As Credit Tightens, Borrowers and Investors Retreat Alike
July 5, 2016
America’s bond market is drying up.
The value of bonds packaged with personal, corporate and real-estate loans fell by $98 billion, a 37 percent decline from the first half of 2015 making it tough for businesses to refinance their debt.
Lenders have for long relied on securitization for capital but as the credit market tightens, companies will be forced to diversify and soon.
There are currently more than $10 trillion in outstanding securities backed by personal, business and other loans, according to the Securities Industry and Financial Markets Association, the Wall Street Journal said.
And it’s not just investors who are retreating. A recent study found that small businesses are hesitant to borrow and rely on personal resources to meet their business’ capital needs. Demand from businesses with revenues of less than $5 million shrunk 15 percent from Q1 2016 to Q2 2016, from 38 percent to 32 percent.
The survey also noted that a third of business owners that responded transferred personal assets like savings and personal credit cards to their business accounts in the last quarter.
“Business borrowing habits suggest owners may not see a need for an immediate infusion of capital,” said Dr. Craig R. Everett, assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “However, these findings suggest business owners are still feeling the lasting impact of the recent recession and remain skittish about the future, as reflected in an abundance of caution when it comes to the economic environment.”
Business owners are being tightfisted with borrowing, instead using earnings and profits for capital expenditure.
“There are far fewer small businesses taking a loan, as they don’t see opportunity for expansion,” said Holly Wade, director of research and policy analysis at NFIB, a small business trade association. “Some are uncertain about the future so they don’t want to take out a loan and in some instances, owners have a more difficult time finding desired loans.”
Stacking: Is it Tortious Interference?
April 16, 2015
STACKING – the practice of entering into a cash advance transaction or loan knowing that the merchant already has one or more open cash advances or loans with a competitor – is causing a rift among merchant cash advance companies and small business lenders.
On one side are companies that only originate first-position deals. These companies generally include a clause in their contracts prohibiting the merchant from obtaining another merchant cash advance or loan until the company receives all of the future receivables it has purchased or is fully repaid. First-position companies view stacking as a threat to recovery of money advanced or loaned to merchants. On the other side are companies that routinely offer second or third-position deals. These companies argue that merchants with adequate cash flow to support additional advances should be free to obtain them.
In the last several months, at least two first-position companies have sued their stacking competitors, claiming that stacking constitutes tortious interference with contractual relations. These cases may ultimately result in a decision as to whether a stacker is liable for damages to a prior-position company when a merchant defaults. Although it varies by state, a claim of tortious interference with contractual relations claim generally includes all of the following elements:
1. The existence of its valid contract with
a third party;
2. The defendant’s knowledge of that contract;
3. The defendant’s intentional and improper procuring of a breach; and
4. Damages.
See White Plains Coat & Apron Co. v. Cintas Corp., 8 N.Y.3d 422, 425 (2007).
So when is advancing money to a willing merchant “improper” under the law?
No reported court decisions have tackled stacking, let alone discuss whether interfering with a prior merchant cash advance or loan contract is improper. In fact, few cases discuss this issue at all. According to Section 767 of the Restatement Second of Torts, the tort of tortious interference does not have hard-set rules. The issue in each case is whether the interference is improper under the circumstances and whether, upon a consideration of the relative significance of the factors involved, the court should permit the conduct without liability, despite its effect of harm to another. In other words, it is a fact-intensive analysis.
The New York Court of Appeals put it this way: “At bottom, as a matter of policy, courts are called upon to strike a balance between two valued interests: protection of enforceable contracts, which lends stability and predictability to parties’ dealings, and promotion of free and robust competition in the marketplace.” White Plains Coat & Apron Co. v. Cintas Corp., 8 N.Y.3d 422, 425, 867 N.E.2d 381, 383 (2007).
Because there are no reported court cases addressing stacking, we can only look to cases between other types of businesses to see what courts have said about “improper” interference. Maryland’s highest appellate court has held that inducing a breach of contract, even for competitive purposes, is improper. Macklin v. Robert Logan Associates, 334 Md. 287, 303 (1994). In contrast, New York courts have concluded that improper interference is conduct that goes beyond a minimum level of ethical behavior in the marketplace.
In the White Plains Coat & Apron case, a New York-based linen rental business sued a competitor in federal court for tortious interference with existing customer contracts. White Plains claimed that it had five-year exclusive service contracts with customers and that, knowing of these arrangements, Cintas induced dozens of White Plains’ customers to breach their contracts and enter into rental agreements with Cintas. White Plains alleged that Cintas trained its sales reps to convince its customers to abandon their contracts with White Plains even after the customers told Cintas that they had contracts with White Plains.
White Plains sent Cintas a letter demanding that Cintas stop soliciting and servicing White Plains’ contract customers, enclosing a list of customers allegedly solicited improperly. When Cintas refused to stop pursuing its customers, White Plains sued.
The court granted summary judgment for Cintas and dismissed the complaint. The court held that because Cintas and White Plains were business competitors, Cintas’ legitimate interest to make a profit was a defense to White Plains’ lawsuit. According to the trial court “the only answer … is to go out and do it also to the other guy.”
