in Troy, Mich. “If they’ve been through the process before, they pretty much know what’s expected of them,” he says.
All too often, applicants balk at presenting their login information because they have something to hide, notes Cheryl Tibbs, owner of One Stop Commercial Capital, an Atlanta-based brokerage that handles deals for multiple ISOs. She says her detective work with bank statements uncovers an average of two fraudulent applications per week.
Attempts at fraud average more than five a day at Elevate Funding, a Gainesville, Fla.-based director funder, says CEO Heather Francis. Her company’s underwriters learn what to look for in bank statements that can indicate a merchant is trying to defraud a funder, she says.
First, an underwriter who’s manually checking bank statements knows that documents bearing the names of certain banks have a higher likelihood of being bogus, Francis says. Apparently, fraudsters find the statements from those banks easier to alter, or perhaps they have the templates for those banks and can plug in false information, sources speculate.
WHETHER PAPER OR PDF BANK STATEMENTS PROVIDE TO BE ON-THE-LEVEL OR NOT, READING THEM MANUALLY TAKES TIME
Besides, anyone hoping to bilk a funder can buy a customized “vanity statement” for $25 or $30 on craigslist, complete with whatever deposits, opening balances and closing balances they choose, Francis notes. That can tempt troubled merchants as well as outright criminals, observers agree.
And some of the more bizarre errors that appear in falsified statements can seem almost comical. Tibbs cites the example of a statement she saw that was supposedly for January but was populated with transactions dated in February. On altered statements the ending balance for one month might not match the beginning balance for the next month, several sources note.
Sometimes the fake numbers that wayward applicants choose to include in their fraudulent statements can send up red flags, Tibbs maintains. If a merchant is seeking $40,000 and presents account documents indicating $80,000 or $90,000 balances at the end of each month, something’s amiss “10 times out of 10,” she says.
Tibbs tells the story or a referral partner from a one-or two-person ISO calling her in a state of near-euphoria in the middle of the night, breathlessly describing a potential customer with monthly sales of $800,000 and a need for $500,000 in capital. Experience told her immediately that something wasn’t right. In the morning, she saw the statement’s ending balances of $300,000 to $400,000, which confirmed her suspicions.
Yet grafting such unlikely numbers to a forged bank statement isn’t as unsophisticated as some of the telltale signs that the industry sees when viewing bank statements manually, notes Francis. Some aspiring crooks doctor genuine statements with white-out correction fluid and then type in new numbers in a mismatched font, she says.
Anyone reading bank statements should also beware of applicants who “shotgun” applications to multiple ISOs, often on the same day, Tibbs warns. She often comes across that scam because numerous partners refer deals to her, she says.
Whether paper or pdf bank statements prove to be on-the-level or not, reading them manually takes time. An experienced underwriter who knows where to look for what he or she needs to find to verify a statement requires 15 to 20 minutes to approve one from a familiar financial institution, Francis says.
It seems that nearly every bank or credit union has its own way of designing statements, so the manual reading process slows down when an underwriter manually reads a document with an unfamiliar layout, Francis notes. Unfamiliar types of statements sometimes come from small, obscure credit unions or remote community banks, observers say.
Familiar or unfamiliar, statements represent a key part of the underwriting process, and some funders accept the time and expense of reading them manually as simply a cost of doing business, according to Francis. But that expense can become a significant portion of the cost of a credit evaluation, according to Narayan.
That’s why Narayan and his colleagues at Strategic Funding Source have been working with Ocrolus, a startup company that automates the reading of paper statements and pdf’s of statements. Ocrolus uses optical character recognition, or OCR, to automate the reading of those statements.
Simply stated, OCR enables a machine to make sense of the characters it perceives in an image, says Bobley, the Ocrolus executive quoted earlier. When the platform can’t make out certain data points, they’re snipped and verified by humans in crowdsourced mini CAPTCHA tests, which stands for Completely Automated Public Turing.
They’re those tests that ask computer users to type what they see to prove they’re not robots, Bobley notes. When two of three crowd workers agree on what an image says in the CAPTCHA test, the Ocrolus platform accepts their verdict as correct, he says.
