The Growing Divide
February 28, 2014
It wasn’t too long ago that everyone in this industry knew everyone else. If not personally, then at least through their credit inquiries or UCC names. You crossed paths and acknowledged each other. It was a small world then. Today, not so much.
As the barriers to entry have remained low, the simplicity of ACH repayment has drawn in people by the thousands to become brokers, syndicates, and funders. Anyone can be any one of those three or all three at the same time. There’s still the originals out there, the guys who go to the trade shows and visit offices regularly to stay in touch. But then there’s another crowd, the newcomers that don’t file UCCs, attend shows, or interact much with everyone else. They’re funding a half million, a million, or even $5 million a month and no one really knows they exist except for their own clients. The merchant cash advance industry which was once a shadowy market in its own right now has its own shadowy sector within it.
At the Factoring 2014 conference in April, the President of Fora Financial is poised to debate the Business Development manager of Credit Cash on the subject of whether or not merchant cash advance transactions are true sales. The truth is that I have seen so many variations of funding contracts out on the street that the merits of that debate may be flawed. No one knows what a merchant cash advance is anymore. It’s a point I argued in You Can’t Ask How Big it Is Without Defining What it is in January’s issue of DailyFunder.
The industry is made up of people that deal in daily payments. How these deals are structured vary widely. Indeed there is a growing divide.
Emotions are running high in 2014 and some grievances are practically coming to blows. Stacking is as polarizing a debate as Obamacare. There are folks that believe there is no precedence for dealing with stacking, but stacking is as old as MCA.
Many years ago it was cut and dry. If one company purchased the future revenues of a small business, it was contractually impossible for a second company to buy that same block of future revenues. “How could someone else buy what has already been sold?” so the argument went…
In 2007-2008, stacking was a merchant problem, whereby small business owners would devise ways to get double or triple funded in a very short amount of time so that each company didn’t know about the other until long after the money had been wired. Much of the arguments in favor of stacking back then came from the merchants themselves who felt that MCA contracts bordered on being unlawfully restrictive because it prevented them from obtaining virtually any outside financing unless the MCA was satisfied in full. Without the capital to satisfy their entire outstanding MCA balance, they were locked into renewing with the same company indefinitely with little leverage to negotiate future terms, so the argument went…
Today, it’s the funding companies that bear the brunt of criticism from their peers for stacking, mainly because they do it willingly and are not being deceived by merchants. It is perceived as a funder problem.
In March of 2008 (a full 6 years ago), the Electronic Transactions Association (ETA) established the following guidelines on the issue in their MCA white paper:
In order to effectively manage risk and prevent a merchant from becoming over-extended, merchants should not knowingly be allowed to “stack” advances (obtaining an additional advance when an outstanding balance on a previous advance exists). In the event additional advances are sought, the original advance should be paid off directly to the previous Merchant Cash Advance Company [MCAC] by the new MCAC (to ensure that the merchant does not retain funds due to the previous MCAC) with a portion of the proceeds given on the current advance.
The ETA calls for many common sense standards such as fair retrieval rates, sound underwriting, and legal collections practices. The advice is timeless and I suggest everyone read it. The industry might be growing apart but many of the fundamentals are the same.
Still, with the new crowd of near-anonymous funders, it is impossible to know what everyone’s intentions are. Given the low barriers to entry, there’s also the question as to whether or not the newcomers are legally prepared to book such deals. The industry is fraught with risks and always has been.
I just hope that as the divide grows, we are all united by a common goal, acting in the best interest of small businesses.
Forget Fancy Algorithms, Give the Merchants a Psych Exam
January 1, 2014Select an answer to each of the following questions:
1. When faced with financial hardship during the course of my loan, I would do the following:
(a) Do nothing and hope my luck changes.
(b) Call the bank and block all debits from the lender and wait for the lender to call me about it.
(c) Change my phone number, hide, and avoid making anymore loan payments at all costs.
(d) Call the lender to inform them of my hardship.
(e) Sell my business and let the lender sort it out with the new owner.
2. The IRS sends you a letter that says they believe you understated your income last year and owe back taxes. As a result I would do the following:
(a) Ignore the letter until it becomes a more pressing issue.
(b) Consult with my accountant/lawyer.
(c) I didn’t file a tax return last year.
(d) Pretend I never got it.
(e) Pay whatever is owed.
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Congratulations! based on the answers you chose you have been approved!
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According to the New York Times, Banks in 16 countries are using psychometric tests to gauge the creditworthiness of applicants in lieu of credit reports. That’s because the criteria used to score credit in the U.S. is not always available abroad, particularly in developing nations.
There isn’t necessarily a right or wrong answer to each test question. Instead an algorithm measures the loan repayment performance statistics of each answer and learns to approve or decline based on those selections by applicants in the future. Interesting isn’t it? The questions wouldn’t be easy to manipulate either since they are currently psychological. Applicants are asked for example how strongly they believe in or disbelieve in fate.
Would such an idea have legs for alternative business lending in the U.S.? I think there’s something to it. I can say from experience that in my former lifetime as an underwriter, our team would rarely read from a script during a merchant interview. Instead we would engage applicants in a conversation about their business to gauge their attitude and determine the level of commitment to their work. You’d be surprised what this approach would reveal.
In this context, business owners would share that they had no idea whether or not they were losing money, that they planned on closing the business if the advance didn’t turn things around, that they didn’t care about previous loans that they defaulted on, that they weren’t even the person running the business day to day but rather the name on all the paperwork because they had good credit, or that they were using the money to fund a vacation to the carribean because the business was failing and they wanted to get away. We did make sure to steer the conversation towards the requirements on our checklist, but the final decision on borderline deals was often decided on this call.
Some funders use this interview call just to confirm information on the application, but it should no doubt play a role in a deal approval. That’s just my opinion. Once the deal is funded though, it will all come down to fate, hard work, or coincidence. I guess it all depends on how strongly the merchant agreed or disagreed with each of those on the exam.
Underwrite at your own risk.
Dear Ami
November 19, 2013I don’t know Ami Kassar personally, but I read the articles in his NY Times blog, a column dedicated to chastising merchant cash advance companies. In it he yearns for the glory days of 10 year loans at 8% interest for local mom and pop shops. Having been a broker for 3 years myself, believe me when I say I wish rates were lower and terms were longer. It’d be an easier sell. But having also been a very senior underwriter and risk manager, I know exactly why the terms are what they are.
The below post was intended to be a comment on Ami’s latest post, Assessing a Kevin O’Leary Investment on Shark Tank, but it shattered the 1,500 character limit so I’m posting it here. As it was intended to be a comment and not its own post, I did not expand or delve into as much as I wanted.
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Ami,
We get it. You don’t think expensive capital is right or moral and in a perfect world where small businesses have perfect credit and a 0% likelihood of delinquency or default, there probably wouldn’t be a merchant cash advance industry.