White Plains appealed to the Second Circuit Court of Appeals. Because there was an important open state law question regarding whether economic self-interest was a defense to a tortious interference claim, the Second Circuit certified the following question to the New York Court of Appeals, New York’s highest appellate court: “Does a generalized economic interest in soliciting business for profit constitute a defense to a claim of tortious interference with an existing contract for an alleged tortfeasor with no previous economic relationship with the breaching party?”
The New York Court of Appeals said no, holding that economic self-interest is not a defense. However, the court explained that business competition in and of itself is not a tort, stating that:
“[W]e note that protecting existing contractual relationships does not negate a competitor’s right to solicit business, where liability is limited to improper inducement of a third party to breach its contract. Sending regular advertising and soliciting business in the normal course does not constitute inducement of breach of contract. A competitor’s ultimate liability will depend on a showing that the inducement exceeded ‘a minimum level of ethical behavior in the marketplace.’”
In a Florida case, Azar v. Lehigh Corporation, 364 So.2d 860 (Fla. Dist. Ct. App. 1978), a Florida appellate court upheld a restraining order against a former salesman of a developer after he allegedly tortiously interfered with the developer’s contracts. Lehigh Corporation developed and sold real property in a large development project in Lee County, Florida. Part of Lehigh’s promotional campaign brought prospective purchasers to see the development and stay at the only local motel at Lehigh’s expense. Lehigh’s former salesman, Leroy Azar, would follow prospective customers to the motel and persuade them to rescind their contracts for the purchase of property and to purchase property from him at a lower price. Azar spotted customers by following people down the street and observing whether they were carrying big envelopes full of Lehigh sales literature. He then would then seek out the customers in their motel rooms and offer to handle the rescission of his contract if the customer would move out of the motel and buy a lot from him. Azar also equipped his car with a large sign advertising the sale of his lots and followed Lehigh’s tour bus full of prospective customers.
The trial court granted the restraining order against Azar. Azar appealed, arguing that customers had a legal right under federal law to rescind their contracts within three days and that he was merely providing them with an opportunity to be relieved of their contract and to obtain comparable property for lower prices.
In upholding the trial court’s restraining order against Azar, the appellate court explained that there is a narrow line between what constitutes vigorous competition in a free enterprise society and malicious interference with a favorable business relationship. The court also quoted the following passage from a well-known treatise:
Though trade warfare may be waged to the bitter end, there are certain rules of combat which must be observed. . . . W. Prosser, Law of Torts (4th ed. 1971) at 956.
The appellate court explained that the issue is whether the subject conduct is considered to be “unfair” according to contemporary business standards.
How courts will treat stacking among competing merchant cash advance companies and lenders remains to be seen. The analysis of what is “improper” interference versus vigorous, but acceptable, competition will be based on the specific facts of each case. In the meantime, merchant cash advance companies and lenders that engage in stacking should consider applicable state law, including case law, and whether their conduct could be considered improper under the circumstances.
Robert Cook, Cathy Brennan and Kate Fisher are partners in the Maryland office of Hudson Cook, LLP. Robert can be reached at 410-865-5401 or by email at rcook@hudco.com. Cathy can be reached at 410-865-5405 or by email at cbrennan@hudco.com. Kate can be reached at 410-782-2356 or by email at kfisher@hudco.com.
Your Merchant Cash Advance Press Release May be Hurting You
August 8, 2013Part of keeping up with the merchant cash advance industry means reading up on the press releases published online, but it’s not such an easy job. Legions of funders, ISOs, and lead generators are competing for valuable real-estate in search results and they’ll use every trick in the book to get it. It almost always comes with a price and these tricks don’t always work. By tricks here, I’m referring to using optimized anchor text in press releases as a way to build backlinks.
Have you ever seen a press release with thin information but lots of embedded links that say something like “best small business loan companies”? There’s a reason for that. These companies are trying to manipulate PageRank, a Google search ranking factor that calculates the value of the page the link is on, calculates the value of the website it’s on, uses the anchor text as a signal of what the page is about, and then passes that value onto the destination page. PRWeb has a solid PageRank of 7 out of 10 and last I checked, they don’t nofollow the links. That means a webpage can gain some serious ranking points by using optimized anchor text in a press release. But that’s just on PRWeb’s domain. Consider the fact that press releases are usually syndicated to tens, hundreds, or even thousands of other websites, most of which will keep the links intact, and multiplying the value being passed to the destination site.
One press release could result in hundreds of powerful ranking signals for the keyword, “best small business loan companies.” Now if there were on-page signals for that keyword and additional external factors at work, then there’d be no reason for that page not to rank high in search results for best small business loan companies. And so anyone not totally asleep at the wheel has been using that method for months, if not for years.
There’s only one problem. Google’s Director of web spam (yes, this is a real title) had said back in December of 2012 that links in press releases shouldn’t count.
The Internet went wild over this statement especially since his choice of words implied that there is a chance they did count, he just wouldn’t expect them too. Search Engine Optimization (SEO) diehards decided this was a battle worth fighting and optimized anchor text in press releases became more used than ever before, that is until Google decided to take action.