Ocrolus envisions a large market for its new platform among the many funders still reading bank statements manually in the early stages of underwriting, Bobley says. However, in the later stages of underwriting many of those funders already use bank sync companies to verify statements.
Bank sync companies include DecisionLogic, MicroBilt, Yodlee, Plaid and Finicity. They connect directly with some financial institutions to verify statements. Funders often mention the expense when they talk about bank sync companies, and they also note that bank sync companies have not yet established connections with some lesser-known financial institutions.
But late in the funding process, Elevate Funding requires merchants to cooperate with the bank sync company it uses unless extenuating circumstance dictate otherwise, says Francis. The bank sync company can gain direct access to statements using encrypted login information that does not reveal the true username or password to Elevate Funding or the bank sync company, she maintains.
Some of Elevate Funding’s brokers maintain portals that merchants can use to provide their login credentials to get the bank sync process underway, Francis notes. The portal takes merchants to a page with Elevate Funding branding through a white-label program the bank sync company provides.
“IT HAS SAVED US FROM MERCHANTS THAT WOULD HAVE DEFAULTED…IT IS A NECESSARY TOOL – ONE THAT WE HAVE TO USE”
In about 85 percent of Elevate deals, the bank sync company is connected with the merchant’s financial institution and therefore theoretically capable of gaining access to the accounts in question, Francis notes.
Over the past 30 days the Elevate Funding bank sync results included 3 percent bank error and 17 percent merchant error, while 73 percent of the statements were verified, Francis says. Bank error occurs when the bank sync company is connected to the bank but still can’t obtain the account information. Merchant error sometimes happens when the potential client provides an incorrect user name or password, probably after forgetting the right one. Merchant error can also mean that the applicant was plotting fraud and abandoned the bank sync process upon realizing he or she was about to get caught.
The upshot? Some 73 percent of the bank statements submitted are verified, meaning that the information the merchants submitted matches the numbers at the bank, Francis reports. That also means that for whatever reason 7 percent don’t even start the process they’ve requested, she says.
Meanwhile, the bank sync connection also provides real time data that would indicate to the funder whether the merchant has had a decline in sales, an increase in negative activity or the recent addition of a credit provider, Francis says.
The service can pay off. In an average month, the bank sync service detects about 10 or 15 bad deals that Elevate Funding underwriters had accepted, Francis says. “It has saved us from merchants that would have defaulted,” she says. “It is a necessary tool – one that we have to use.”
But what about those cases where the bank sync company can’t connect with the financial institution and the merchant still won’t give up the login for the account? At 1st Capital Loans, Tucker can sometimes handle the situation by getting a bank activity sheet that lists transactions. If that type of sheet’s not available, he arranges a phone call to with a representative of the bank to verify that nothing’s amiss with the applicant’s bank account.
It’s another example of how – even with today’s rampant automation – the human touch sometimes remains indispensable in assuring that merchants deserve the loans or advances they seek.
Text The Merchant, Close The Deal
April 15, 2017
About a year ago, Cheryl Tibbs, general manager of Douglasville, Ga.-based One Stop Funding, was having trouble getting in touch with one of her clients. The merchant in question runs a lawn care service and is usually out on the job, so he isn’t quick to return phone calls or respond to email messages.
“I just got the idea to send a text,” Tibbs recalls. She typed a message expressing her regret for intruding but letting her client know that he needed to take certain steps to advance the funding process for his loan application. He texted right back.
After that initial success, the texting continued between Tibbs and the lawn care provider. He’s been a customer for us for a while, and that’s just how we communicate,” she says. “It’s easy for him to stop and shoot me a text as opposed to having a full conversation with me.”
Tibbs isn’t alone in her appreciation for text messaging as a part of the sales process. Quick responses to texts are making the medium increasingly important in the alternative small-business funding business, maintains Gil Zapata, CEO of Miami-based Lendinero. “Text messaging is more powerful than emailing nowadays,” he declares.
One reason for that shift is that texts are easy to use, according to Tibbs. “It’s a matter of convenience for the merchant,” she contends. “In this business, any way you can make it easier for the merchant to facilitate the transaction with you is the method you have to use.”