Unfortunately, the reality is that many small businesses are high risk borrowers for one reason or another. This isn’t because a bank says so but because there is substantial data that shows there is a high likelihood of delinquency or default. Almost all of the small businesses that existed in my neighborhood 25 years ago are gone. They were replaced by new businesses, which were replaced by new businesses, which were replaced by new businesses. To say that a store with 2 years in business and 700 credit in my neighborhood is a safe long term investment would be a huge mistake. Residents tired of eating the same food, local bars lost their cool factor, the CD store got replaced by digital downloading, the supermarket got replaced by one that only sold organic food, and Blockbuster Video is gone. The Exxon became Shell which turned into Gulf which got torn down and rebuilt as a bank. New extensions to a mall 3 miles away damaged 40+ retail businesses on Main Street. A failed health inspection killed a restaurant, bad Yelp reviews killed the bowling alley, and the 78 year old master tailor didn’t relate to the new generation of residents. A flood closed a clothing store for 2 months, a fire killed a coffee shop, and a hurricane wiped away a strip mall.
Shall I keep going? Partners had a falling out, a son ran his father’s cafe into the ground, development killed a farm stand, and increasing rent put a barbershop over the edge.
I’m not knocking small business, just acknowledging that it’s one of the toughest things in this country to manage. God bless the people that try and especially the ones that last decades.
You know what else happens with a lot of small businesses? They declare losses for tax purposes and make organizing financial documents secondary to all else. To a lender, there is a layer of risk built upon a mountain of risk.
You cited IOU Central as a shining example of rate fairness, but failed to acknowledge that they are wildly unprofitable and have teetered on the brink of insolvency for a year. IOU Central is a publicly traded company and I mean them no disrespect, but check out their books. Lending isn’t supposed to be charity.
SBA loans and defaults are synonymous with each other. It’s great for businesses, but the poor economics of them fall on the taxpayers.
There is this belief that merchant cash advance companies are predatory, but the rates they charge are what the market has priced as sustainable for both parties. There’s more than a hundred funding companies offering the same product. You want to know why the competition hasn’t dropped rates to 10% APR yet? It’s because they’d all be out of business. Rates have come down a little bit, but there is only so far they can drop. Small business is risky business.
As a broker out on the street shaking the wary hands of shop owners, I understand your frustration with the high cost. Believe me, the merchant cash advance companies wish they could lower the prices too. Some have done so at their own peril and closed up shop. Others are on their way to that point now. Would you rather only a tiny fraction of small businesses get non-bank financing at a rate in line with your comfort level and let the rest burn? Small businesses of all credit types and financial standings for years have cried, “HEY, WHAT ABOUT US?!” and in response, private companies made access to capital possible. Often times the money is expensive, very expensive. You are concerned that small business owners are making a mistake when they enter into these agreements yet you admittedly lock them into these deals yourself. It seems as though some of your clients would rather have the opportunity to do something positive with expensive money than have no opportunity at all.
I can think of few things tougher than running a small business. The way my old neighborhood looks today is proof of that. I barely recognize the place. You know what wasn’t around 25 years ago? Merchant cash advance companies. Who knows what would’ve happened if they all had access to capital despite a less than stellar credit rating. Some of those stores may have grew, evolved with the changing times, or become franchises. Things might’ve been different. We all want lower rates, sincerely we do. Competition will drive it down as far as it can go and there’s plenty of that today. Once we hit the floor, if we’re not there already, you will have to ask yourself this question. Are you living in a perfect world or the real one? Let the small businesses decide if the opportunity they’re given is one they want to take.
Split Funding is Here to Stay
August 21, 2013
I’ll say it for the hundredth¹ time, the advantage of split-funding is the ability to collect payments back from a small business that has traditionally had average, weak, or poor cash flow. Let’s put that into perspective. There is a distinct difference between a working business with poor cash flow and a failing business. A failing business is typically not a candidate for merchant cash advance or similar loan alternatives.
Poor cash flow could be the result of paying cash up front for inventory that will take a while to turn over. A hardware store with a healthy 50% profit margin may be able to turn $10,000 worth of inventory into $15,000 in revenue over the course of the next 90 days. The only problem is that the full $10,000 must be paid in full to the supplier on delivery.
Enter the merchant cash advance provider of old that discovers the hardware store has had a fair share of bounced checks in the past, mainly because of the timing of payments going in and out. Cash on hand is tight, the credit score is average, but the profit margin is there. Most lenders would take a pass on financing a transaction that carries legitimate risk such as this one does, that is until the ability to split-fund a payment stream became possible.
Advocates of the ACH method tout that it’s just so much easier to set up a daily debit and scratch their heads and wonder, “man, why didn’t we think of just doing ACH in the first place?”
The thing is, people did think of it and they concluded that for a large share of the merchants out there that needed capital, it didn’t make financial sense to try and debit out payments every day with the hope that there would always be cash available to cover them. Banks have had a hard enough time collecting just one payment a month, so what makes 22 payments in a month so much more likely to work?
I’m not inferring that there is something wrong with the daily ACH system that has taken the alternative business lending industry by storm. There’s plenty of situations for which that may be the best solution, especially for businesses that take little or no credit card payments. My point is that the split-funding method isn’t going to shrivel up and die. It’s here to stay. So long as businesses have electronic payment streams, they will be able to leverage them to obtain working capital.
When it comes to splitting card payments however, it’s important for a business to have faith in the payment processor. Reputation, compatibility with payment technology, and the assurance that the business will be able to conduct sales just as it always has are important. If you’re a funder, ISO, or account rep, it’s your responsibility to make sure that those three factors are addressed. A lot of processors are willing to split payments but they haven’t all made a name for themselves in the industry. Integrity Payment Systems (IPS) comes to mind as one that almost everyone works with and I’ve been in touch with Matt Pohl, the Director of Merchant Acquisition of IPS for some time. He’s been nice enough to share a little bit about what makes a split partner special, and what has made them particularly stand out in the merchant cash advance industry.
Clearly, the role of the credit card processor has diminished over the last couple years when it comes to merchant funding. ACH/Lockbox models have become more prevalent which created a sales mindset that switching a merchant account was more of a hindrance than a necessity. Some argue the decline in profit margin on residuals, due to price compression, made it no longer worth the time and effort to make an aggressive pitch to switch the merchants processing. ISOs also argue that too often merchants have reservations to switch processors because of previous bad experiences, cancellation fees, or because they simply know its not necessary in order to be funded. This is where it’s important to have the RIGHT split partner, not just any split partner
What makes Integrity Payment Systems a “special” split partner is the fact we control the settlement of the merchants funds, in house. IPS is partnered with First Savings Bank (FSB), which allows us a unique way of moving money. Because of our state-of-the-art settlement system and direct access to FSB’s Federal Reserve window, we eliminate the necessity of having layers of financial institutions behind the scenes that merchants funds typically filter through. This is a HUGE benefit to cash advance companies for several reasons. First, we implement the fixed split % when we receive the request, in real time. This allows the deal to be funded quicker. Secondly, since we handle the settlement process we have access to the raw authorization data which allows us to provide comprehensive reporting on a daily basis from the previous days activity. But also we can do true next day deposits, including Friday, Saturday, and Sunday funds available for the merchant on Monday morning. This is especially valuable when selling to restaurants/bars, or any other industry with a lot of weekend volume. Lastly, IPS makes outbound calls to merchants, on behalf of the sales agent and cash company, to download and train the merchant on their terminal. A confirmation email is sent to the agent which includes any batch activity so the deal can fund.