Wouldn’t expect was apparently proven to mean definitely does. The fact is that links in press releases were passing PageRank and the sites on the other end of them were getting valuable ranking signals. That’s why to this day we see merchant cash advance releases read like an itemized list of keywords on PRWeb…
The best merchant cash advance company has announced a new program to help provide bad credit business financing to restaurants in need of a fast cash loan.
If you’ve stopped reading the article at this point, you’re in trouble. The gravy train is no longer running express. Less than two weeks ago, Google conceded that optimized anchor text in press releases works and are a form of cheating the system. That means that overuse or quite possibly any usage of a keyword rich anchor in a release means your website is at risk of a rankings penalty. Google advises that in order to be safe, webmasters should nofollow the links. There’s just one problem with that; Credible wire and release services do not under any circumstances allow companies to code in HTML attributes in their releases, rendering this feat impossible.
That means the burden of nofollowing the links is on the release services and syndicating websites, something that isn’t likely to happen anytime soon. Release services have not been shy about the potential SEO benefits they can provide, with some going so far as to offer paid consulting services to clients on how to optimize their anchor text for search engines. To them, a crackdown on links in releases means a crackdown on a very profitable portion of their business model.
Watch Matt Cutt’s explanation of links in advertorials:
Google offers the following guidance on link schemes:
The following are examples of link schemes which can negatively impact a site’s ranking in search results:
- Buying or selling links that pass PageRank. This includes exchanging money for links, or posts that contain links; exchanging goods or services for links; or sending someone a “free” product in exchange for them writing about it and including a link
- Excessive link exchanges (“Link to me and I’ll link to you”) or partner pages exclusively for the sake of cross-linking
- Large-scale article marketing or guest posting campaigns with keyword-rich anchor text links
- Using automated programs or services to create links to your site
Additionally, creating links that weren’t editorially placed or vouched for by the site’s owner on a page, otherwise known as unnatural links, can be considered a violation of our guidelines. Here are a few common examples of unnatural links that violate our guidelines:
- Text advertisements that pass PageRank
- Advertorials or native advertising where payment is received for articles that include links that pass PageRank
- Links with optimized anchor text in articles or press releases distributed on other sites. For example:
There are many wedding rings on the market. If you want to have a wedding, you will have to pick the best ring. You will also need to buy flowers and a wedding dress.- Low-quality directory or bookmark site links
- Links embedded in widgets that are distributed across various sites, for example:
Visitors to this page: 1,472
car insurance- Widely distributed links in the footers of various sites
- Forum comments with optimized links in the post or signature, for example:
Thanks, that’s great info!
– Paul
paul’s pizza san diego pizza best pizza san diegoNote that PPC (pay-per-click) advertising links that don’t pass PageRank to the buyer of the ad do not violate our guidelines. You can prevent PageRank from passing in several ways, such as:
- Adding a rel=”nofollow” attribute to the < a > tag
- Redirecting the links to an intermediate page that is blocked from search engines with a robots.txt file
You can watch John Mueller, one of Google’s lead Webmaster Trends Analyst answer questions to Google’s new link policies in the hangout below:
There are other purposes for publishing thin releases as both Google and Bing can decide to display a snippet of the release on the first page of the results for the keywords used in the announcement. So no, it’s not just about links, at least that isnt’t all of the SEO benefit to be gained.
These news snippets can last up to a week, helping companies that might not be ranking well jump to the front of the line for exposure.
Link Removal
We’re not going to call anyone out by name but ever since Google Penguin 1.0 was released, many merchant cash advance companies and payment companies have hired link removal experts to identify bad links for them and are paying them to have them taken down. The only way to take down a link is to ask the webmaster hosting the site to take it down. Unfortunately, this has led to some companies finding the cheapest link removal service they can find, resulting in a poorly qualified consultant setting off to remove 100% of a site’s links instead of just the bad ones. We know this firsthand because we have had no shortage of e-mails from people claiming to be the hired link removal representative of a merchant cash advance related company.
The e-mails usually look like this:
Hello sir,
I am contacting you on behalf of Cash Advance Funder ABC and recently we have been instructed by Google to remove all of our links to have a penalty removed. Therefore we are asking that you remove our spam link from your website. We appreciate your immediate assistance in this matter.Sincerely
sfahfdspfu547@spamlinkremovalservicecompanyseobest.com
A great way to make sure your website never ranks ever again is to remove all your good links too. We can assure you that links on this website are not bad.
So…
In conclusion, if your hired SEO consultant is still banging away on optimized anchor text in press releases, there’s a good chance now that they’ll be causing damage over the long term. Press releases are for the purpose of making important company announcements and Google is on to anyone using them for any other reasons.
Your press releases might be hurting you with Google. Bing on the other hand…
Other SEO related articles on Merchant Processing Resource:
- Is Google Your Only Web Strategy?
- Google Penguin Kills Survivors
- The SEO War for Merchant Cash Advance Continues
- The SEO War for Merchant Cash Advance
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