Besides the convenience, there’s the sense of urgency people feel when they receive a text, asserts Jeb Blount, a sales trainer who’s written eight sales-oriented books, including the bestselling Fanatical Prospecting. “When you send a text message you move to the top of a person’s priority list,” he says. In fact, people who are talking face-to-face often disengage from the conversation to respond to a text message, he notes. “It’s treated as something that’s urgent.”
As texting becomes more commonplace in the alternative-finance business, some industry salespeople are beginning to view the medium in the same way they regard email, telephones and fax machines. “I use them as another tool for follow-up communications,” John Tucker, managing member of 1st Capital Loans in Troy, Mich., says of text messages. “In addition to sending them an email, I’ll shoot them a text.”
Texting has become almost standard procedure at Florida-based Financial Advantage Group LLC, according to Scott Williams, the firm’s managing member. He prefers that sales associates make the initial contact by phone to get a sense of what the merchant is looking for in a funding deal. After gathering information and getting approval, it’s best to send the offer by email so the merchant has “all the numbers in black and white” and more details than a text message can hold, he notes. After that, text messages can deliver requests for additional documentation and provide updates on the progress of the funding process. “We can tell them, ‘Hey, everything got cleared this morning – we should be able to do the funding this afternoon,’” he says.
Texting expedites communication regarding renewals, too, Williams observes. “If a merchant is 50 percent paid back, you can check in and see if they need some additional capital right now,” he says. “It’s really good for that.”
Clients can use messaging to convey images of documents needed in the funding process, Tibbs says. “I had a merchant yesterday who sent me over her IRS tax agreement through picture message,” Tibbs says by way of example. Often, funders request color images of both sides of an applicant’s driver’s license, she notes. To fulfill such requirements, it’s generally easier to snap a photo with a phone and send it as a picture message than to scan pages of paper into a computer to create an electronic document and then send the resulting file by email. “We do a lot with picture messaging,” she observes.
But as useful as text messaging can become for contacting phone-shy clients or helping clients share an image to document a key cancelled check, companies should exercise care when using the medium for prospecting, warns Zapata. He and just about everyone else AltFinanceDaily consulted emphasizes that sending unsolicited text messages can violate Federal Trade Commission regulations. “Just because our industry isn’t regulated doesn’t mean there aren’t regulations out there on the side,” he says.
Most say they learned of the regulations from third-party vendors who specialize in sending batches of text messages simultaneously. The key to sending those groups of messages legally is to get permission from the recipients in advance, notes Ted Guggenheim, CEO of TextUs, a Boulder, Colo., company specializing in multiple-texting services. “If you’re (randomly) contacting people you got off a list somewhere, that’s a pretty bad idea,” he maintains.
The feds heavily regulate five-digit short-code texts but tread lightly with long-code texts – the ones sent from 10-digit phone numbers, Guggenheim says. The latter would apply in alternative finance, and if a text recipient calls back on the phone number associated with a long-code text, someone will answer, he notes.
Citing guidelines from the Cellular Telecommunications Industry Association (CTIA), Guggenheim stipulates that consumers should have the ability to opt out of additional messages after receiving the first one. Members of the industry who want to send groups of text messages can post conditions on their websites that compel users to grant permission to contact them by text if they submit their contact information, he suggests.
After ensuring everything’s legal, Tucker reports 1st Capital Loans nets a good response when he uses a vendor to blast multiple identical text messages to lists of prospective clients who have already granted permission for his company to contact them by text message. The strategy has helped bring in a reasonable number of deals because the prospects were “already in the pipeline,” he notes.
Remember, though, that cell phone numbers change more often than land line numbers, Tucker cautions. That means a call to a number that’s been reassigned could inadvertently fall into the unsolicited text message category that violates federal rules, he says. “You could be texting a 14-year-old,” instead of a small business, he warns.
When mounting a mass text campaign, marketers are wise to avoid lengthy missives, according to Tibbs. “Keep it simple,” she says. A typical message from her might read: “Looking for funding? Looking for capital? Give us a call,” she notes.