As an added example of this, on the last week of every month, the merchant boarding and sales support team fully understands that our MCA partners have monthly funding goals they need to reach. The IPS team goes above and beyond to ensure merchants get setup properly in time so those accounts can be funded before the month is over. We have a motto at IPS that the sales force are our #1 customers, and nowhere is that more apparent than by the way we take over all the heavy lifting once the agent gets the signatures on our contract. We firmly believe that by helping the agent by taking over the boarding process, that this will allow them to do what they do best, sell more deals!! A lot of competitors expect the agent to be involved in the boarding process, and that’s valuable time that takes them away from selling.
IPS has opened their doors to every MCA company that wishes to have an exceptional split funding partner/processor. We have all the necessary tools to provide this service the right way, and we want the opportunity to earn the business of every working capital provider out there. You don’t have to listen to a sales pitch from me, because I strongly believe that our reputation in the cash advance space speaks for itself. We would love the opportunity to talk to any MCA provider about a few additional services we offer utilizing our settlement system that will allow ISOs to fund more deals.
– Matt Pohl
(847) 720-1129
Integrity Payment Systems
One thing I can personally attest to about Integrity is their human factor. You can actually meet some of their team and see inside their office in the fun youtube video below:
Getting deals done
Ultimately, the financing business is about getting deals done and there are countless small businesses that just won’t ever be a candidate for ACH repayment. Heck, for many years the merchant cash advance industry wasn’t even a financing industry of its own, but rather it was one of many acquisition tools for merchant account reps. (See: Before it Was Mainstream). Technically it still is. You don’t want to sign up a merchant for processing and then have to move the account because the processor doesn’t split or because there is no dedicated customer service. I’ve been in that situation before personally and it’s a nightmare.
There’s a reason this website which is dedicated mainly to merchant cash advance is called the Merchant Processing Resource. You can’t know everything about cash advance without knowing about merchant processing. Get acquainted!
If you’d like to read the lighter side of Merchant Cash Advance History, you just might want to check out MCA History in Honor of Thanksgiving. 😉
¹ I said it for the 99th time on the Electronic Transactions Association’s Blog in Preserving the Marriage Between Merchant Cash Advance and Payment Processing
When Merchant Cash Advance isn’t the Right Fit
August 12, 2013
“I know you do a million in gross sales monthly but since you process only $5,000 in credit cards, we can only approve you for $7,000.”
Before ACH repayment became mainstream, the MCA industry was incredibly restrained in its ability to help businesses. A merchant seeking a half million dollars with the cash flow and size to back that request up was being told that the absolute best they could get would be maybe $10,000, and that’s with a 100% holdback in place instead of the industry standard max of 30-35%. It was an awkward sale for both parties.
To pitch a business owner generating $12 million a year in sales a paltry $10,000 is like telling your boss that the only thing you did at work this month is forward a single e-mail. To the business owner, they’re probably left wondering if lending really has dried up that much or perhaps they’re wondering if they’re just talking to the wrong people. Some of these mismatched situations actually turn into closed deals. I can personally remember one where a semi-serious request for $2 million became a $6,000 signed contract. I think they waited only 24 hours before applying for a renewal. The majority of these sales calls go nowhere though because what’s being offered is not a fit for what is needed.
It’s okay to have mismatches in life. As a salesman, your product is not the right solution for EVERY problem, no matter what your rebuttal script says. If a man is wheeled into an emergency room with 7 deep stab wounds, Johnson & Johnson is going to have to pass up the opportunity to offer him Band-Aids as the answer. A million Band-Aids might work, but they’re not the right solution.
In 2013, I am hearing a wider call to diversify product offerings to stay competitive. Yes, offering a fixed daily repayment loan based off of gross sales is a nice way to compliment the purchase of future credit card sales, but that’s not really diversity anymore, that’s a necessity to stay alive. By really diversifying, I’m talking about financial products beyond daily repayment loans and advances. Almost everyone agrees that being able to service more deals is a good thing but when it comes right down to it, they may see it as a distraction from their main focus.
We’ve all seen a friend or two bite off more than they can chew by trying to broker an SBA loan or commercial real estate deal. There’s no shortage of financial companies sitting on the periphery of the MCA industry waving a flag that says “if a deal isn’t compatible for you, then send it our way.” They don’t really speak the MCA language though and they expect you to do a lot of the closing and negotiating on your own. Some of these deals take months to process and if the lender believes the deal is only a one-time thing, they might not even pay you for it. Ugh! Looking at it from this perspective, perhaps it’s better to just stick with MCA and let every other type of deal fall by the wayside, that is until you look at your marketing expenses again and wonder…
An inbound lead is one that you’ve already paid for, so if they’re not a candidate for a daily repayment loan or advance, then what is the most efficient way to monetize and service them? Who can you really depend on to make servicing it a reality and how long will it take? How easy will it be? I searched beyond the industry for answers but began to find them inward. It seems New York City based Strategic Funding Source has recognized the need for product diversification and is eager to assist account reps in servicing more clients and closing more deals. Your marketing dollars are already spent, so now it’s time to monetize what they’re bringing in. There is a universe beyond daily repayment deals and if you hope to stay ahead of the curve, I recommend you become intimately familiar with programs like invoice factoring and accounts receivable factoring. You can and should be doing deals of this nature every month, not once in a blue moon.
While I like to consider myself knowledgeable on a wide range of financial topics, Lenny Leff, who heads Strategic Plus, a new division of Strategic Funding Source, has offered to write his own regular column on Merchant Processing Resource.
I spoke to David Sederholt, Strategic Funding Source’s COO, about this first in regards to Lenny’s role at the company:
“Through this new division of Strategic Funding Source, led by Lenny, we can say ‘yes’ to more businesses seeking capital to grow and are not limited to cash advance and loan products. We take a human approach to financing and know that the needs of small business owners are as diverse as the businesses themselves. With more product offerings, we are able to continue to be true partners to the small businesses we finance.”
– David Sederholt, Strategic Funding Source COO
Lenny’s posts will provide guidance and information about opportunities outside of MCA. After a few in-person meetings, I think he is uniquely positioned to discuss this topic, especially considering his prior experience in the MCA industry. I asked if Lenny would introduce himself in this post and he added the following:
“I am happy to be joining Strategic and look forward to sharing my 15+ years experience in factoring and asset based lending. The blog will give business owners and ISOs the opportunity to learn more about the different solutions and alternatives available when they go to someone offering a one-stop shop; Purchase Order Financing, Invoice Factoring, Equipment Leasing, Healthcare Lending to Business Loans and MCA. Our goal is to expand the knowledge within our community and help our partners find customized financing for their clients. We are thrilled and excited to share our insights with Sean and the Merchant Processing Resource site.”
– Lenny Leff, Strategic Plus
When the deal doesn’t fit, will you try to sell it anyway? Will you throw it out? Or will you try to monetize the lead you’ve already paid for? I don’t like the first two options… and I’m sure many of you don’t either.
Learn more about Strategic Plus at http://www.sfscapital.com/news/view/3596
Contributors
David Sederholt
Lenny Leff
Discuss factoring on DailyFunder
http://dailyfunder.com/showthread.php/353-PO-Financing-Factoring/page2
Merchant Cash Advance Contract Language
July 24, 2013
Below is a look back at some of the contract language used in the industry.