In business texts, avoid acronyms like “LOL” and write in complete sentences with proper punctuation and capitalization, Blount suggests. “Begin by typing out the message somewhere other than in the text box, read it, make sure it makes sense and then send it,” he says. Put your name with the word “from” at the top of the message so the recipient knows who sent it, he emphasizes.
Keep messages conceptual rather than marketing-oriented, Guggenheim advises. Messages should directly address the customer’s situation to avoid seeming they were sent by a robot, he says. As with any response a salesperson receives, getting back to customers quickly pays off in better results, he adds. When sending a batch of texts, vendors of the bulk service can ensure every text bears the same phone number that the sales rep uses to call the client, thus avoiding the possible confusion of using more than one number, says Guggenheim. The system he offers can trigger a pop-up on the computer screen of a specified salesperson when a text recipient responds, he says. It also keeps management informed of the volume of texts and the response rate, he says. That helps managers determine which types of text messages are working, he maintains.
Users can also rely on Guggenheim’s TextUs system to schedule messages for delivery in the future to remind clients of meetings. The system detects land-line numbers and informs the user that the phone will not receive text messages, and it integrates with customer-relationship management systems to exchange information, he says.
So used properly, texting can offer benefits for everyone involved. But some unscrupulous players still insist upon using the medium to mislead prospective clients, says Zapata. His customers have shown him texts from competitors who make initial contact or early contact by sending text messages that might look like offers but are really just marketing letters, says Zapata. That approach, which might tout the availability of $50,000, can cause problems when it turns out that the merchant qualifies for only $25,000, he explains. “Trust me, you’re not going to look like the good guy,” he says of the firms that send what he considers objectionable text messages.
Sensitivity comes into play with text messaging, according to Blount. He and other sources say a great number of people regard email as business-oriented and texts as personal. That leads them to nonchalantly delete unwanted email messages but to become angry when they receive a text they didn’t want, he says. “You can’t send text messages to customers if they don’t know you,” he counsels.
Once a relationship is established, however, text messages can nurture it, Blount maintains. Suppose two businesspeople meet at a networking event and exchange business cards, he says. He advises noting the cell number on the card and sending a LinkedIn invitation immediately after meeting the potential client. Twelve hours later he would send a text message mentioning the encounter. If the salesperson can get the potential client to respond to a text message, that prospect is granting permission to receive texts, he says.
Blount’s example seems to suggest the line between business and personal may be blurring when it comes to texting. People often check their email messages on phones these days – instead of on a laptop or desktop computer – which also minimizes the difference between texting and emailing, says Tibbs. “Everybody does everything with their phone these days,” she notes.
Communicating through a more personal channel such as texting has advantages, too, Williams contends. That’s because some merchants consider their financing to be personal and don’t want to broadcast the details to employees, he says. To protect their privacy, merchants often provide financial institutions with their cell phone number instead of their office number or toll-free line, he notes.
Meanwhile, the world continues to become more comfortable with texting. When Williams and his sales associates began messaging clients about four years ago, they found younger customers receptive and older ones reluctant, he remembers. In the intervening years, however, the 50 plus crowd has warmed to the medium, he observes.
An advantage that accrues with text messaging – compared with email – arises from the fact that spam filters and spam folders don’t seem to have a place in the world of texting. Several sources cite that as a big advantage with using texts. “If you send someone a text message, they’re going to see it,” notes Zapata.
Asked about a downside to the proper use of text messaging in business, most sources could not name one. However, Williams has discovered one area where the mode of communication comes up short. “I would not deliver bad news over text-messaging,” he advises. “If the merchant is upset or frustrated by the news, it would be better-handled in a phone call so you could explain the reason for the negative news. A text message leaves too many things unsaid.”
Blazing Trails in Unexplored Financial Markets
April 4, 2017
Once upon a time people with health insurance who were treated for medical emergencies, illnesses or chronic health conditions –an illness or accident requiring hospitalization, an appendectomy, or a hip replacement, say – could rest easy. Insurance underwriters like United Health, Wellpoint or Humana would surely handle most, if not all, of a patient’s medical expenses.