2009 First Funds Contract
Purchaser agrees to purchase from Seller and the Seller agrees to sell to Purchaser, in consideration of the purchase price specified below (the “Purchase Price”), Seller’s interest in the percentage specified below (the “Specified Percentage”) of each of its future credit card receivables (the “Future Receivables”) due to Seller from the credit card processor identified below (“Processor”) until the amount specified below (the “Specified Amount”) of Future Receivables has been collected by Purchaser according to the additional terms and conditions set forth in this Purchase and Sale Agreement (“Agreement”).
The undersigned principal(s) of Seller (such principals, whether shareholders, partners or other owners are referred to herein as the “Guarantor’) hereby unconditionally, jointly and severally, guarantee Seller’s performance and satisfaction of all the covenants, representations and warranties set forth in Section 3 of the Agreement. This guarantee is continuing and shall bind Guarantor’s heirs, successors and assigns, and may be enforced by or for the benefit of any assignee or successor of Purchaser. Purchaser shall not be obligated to take any action against the Seller prior to taking any action against the Guarantor. Guarantor shall pay Purchaser for all its overhead and expenses incurred in enforcing this guarantee and underlying Agreement, including all Purchaser’s reasonable attorney’s fees. The release and/or compromise of any obligation of Seller or any other obligors and guarantors shall not in any way release Guarantor from his or her obligations under this guarantee. This guarantee shall be governed and construed according to the laws of the State of New York. ALL ACTIONS, PROCEEDINGS OR LITIGATION RELATING TO OR ARISING FROM THIS GUARANTEE OR UNDERLYING AGREEMENT SHALL BE INSTITUTED AND PROSECUTED EXCLUSIVELY IN THE FEDERAL OR STATE COURTS LOCATED IN THE STATE AND COUNTY OF NEW YORK NOTWITHSTANDING THAT OTHER COURTS MAY HAVE JURISDICTION OVER THE PARTIES AND THE SUBJECT MATTER, AND GUARANTOR FREELY CONSENTS TO THE JURISDICTION OF THE FEDERAL OR STATE COURTS LOCATED IN THE STATE AND COUNTY OF NEW YORK. Service of process by certified mail to Guarantor’s address listed below or such other address that Guarantor may provide Purchaser in writing from time to time will be sufficient for jurisdictional purposes. GUARANTOR FREELY WAIVES, INSOFAR AS PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION, PROCEEDING OR LITIGATION ARISING FROM OR IN ANY WAY RELATING TO THIS GUARANTEE. GUARANTOR WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO PURSUE A CLAIM AGAINST PURCHASER OR ITS ASSIGNS AS PART OF A CLASS ACTION, PRIVATE ATTORNEY GENERAL ACTION OR OTHER REPRESENTATIVE ACTION. Guarantor grants continued authority to Purchaser and its agents and representatives and any credit reporting agency employed by Purchaser to obtain Guarantor’s credit report and/or other investigative reports, and to investigate any references given or any other statements or data obtained from or about Guarantor or Seller or any of Seller’s principals for the purpose of this guarantee, Agreement or renewal thereof.
1. Methods of Collection; Use of Approved Processor.
Purchaser shall collect the cash attributable to the Specified Percentage in one of the following ways: (i) directly from Seller’s credit card processor; (ii) by debiting the Seller’s credit card processing deposit account or another of Seller’s accounts that has been approved by Purchaser; or (iii) by debiting an account established by the Seller with Purchaser’s approval specifically to hold funds that are due to Purchaser (“Dedicated Account”). Purchaser may decide in its sole discretion which of the three methods it will accept for the remittance of the Specified Percentage. If Purchaser elects to use method (i) or (ii), then Seller agrees to enter into an agreement with a credit card processor acceptable to Purchaser (“Approved Processor”). Purchaser reserves the right to change the collection method at any time, with five (5) days notice to Seller, if it is unable to collect funds on a consistent basis through the collection method initially selected.
1.1 Collection Directly from Processor.
If Purchaser agrees to accept the remittance of the Specified Percentage directly from the Seller’s Approved Processor, then Seller authorizes the Approved Processor to pay the Specified Percentage directly to Purchaser rather than to Seller until the Specified Amount has been received by the Purchaser from the Approved Processor. This authorization is irrevocable, absolute and unconditional. Seller further acknowledges and agrees that the Approved Processor will be acting on behalf of Purchaser to collect the Specified Percentage. Seller hereby irrevocably grants Approved Processor the right to hold the Specified Percentage and to pay Purchaser directly (at, before or after the time Approved Processor credits or remits to Seller the balance of the Future Receivables not sold by Seller to Purchaser) until the entire Specified Amount has been received by Purchaser. Seller acknowledges and agrees that the Approved Processor may provide Purchaser with Seller’s credit card, debit card and other payment card and instrument processing history, including without limitation Seller’s chargeback experience and any communications about Seller received by Approved Processor from a card processing system, as well as any other information Purchaser deems pertinent. Seller understands that Purchaser does not have any power or authority to control the Approved Processor’s actions with respect to the authorization, clearing, settlement and other processing of transactions and that Purchaser is not responsible for the Approved Processor’s actions. Seller agrees to hold Purchaser harmless for the Approved Processor’s actions or omissions.
1.2 Collection via ACH Withdrawals.
If Purchaser agrees to accept the remittance of the Specified Percentage by debiting the Seller’s credit card processing deposit account, then Seller (i) irrevocably authorizes the Approved Processor or their representative to provide daily reports to Purchaser regarding Seller’s credit card processing batch amounts, and (ii) irrevocably authorizes Purchaser, or its designated successor or assign to withdraw the Specified Percentages of the Future Receivables and any other amounts now due, hereinafter imposed, or otherwise owed in conjunction with this Agreement by initiating via the Automatic Clearing House (ACH) system debit entries to Seller’s account at the bank listed above or such other bank or financial institution that Seller may provide Purchaser with from time to time (“Bank Account”). In the event that Purchaser withdraws erroneously from the Bank Account, Seller authorizes Purchaser to credit the Bank Account for the amount erroneously withdrawn via ACH. Purchaser shall not be required to credit the Bank Account for amounts withdrawn related to credit card transactions which are subsequently reversed for any reason. Purchaser, in its sole discretion, may elect to offset any such amount from collections from Future Receivables. Seller represents that the Bank Account is established for business purposes only and not for personal, family, or household purposes. Seller understands that the foregoing ACH authorization is a fundamental condition to induce Purchaser to enter into this Agreement.
Before 2:00 P.M. EST of the day following each day that Seller conducts business, Seller shall cause Approved Processor or Approved Processor’s agent to deliver to Purchaser, in a format acceptable to Purchaser, a record from Approved Processor reflecting the total gross dollar amount of the preceding day’s credit card transactions processed by Approved Processor for Seller, irrespective of whether such amount consists of sales, taxes or other amounts collected by Seller from its customers (“Daily Batch Amount”). In the event that Seller is unable to procure Approved Processor’s compliance in a timely manner or as otherwise required under this section, within two (2) business days’ written notice by Purchaser to Seller of the same via facsimile to Seller at the fax number listed herein, Seller shall at its sole expense terminate its relationship with Approved Processor and exclusively engage the services of an alternative credit card processor that Purchaser approves in writing and enter into any merchant credit card processing agreement as the alternative credit card processor may require, which credit card processor shall thereafter be referred to and included within the meaning of “Approved Processor” herein. Alternatively, in the event of Approved Processor’s noncompliance, Purchaser is hereby authorized to estimate the Daily Batch Amount based upon Purchaser’s analysis of Seller’s historical experience and to collect the Specified Percentage of the Future Receivables as provided in Section 2 of this Agreement based upon such estimate. Purchaser will make appropriate adjustments upon the submission by Seller of statements with respect to the period of Approved Processor’s non-compliance. Further, Seller hereby irrevocably authorizes Purchaser to obtain information regarding its other bank account(s) from Approved Processor and/or from the sales agent, and to debit such bank account(s) in the event that Purchaser is unable to debit the Specified Percentage from Seller’s credit card processing account.
1.3 Collection from a Dedicated Account.
If Purchaser agrees to accept the remittance of the Daily Percentage by debiting a Dedicated Account, Seller agrees to complete all necessary forms to establish the Dedicated Account. Seller (i) irrevocably authorizes and will require Seller’s processor to deposit directly into the Dedicated Account a daily amount corresponding to Seller’s Daily Batch Amount multiplied by the Specified Percentage; and (ii) acknowledges and agrees that any funds deposited into the Dedicated Account by Seller’s processor will remain in the Dedicated Account until the Specified Percentage is withdrawn by Purchaser and then the remaining funds, minus any amount required to maintain the minimum balance for the account, will be forwarded to Seller’s Bank Account. If the Dedicated Account requires a minimum account balance, Purchaser may, in its sole discretion, fund the required minimum balance for the Dedicated Account out of the Purchase Price. Seller acknowledges and agrees that it shall not have the right to directly withdraw funds from the Dedicated Account.
2. Processing Trial; Commencement of Agreement. After this Agreement has been signed by Seller but prior to Purchaser’s acceptance, the parties shall conduct a processing trial of four or fewer business days in order to ensure that the Seller’s credit card transactions are being correctly processed through Approved Processor and that Purchaser timely receives the Daily Batch Amount in a satisfactory manner and format. Nothing herein shall create an obligation upon Purchaser to enter into this Agreement. The Agreement shall commence upon Purchaser’s payment to Seller of the Purchase Price.
3. Seller’s Covenants, Representations and Warranties. Seller and Guarantor represent, warrant and covenant the following as of this date and during the term of this Agreement:
a) Seller represents that it is not contemplating closing its business.
b) Seller represents that it has not commenced any case or proceeding seeking protection under any bankruptcy
or insolvency law, or had any such case or proceeding commenced against it, and it is not contemplating
commencing any such case or proceeding.
c) Seller represents that the Future Receivables are free and clear of all claims, liens or encumbrances of any
kind whatsoever.
d) Seller represents that it does not intend to temporarily close its business for renovations or other reasons
during the next twelve months.
e) Seller shall not take any action to discourage the use of credit cards which are settled through its processor or
to permit any event to occur which could have an adverse effect on the use, acceptance or authorization of credit cards for the purchase of Seller’s services and products;
f) Seller shall not change its arrangements with its credit card processor in any way which is adverse to Purchaser;
g) Seller shall not change the credit card processor through which the major credit cards are settled from Approved Processor to another credit card processor or to permit any event to occur that could cause a diversion of any of Seller’s credit card transactions to another processor without Purchaser’s prior written consent;
h) Seller represents that as of this date, all Seller’s credit card sales and transactions are being processed exclusively with Approved Processor or are being deposited exclusively into a Dedicated Account;
i) Seller shall not sell, dispose, convey or otherwise transfer its business or assets without the express prior written consent of Purchaser; Seller shall not enter into a concurrent agreement for the purchase and sale of future receivables with any purchaser aside from First Funds.
j) Seller shall furnish Purchaser with the bank statements for its Bank Account and any and all other accounts to which proceeds from Seller’s sales are deposited within seven (7) days’ of any such request by Purchaser;
k) Seller shall unconditionally ensure that the cash Seller receives from Approved Processor attributable to the
Specified Percentage of the Future Receivables is immediately thereafter available to Purchaser for collection
via ACH from Seller’s Bank Account;
l) Seller shall not attempt to revoke its ACH authorization to Purchaser set forth in this Agreement or otherwise
take any measure to interfere with Purchaser’s ability to collect the cash that Seller receives (i) from Approved Processor attributable to the Specified Percentage of the Future Receivables or (ii) from the Dedicated Account;
m) Seller shall not close its Dedicated Account, or close or change the bank account into which Approved Processor deposits the Future Receivables to another account without Purchaser’s prior written consent;
n) Seller shall not conduct its businesses under any name other than as disclosed to Purchaser or change any of its places of business without Purchaser’s prior written consent; and
o) Seller represents that the information it furnished Purchaser in this Agreement and preceding application, including without limitation, Seller’s processing statements, is true and accurate in all respects and fairly represents the financial condition, result of operations and cash flows of Seller at such dates, and since the dates therein, there has been no material adverse change in the business or its prospects or in the financial condition, results of operations, or cash flows of Seller.
4. Agency; Modifications & Amendments; Entire and Final Agreement. Purchaser does not have any power or authority or control over Approved Processor’s actions with respect to the processing of Seller’s credit card transactions. Purchaser is an entirely separate and independent entity from the Processor and ISO (if any) and their respective agents. Neither Approved Processor nor ISO (if any) is Purchaser’s agent and neither is authorized to waive or alter any term or condition of this Agreement and their representations shall in no way affect Seller’s or Purchaser’s rights and obligations set forth herein. This Agreement contains the entire and final expression of the agreement between the parties, and may not be waived, altered, modified, revoked or rescinded except by a writing signed by one of Purchaser’s executive officers. All prior and/or contemporaneous oral and written representations are merged herein. No attempt at oral modification or rescission of this Agreement or any term thereof will be binding upon the parties.
5. Governmental Approvals. Seller possesses and is in compliance with all permits, licenses, approvals, consents and other authorizations necessary to own, operate and lease its properties and to conduct the business in which it is presently engaged. Seller is in compliance with any and all applicable federal, state, and local laws and regulations, including, without limitation, all laws and regulations relating to the prosecution of the confidentiality of information received from credit card users.
6. Exclusive Use of Processor. Seller understands that services of Approved Processor are the exclusive means by which Seller may process its credit card transactions, unless it has set up a Dedicated Account, in which case all of Seller’s credit card processing must be subject to daily withholding of the Specified Percentage in the Dedicated Account.
7. Sale of Future Receivables; Non-Consumer Transaction. Seller and Purchaser agree that the Purchase Price paid by Purchaser in exchange for the Specified Amount of Future Receivables is for the purchase and sale of the Specified Amount of Future Receivables and is not intended to be, nor shall it be construed as, a loan or an assignment for security from Purchaser to the Seller. Seller and Guarantor hereby acknowledge and agree that neither party is a “consumer” with respect to this Agreement and underlying transaction, and neither this Agreement nor any guarantee thereof shall be construed as a consumer transaction.