Today? Not so much. As healthcare becomes ever more pricey, employers are increasingly offering health insurance plans that are less generous and require consumers to pay higher deductibles. Individuals as well are finding that the same goes for them: The only way to afford health insurance is to purchase a plan with a high deductible.
“We’re at a tipping point where the cost of healthcare is outpacing GDP,” says Adam Tibbs, chief executive and co-founder of Parasail Health, a start-up alternative lender in the San Francisco Bay area. “As a result,” he adds, “the only way health insurance can work is either to raise (the cost of) premiums or opt for higher deductibles.”
Statistics confirm Tibbs’s assertion. As of last autumn, according to a September, 2016, survey by Kaiser Family Foundation, the average deductible for workers’ health insurance policies jumped to $1,478, up by more than 12% from $1,318 in 2015. The survey found, moreover, that – for the first time — slightly more than half of all covered workers have deductibles of at least $1,000. At smaller companies, the average deductible is now more than $2,000.
Parasail, a Sausalito-based alternative lender which opened its doors last September, is angling to fill that void. Funded with seed capital raised from four venture capital firms — Healthy Ventures, Montage Ventures, Peter Thiel, and Tiller Partners, reports online data-publisher Crunchbase – Parasail acts as a go-between, connecting the medical practitioners to third-party lenders.
In partnering with doctors, hospitals, and medical clinics, Parasail employs a business model that resembles an auto dealership. After the customers picks out a four-door sedan or a sport utility vehicle, he or she drives it home thanks to a five-year, monthly-payment plan from, say, Capital One.
Similarly, after agreeing to a costly medical procedure, the patient can strike an arrangement with a medical provider’s billing department for on-the-spot financing. Once the deductible is covered, the patient is cleared to glide into the operating room.
Despite being open for less than a year, Tibbs says, Parasail has enlisted as partners some 2,500 medical practitioners with unpaid patient debt of roughly $4 billion. The typical loan averages $6,000. “Our goal,” remarks Parasails marketing vice-president, Dave Matli, “is to create a normal retail experience” so that financing medical debts is as seamless as swiping a credit card.
Meanwhile, industry experts say that Parasail represents a new breed in the financial technology sector. As online alternative lending and the broader fintech industry grow more established, institutional investors and financiers are increasingly wagering bets on companies that promise more than disruptive technologies or cheaper loans.
Increasingly, they are hunting for companies like Parasail that are introducing new products or blazing trails in unexplored markets. “The area that I find most interesting,” says Phin Upham, a venture capitalist and board member at Parasail, is investing in companies that “are developing products that didn’t exist before, serving people who haven’t been served, and playing a unique role incentivizing long-term behaviors.” (Upham, who is a principal at Peter Thiel’s VC firm, emphasizes that he is speaking only for himself.)
Parasail’s fundraising and launch has taken place against a dramatic drop in both global and U.S. fintech financing, according to KPMG’s annual report on the industry, “The Pulse of Fintech.” The accounting firm reports that total funding for fintech companies and deal activity plummeted by more than 50% in the U.S. in 2016 to $12.8 billion from $27 billion the prior year. KPMG attributed much of the drop to “political and regulatory uncertainty, a decline in megadeals, and investor caution.”
The year “2016 brought reality back to the market” after the banner, record-shattering year of 2015, the report noted.
Venture capital financing in the U.S., however, did not slip as dramatically as overall funding, sliding some 30% to $4.6 billion from $6 billion in 2015. (Almost overlooked in the report was that corporate investment capital was “the most active in the past seven years,” KPMG’s report notes, representing 18 percent of venture fintech financing.)
Steve Krawciw, a New York-based fintech startup executive asserts that “the business has matured and, yes, there have been defaults, but the business model for fintech has stabilized.” The author of “Real-Time Risk: What Investors Should Know About FinTech, High-Frequency Trading, and Flash Crashes,” Krawciw expects more funding to stream into the industry as new players such as banks, insurance companies, hedge funds and private equity get involved. They’ll “go in a number of different directions,” he reckons, “especially direct lending by hedge funds and private equity firms.”