8. No Right to Repurchase. Seller acknowledges that it has no right to repurchase the Specified Amount of Future Receivables from Purchaser.
9. Sale of Additional Future Receivables; Schedules; Right of First Refusal. Nothing herein shall obligate either party to sell and purchase future credit card receivables; however, Seller grants Purchaser the right of first refusal to purchase any such additional future credit card receivables that Seller may wish to sell during the term of this Agreement and during the period ending ninety (90) days after termination of this Agreement. Under such right of first refusal, if Seller desires to sell additional future credit card receivables, Seller agrees to sell such receivables to Purchaser only, and not to any other prospective purchaser, so long as Purchaser purchases such future credit card receivables on terms that are no less favorable to Seller as the terms and conditions of this Agreement.
10. Default. A “Default” shall include, but not be limited to, any of the following events: (a) The breach by Seller of any covenants contained in this Agreement; (b) Any representation or warranty made by the Seller in this Agreement, proving to have been incorrect, false or misleading in any material respect.
11. Remedies. In the event of a Default, Purchaser shall be entitled to all remedies available under law. Without limiting the generality of the foregoing, in the event of Seller’s default under Section 10 herein, Purchaser will be entitled to require Seller to purchase the remaining Future Receivables for an amount equal to the amount by which the Specified Amount of Future Receivables exceeds the amount of cash received from Future Receivables that Purchaser had previously collected under this Agreement, which amount Purchaser may automatically debit from Seller’s Bank Account via ACH without notice to Seller. No failure on the part of Purchaser to exercise, nor any delay in exercising any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise of any other right. The remedies provided hereunder are cumulative and not exclusive of any remedies provided by law or equity.
12. UCC-1 Financing Statements. Seller authorizes Purchaser to file one or more UCC-1 Financing Statements prior to each sale of Future Receivables for purposes of providing public notice of the purchase by Purchaser from Seller of the Specified Amount of Future Receivables. The UCC-1 Financing Statements will state that the sale of the Future Receivables is an outright sale and not an assignment for security.
13. Notices. All notices, requests, demands and other communications hereunder, including disputes or inaccuracies concerning information furnished to credit reporting agencies shall be, unless otherwise provided herein, in writing and shall be delivered by mail, overnight delivery or hand delivery to the respective parties to this Agreement at their respective addresses listed on the face of this Agreement or at such other address that either may provide to the other in writing from time to time.
14. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of Seller, Purchaser and their respective successors and assigns, except that Seller shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of Purchaser which consent may be withheld at Purchaser’s sole discretion. Purchaser may assign this Agreement without notice to Seller.
15. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Seller consents to the jurisdiction of the federal and state courts located in the State and County of New York and agrees that such courts shall be the exclusive forum for all actions, proceedings or litigation arising out of or relating to this Agreement or subject matter thereof, notwithstanding that other courts may have jurisdiction over the parties and the subject matter thereof. Service of process by certified mail to Seller’s address listed on the face of this Agreement will be sufficient for jurisdictional purposes.
16. Purchaser’s Costs of Enforcement; Attorney’s Fees. Purchaser shall be entitled to receive from Seller and Seller shall pay to Purchaser, all Purchaser’s costs and expenses, including Purchaser’s collections overhead and Purchaser’s reasonable attorney’s fees, in enforcing any of the terms of this Agreement, regardless of whether or not a legal action has been commenced. If Seller files action against Purchaser and the matter is dismissed or Purchaser prevails in the matter, Seller agrees to pay all of Purchaser’s attorney fees and costs incurred whether in court or arbitration.
17. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.
18. Limitation of Liability. In no event will Purchaser be liable for any claims asserted by Seller under any theory of law, including any tort or contract theory for lost profits, lost revenues, lost business opportunities, exemplary, punitive, special, incidental, indirect or consequential damages, each of which is hereby expressly waived to the fullest extent permitted by law by Seller.
19. Waiver Of Jury Trial; Limitation On Action. PURCHASER AND SELLER KNOWINGLY, WILLINGLY AND VOLUNTARILY WAIVE, INSOFAR AS PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION, PROCEEDING OR LITIGATION BROUGHT BY PURCHASER, SELLER OR GUARANTOR HERETO ARISING FROM OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE UNDERLYING TRANSACTION. SELLER SHALL COMMENCE ANY ACTION OR COUNTERCLAIM BASED IN CONTRACT, TORT OR OTHERWISE ARISING FROM OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE UNDERLYING TRANSACTION WITHIN ONE YEAR OF THE ACCRUAL OF THAT CAUSE OF ACTION AND NO SUCH ACTION MAY BE MAINTAINED WHICH IS NOT COMMENCED WITHIN THAT PERIOD. SELLER KNOWINGLY, WILLINGLY AND VOLUNTARILY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO PURSUE A CLAIM AGAINST PURCHASER AS PART OF A CLASS ACTION, PRIVATE ATTORNEY GENERAL ACTION OR OTHER REPRESENTATIVE ACTION.
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2006 AdvanceMe Contract
In exchange for payment by Company to Merchant of the purchase price specified below (“Purchase Price”), Company hereby purchases from Merchant and Merchant hereby sells to Company all of Merchant’s right, title and interest in and to the amount specified below (“Specified Amount”) of Merchant’s future receivables (“Future Receivables”) arising from payments by Merchant’s customers with cards (“Cards”) of a type settled, directly or indirectly, by Processor (as defined below). Merchant will remit the Specified Amount of Future Receivables to Company by causing a processor acceptable to Company (“Processor”) to pay Company each day an amount of cash equal to the percentage specified below (“Specified Percentage”) of all Card receivables due to Merchant on the day in question (“Receivables”). Company will continue to receive the Specified Percentage of Receivables until Merchant has remitted to Company the entire Specified Amount of Future Receivables.
Company will not increase the Specified Percentage without Merchant’s prior written consent. Merchant (i) will enter into an agreement acceptable to Company with Processor to obtain processing services (“Processing Agreement”) and (ii) hereby authorizes Processor and/or Operator (as defined below) to pay daily the cash attributable to the Specified Percentage of Receivables to Company rather than to Merchant and to debit the Account (as defined below) in such amounts until Company receives the cash attributable to the entire Specified Amount of Future Receivables.
Merchant agrees (i) to conduct its business consistent with past practice; (ii) to exclusively use Processor for the processing of all of its Card transactions, to not change its arrangements with Processor in any way that is adverse to Company and to not take any action that has the effect of causing the processor through which Cards are settled to be changed from Processor to another processor; (iii) to not take any action to discourage the use of Cards and to not permit any event to occur that could have an adverse effect on the use, acceptance or authorization of Cards for the purchase of Merchant’s services and/or products; (iv) to not open a new account other than the Account to which Card settlement proceeds will be deposited and to not take any action to cause Future Receivables or Receivables to be settled or delivered to any account other than the Account; (v) not to sell, dispose, convey or otherwise transfer its business or assets without the express prior written consent of Company and the assumption of all of Merchant’s obligations under this Agreement pursuant to documentation reasonably satisfactory to Company; and (vi) to maintain a Minimum Balance (as defined below) in the Account (collectively, the “Merchant Contractual Covenants”).