No figures have yet been released by KPMG for the first quarter of 2017, just ended in March, but fintech industry participants are mightily impressed at news of the $500 million financing for Social Finance Inc. (SoFi). Best known for its refinancing of student loans, the San Francisco firm reported on February 24 that it raised a half-billion dollars in a financing round led by private equity firm Silver Lake Partners. Other investors include SoftBank Group and GPI Capital, bringing SoFi’s total investment to $1.9 billion, the company said in a press release.
SoFi, which plans to use the funds to expand online lending into international markets and devise new financial products, is ambitiously transforming itself into an online financial emporium. Along with a suite of online wares that mimic traditional banking and financial products – savings accounts, life insurance policies and mutual funds – SoFi has also invented new online offerings.
For example, SoFi formed a partnership with secondary mortgage lender Fannie Mae and, together, the companies are enabling borrowers to refinance both mortgage and student debt. The SoFi financing, says Krawciw, “is not a seminal deal, it’s a sign of what’s coming.”
SoFi may also be providing a road map for fintech companies like Parasail. After building a customer base with health-care loans at 5.88% annual percent rate — compared with credit cards charging interest rates about four times as much – Parasail could be poised to sell additional products to its built-in audience.
Just as SoFi got big on refinancing student loans, Parasail could use healthcare lending as a springboard for future financial endeavors. Its revenues have been growing by 50% month-over-month.
By the first quarter of next year, Tibbs says, the firm will be breaking even.” And at that point, he adds, it expects to roll out a menu of new products too.
Industry Message Boards Crack Down on Anonymous Deal Grabbers
November 11, 2015
Industry message boards, including AltFinanceDaily’s, have begun taking a stronger stance against anonymity to facilitate transparency and protect users. While anyone can still register with their personal addresses, a corporate email address must be provided in the course of soliciting business. Industry participants have reached a general consensus that soliciting deals while hiding behind a free email address raises a red flag.
With hundreds of legitimate vendors to choose from, there should be little need to transact with users that lack basic things such as a company name, office address and phone number.
“I’m bombarded with probably 10 emails every day of the week from a supposedly new lender that wants my business, and they’re really just a broker shop like we are,” said Cheryl Tibbs, in the September/October issue of AltFinanceDaily Magazine. She warned that fake funders can steal deals and pocket the entire commission. They solicit deals in online forums, by email message or over the phone, and then they offer the deals to companies that really do function as direct funders, she said.
While no online forum was specified in the story, at least two forums have responded by cracking down on anonymity by suspending or banning violators.
The age of the gmail funder is coming to a close. Don’t buy leads from HotLeads4u69@hotmail.com and definitely don’t syndicate with a company that has no known address.
Did Your Deal Slip Out The Back Door?
October 22, 2015Gil Zapata found himself in the right place at the right time to catch someone red-handed at backdooring, the practice of stealing an alternative-funding deal and cheating the original ISO or broker out of the commission.
It seems that Zapata, who’s president and CEO of Miami-based Lendinero, was sitting in a client’s office about three years ago when the phone rang. The call came from an employee of a direct funder that had turned down Zapata’s deal to fund the merchant. Now, the employee was offering funding from another source without notifying Zapata. Fortunately, the merchant didn’t accept the surreptitious funding, Zapata said. “There’s a huge loyalty factor with maybe 50 percent of the clients an ISO has under their belt,” he noted.
But many merchants sign up for backdoor deals out of ignorance, callousness or desperation, and the problem seemed to gather momentum in the first quarter of this year, according to Cheryl Tibbs, owner of Douglasville, Ga.-based One Stop Funding LLC.
When Tibbs found herself the victim of backdooring a few months ago, the merchant’s loyalty to the ISO prevailed once again. “Because of the relationship we had with the merchant, he let us know and didn’t go along with it,” she said.
Both cases fall into one of the categories of backdooring. This type usually occurs when an ISO or broker submits a deal and the funder declines it, said John Tucker, managing member of 1st Capital Loans LLC in Troy, Mich. An employee of the funder then takes the file and offers it to other funders, often those that accept higher-risk deals. The funder’s employee conveniently forgets to include the originator in the commission, Tucker said. Meanwhile, the employee’s boss might know nothing of the post-denial goings-on.