The owners of Merchant (such owners, whether shareholders, partners, members or other owners are referred to herein as “Owners”) hereby guarantee the performance of all of the covenants made by Merchant in this Agreement, including the Merchant Contractual Covenants.
To the extent set forth herein, each of the parties is obligated upon his, her or its execution of the Agreement to all terms of the Agreement, including the Additional Terms set forth below. Each of above-signed Merchant and Owner(s) represents that he or she is authorized to sign this Agreement for Merchant and that the information provided herein and in all of Company’s forms is true, accurate and complete in all respects. If any such information is false or misleading, Merchant shall be deemed in material breach of all agreements between Merchant and Company and Company shall be entitled to all remedies available under law. Company may produce a monthly statement reflecting the delivery of the Specified Percentage of Receivables from Merchant via Processor and/or Operator. Merchant hereby agrees to a $___ administrative fee per month for the production of the monthly statement and further agrees that Company and its designees may debit such administrative fee from Merchant’s bank account each month via the automated clearing house (“ACH”) system. An investigative or consumer report may be made in connection with the Agreement. Merchant and each of the above- signed Owners authorizes Company, its agents and representatives and any credit reporting agency engaged by Company, to (i) investigate any references given or any other statements or data obtained from or about Merchant or any of its Owners for the purpose of this Agreement, and (ii) pull credit reports at any time now or for so long as Merchant and/or Owner(s) continue to have any obligation owed to Company as a consequence of this Agreement or for Company’s ability to determine Merchant’s eligibility to enter into any future agreement with Company.
I. PROCESSING TERMS AND ARRANGEMENTS.
Section 1.1. Processing Agreement. Merchant understands and agrees that the Processing Agreement and the authorizations to debit set forth above irrevocably authorize Processor and Operator to pay the cash attributable to the Specified Percentage of Receivables to Company rather than to Merchant until Company receives the cash attributable to the entire Specified Amount of Future Receivables from Processor and/or Operator. These authorizations may be revoked only with the prior written consent of Company. Merchant agrees that Processor and Operator may rely upon the instructions of Company, without any independent verification, in making the cash payments described above. Merchant waives any claim for damages it may have against Processor or Operator in connection with actions taken based on instructions from Company, unless such damages were due to such Processor’s or Operator’s failure to follow Company’s instructions. Merchant acknowledges and agrees that (a) Processor and Operator will be acting on behalf of Company with respect to the Specified Percentage of Receivables until the cash attributable to the entire Specified Amount of Future Receivables has been remitted by Processor and/or Operator to Company, (b) Processor and Operator may or may not be affiliates of Company, (c) Company does not have any power or authority to control Processor’s or Operator’s actions with respect to the processing of Card transactions or remittance of cash to Company, and (d) Company is not responsible for, and Merchant agrees to hold Company harmless for, the actions of Processor and Operator. For purposes of this Agreement, the term “Operator” shall mean any party Company designates to debit any amounts from Merchant’s or Owners’ accounts as authorized or permitted by this Agreement.
Section 1.2. Instructions to Processor. Merchant will irrevocably instruct Processor to hold the Specified Percentage of Receivables on behalf of Company and to remit directly to Company the cash attributable thereto at the same time it remits to Merchant the cash attributable to the balance of the Receivables. Merchant acknowledges and agrees that Processor shall provide Company with Merchant’s Card transaction history.
Section 1.3. Indemnification. Merchant indemnifies and holds each of Processor and Operator, their respective officers, directors, affiliates, employees, agents and representatives harmless from and against all losses, damages, claims, liabilities and expenses (including reasonable attorneys’ fees) suffered or incurred by Processor or Operator resulting from actions taken by Processor or Operator in reliance upon information or instructions provided to Processor or Operator by Company.
Section 1.4. Limitation of Liability. In no event will Processor, Operator or Company be liable for any claims asserted by Merchant under any theory of law, including any tort or contract theory for lost profits, lost revenues, lost business opportunities, exemplary, punitive, special, incidental, indirect or consequential damages, each of which is hereby expressly waived by Merchant.
Section 1.5. Processor Commissions. Merchant understands and agrees that Processor will charge a fee or commission for processing receipts of Receivables (the “Processor’s Fee”) as set forth in the Processing Agreement and that the Processor’s Fee will be deducted from the portion of the Receivables payable to Merchant and not from the cash attributable to the Specified Percentage of Receivables payable to Company.
Section 1.6. No Modifications. Merchant will comply with the Processing Agreement and will not modify the Processing Agreement in any manner that could have an adverse effect upon Company’s interests, without Company’s prior written consent.
Section 1.7. Account. Merchant represents and warrants that Merchant’s sole bank account (“Account”) into which all settlement proceeds of Receivables will be deposited is that account identified by account name, account number and bank name and address that is shown on the face of the voided check that Merchant shall provide to Company along with this Agreement, the delivery of which voided check is a condition precedent to Company’s obligations under this Agreement. If Processor transfers to the Account or any other account of Merchant or Owner(s) any funds that should have been transferred to Company pursuant to Sections 1.1 and 1.2 hereof, or if Merchant otherwise has monies deposited in its or Owner(s)’s account(s) that otherwise should have been transferred to Company pursuant to Sections 1.1 and 1.2 hereof, Merchant shall immediately segregate and hold all such funds in express trust for Company’s sole and exclusive benefit. In any such circumstance, Merchant shall maintain in the Account a minimum balance equal to Company’s undivided interest in such funds or the Specified Percentage multiplied by the Merchant’s average daily Card volume based on the processing records provided to Company prior to the execution of this Agreement (assuming twenty-one days of processing per month) multiplied by three (3), whichever is greater (“Minimum Balance”), until such funds are paid to Company. Merchant and each Owner authorizes Company, Processor and Operator to debit such funds directly from all such accounts, including the Account, and agrees to not revoke or cancel such authorizations until such time as Company has received the entire Specified Amount of Future Receivables. Merchant acknowledges and agrees that Company, Processor and Operator may issue a pre-notification to Merchant’s and/or Owner(s)’s bank(s) with respect to such debit transactions. Within twenty-four (24) hours of any request by Company, Merchant shall provide, or cause Processor or Operator to provide, Company with records and other information regarding Merchant’s Card sales, the Account and any other accounts of Merchant or Owner(s).
Section 1.8. Processing Trial. After this Agreement has been signed by both Merchant and Company but prior to Company’s determination as to whether to pay the Purchase Price, Merchant agrees to permit Company to instruct Processor and/or Operator to conduct a short processing trial (the “Processing Trial”) to ensure that Merchant’s Card transactions are being correctly processed through Processor and that the cash attributable to the Specified Percentage of Receivables will be appropriately remitted to Company. Company agrees to make a determination as to whether to purchase the Specified Amount of Future Receivables promptly after the commencement of the Processing Trial. If Company elects to purchase the Specified Amount of Future Receivables, then all of the cash received by Company in connection with the Processing Trial prior to the payment of the Purchase Price shall be applied to reduce the Specified Amount. Nothing herein shall create an obligation on behalf of Company to purchase any Future Receivables, and Company expressly reserves the right to not purchase the Specified Amount of Future Receivables and not pay the Purchase Price to Merchant. If Company decides to not purchase the Specified Amount of Future Receivables and not pay the Purchase Price, this Agreement shall have no further effect and Company shall, promptly after receipt from Processor or Operator, return to Merchant any cash received by Company in connection with the Processing Trial.