In another variety of backdooring, ISOs or brokers deceptively claim that they’re direct funders. They solicit deals in online forums, by email message or over the phone, and then they offer the deals to companies that really do function as direct funders. In many cases, the fake funders pocket the entire commission, Tibbs said.
“I’m bombarded with probably 10 emails every day of the week from a supposedly new lender that wants my business, and they’re really just a broker shop like we are,” she maintained.
To guard against both kinds of backdooring, ISOs and brokers should know their funding sources, everyone interviewed for this article suggested. “What we’ve done is tighten up on how we do submissions,” Tibbs said. “We’re very particular about which lending platforms we use.” Although her company has contracts with 60 to 70 funders, it uses only three or four regularly, she noted. “Shotgunning” deals to lots of potential funders invites backdooring, Tibbs said.
Tibbs also scrutinizes deals to determine which funder would provide the best fit. That way, fewer deals are declined and thus fewer became candidates for backdooring by unscrupulous funder employees. “We have a system. We scrub it. We do the numbers,” she said of her company’s close attention to underwriting, which helps determine what funders would accept the deal.
Her company also keeps a watchful eye on every deal’s progress. “We know exactly where the deal is, and who’s looked at it,” she said. It also helps to insist upon having a dedicated account rep, Tibbs emphasized. That way she can form a relationship that discourages backdooring.
Perhaps the most basic safeguard comes with determining that the company claiming to fund the deal really has the capital to do it and isn’t just shopping the file to real funders. Tucker advised using Internet searches to turn up evidence that the supposed funder really isn’t another ISO or broker. Searches should reveal press releases on equity rounds that direct funders have received, for example. If open-ended Web searches don’t produce satisfying results, check state registrations, he said.
ISOs and brokers can also prevent backdooring by avoiding sub-agent status, Tucker cautioned. “I don’t know why guys would want to be a broker to a broker,” who could steal commissions, he observed. One exception to the sub-agent problem comes with agents who are just entering the business and are receiving training from a broker, Tucker said. In another exception, sub-agents may find another broker has competitive advantages that aren’t easy to duplicate – like a $20,000 monthly marketing budget to generate sales leads, he continued. Or perhaps the other broker gets low base pricing from a funder that allows for reduced factor rates without sacrificing part of the commission.
Brokers and ISOs can also protect themselves from backdooring – and just in general – by maintaining their relationships with merchants, even those who’ve been denied funding from four or five sources, Zapata said. An increase in revenue or jump in credit worthiness can qualify them a few months later, and other brokers or funders may be soliciting them in the meantime, he said.
Then there’s the possibility of collective action against backdooring. An association or some other entity representing the industry could compile a database of companies accused of backdooring, Tibbs said. “Just as there’s a black list of merchants that have been red-flagged from getting merchant cash advances, there should be some type of database of funders that frequently backdoor deals – that way, ISOs know to stay away from them,” she maintained.
The database would also prompt owners and managers of direct-funding companies to crack down on employees who use nefarious tactics, Tibbs continued, because the heads of companies would want to stay off the list.
But finding the financial support and staffing for such a database might prove difficult, according to Tucker. He noted that the card brands, such as Visa and MasterCard, maintain a match list of merchants barred from accepting credit cards. But the card brands have vast resources and a keen interest in the list, he said.
Requiring funders to pay to register might discourage ISOs and brokers from posing as funders, Tibbs suggested. But that, too, would require an infrastructure and would demand financial investment, sources said.
Still, everyone interviewed agreed that the industry should police itself with regard to backdooring instead of inviting federal regulators to enter the fray. “The federal government will mess with pricing without understanding every merchant can’t get low factor rates because there’s too much risk on the deal,” Tucker warned.
Perhaps extending the protection period in funding applications would help guard ISOs and brokers, Zapata said. But he cautioned that making the time period too long could interfere with the free market.
Keeping backdooring in perspective also makes sense, Zapata said, noting that merchants often receive multiple funding offers because everyone in the industry is basing phone calls on the same Uniform Commercial Code filings regarding distressed merchants.