Section 1.9. Excess Cash. In the event that the amount of cash remitted to Company pursuant to this Agreement exceeds the Specified Amount (such excess being the “Excess Cash”) by at least $20.00, Company agrees to pay such Excess Cash to Merchant within thirty (30) days after receipt thereof by Company. In the event the Excess Cash is less than $20.00, Company agrees to pay such Excess Cash to Merchant within thirty (30) days after its receipt of a written request from Merchant, provided such request is made within six months of Company’s receipt of such Excess Cash. Merchant acknowledges and agrees that Company has no obligation to take any action (including against Processor or Operator) with respect to any cash being held by Processor or Operator, which will become Excess Cash once it is paid by Processor or Operator to Company, prior to the receipt of such Excess Cash by Company.
Section 1.10. Reliance on Terms. The provisions of this Agreement are agreed to for the benefit of Merchant, Owner(s), Company, Processor and Operator and, notwithstanding the fact that Processor and Operator are not parties to this Agreement, they may rely upon the terms of this Agreement and raise them as defenses in any action.
II. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Merchant and Owner(s) represent, warrant and covenant the following as of the date hereof and during the term of this Agreement:
Section 2.1. Merchant Contractual Covenants. Merchant shall comply with each of the Merchant Contractual Covenants as set forth herein.
Section 2.2. Business Information. All information (financial and other) provided by or on behalf of Merchant to Company in connection with the execution of or pursuant to this Agreement is true, accurate and complete in all respects. Merchant shall furnish Company, Processor and Operator such information as Company may request from time to time.
Section 2.3. Reliance on Information. Merchant acknowledges and agrees that all information (financial and other) provided by or on behalf of Merchant has been relied upon by Company in connection with its decision to purchase the Specified Amount of Future Receivables.
Section 2.4. Compliance. Merchant is in compliance with any and all applicable federal, state and local laws and regulations and rules and regulations of card associations and payment networks. Merchant possesses and is in compliance with all permits, licenses, approvals, consents, registrations and other authorizations necessary to own, operate and lease its properties and to conduct the business in which it is presently engaged.
Section 2.5. Authorization. Merchant and the person(s) signing this Agreement on behalf of Merchant have full power and authority to enter into and perform the obligations under this Agreement and the Processing Agreement, all of which have been duly authorized by all necessary and proper actions.
Section 2.6. Insurance. Merchant shall maintain insurance in such amounts and against such risks as are consistent with past practice and shall show proof of such insurance upon the request of Company. Section 2.7. Change Name or Location. Merchant does not and shall not conduct Merchant’s business under any name other than as disclosed to Company and Processor and shall not change its place of business.
Section 2.8. Merchant Not Indebted to Company. Merchant is not a debtor of Company as of the date of this Agreement.
Section 2.9. Exclusive Use of Processor. Merchant understands and agrees that the services of Processor are the exclusive means by which Merchant can and shall process its Card transactions.
Section 2.10. Working Capital Funding. Merchant shall not enter into any arrangement, agreement or commitment that relates to or involves Future Receivables, whether in the form of a purchase of, a loan against, or the sale or purchase of credits against, Future Receivables or future Card sales with any party other than Company.
Section 2.11. Unencumbered Future Receivables. Merchant has good, complete and marketable title to all Future Receivables, free and clear of any and all liabilities, liens, claims, charges, restrictions, conditions, options, rights, mortgages, security interests, equities, pledges and encumbrances of any kind or nature whatsoever or any other rights or interests that may be inconsistent with the transactions contemplated with, or adverse to the interests of, Company.
Section 2.12. Business Purpose. Merchant is a valid business in good standing under the laws of the jurisdictions in which it is organized and/or operates, and Merchant is entering into this Agreement for business purposes and not as a consumer for personal, family or household purposes.
III. ADDITIONAL TERMS.
Section 3.1. Sale of Future Receivables. Merchant and Company agree that the Purchase Price paid by Company in exchange for the Specified Amount of Future Receivables is a purchase of the Specified Amount of Future Receivables and is not intended to be, nor shall it be construed as, a loan or financial accommodation from Company to Merchant.
Section 3.2. No Right Merchant acknowledges and agrees that it has no right to repurchase the Specified Amount of Future Receivables from Company and Company may not force Merchant to repurchase the Specified Amount of Future Receivables.
Section 3.3. Remedies. In the event that any of the representations or warranties contained in this Agreement is not true, accurate and complete, or in the event of a breach of any of the covenants contained in this Agreement, including the Merchant Contractual Covenants, Company shall be entitled to all remedies available under law, including the right to non-judicial foreclosure. In the event that Merchant breaches any of the Merchant Contractual Covenants specified in clauses (ii) or (iv) on the first page of this Agreement, Merchant agrees that Company shall be entitled to, but not limited to, damages equal to the amount by which the cash attributable to the Specified Amount of Future Receivables exceeds the amount of cash received from Receivables that have previously been delivered by Merchant to Company pursuant to this Agreement. Merchant hereby agrees that Company and Operator may automatically debit such damages from Merchant’s bank accounts via the ACH system or wire transfers. The obligations of Owners, including the guarantee on the first page of this Agreement are primary and unconditional and each Owner waives any rights to require Company to first proceed against Merchant.
Section 3.4. Financing Statements. To secure performance of the Merchant Contractual Covenants and all of the other obligations of Merchant to Company under this Agreement or any other agreement between Merchant and Company, Merchant grants to Company a continuing priority security interest, subject only to the security interest of Processor, if any, in the following property of Merchant wherever found: (a) All personal property of Merchant, including, all accounts, chattel paper, documents, equipment, general intangibles, instruments, inventory (as those terms are defined in Article 9 of the Uniform Commercial Code (“UCC”) in effect from time- to-time in the State of New York), and liquor licenses, wherever located, now or hereafter owned or acquired by Merchant; (b) all trademarks, trade names, service marks, logos and other sources of business identifiers, and all registrations, recordings and applications with the U.S. Patent and Trademark Office (“USPTO”) and all renewals, reissues and extensions thereof (collectively “IP”) whether now owned or hereafter acquired, together with any written agreement granting any right to use any IP; and (c) all proceeds with respect to the items described in (a) and (b) above, as the term “proceeds” is defined in Article 9 of the UCC. Merchant understands and agrees that Company may file one or more (i) UCC-1 financing statements at anytime to perfect the interest created under the UCC upon the sale, and (ii) assignments with USPTO to perfect the security interest in IP described above. The UCC-1 financing statements may state that the sale of the Specified Amount of Future Receivables is intended to be a sale and not an assignment for security.
Section 3.5. Protection of Information. Merchant and each person signing this Agreement on behalf of Merchant and/or as Owner, in respect of himself or herself personally, authorizes Company to disclose to any third party information concerning Merchant’s and each Owner’s credit standing (including credit bureau reports that Company obtains) and business conduct. Merchant and each Owner hereby waives to the maximum extent permitted by law any claim for damages against Company or any of its affiliates relating to any (i) investigation undertaken by or on behalf of Company as permitted by this Agreement or (ii) disclosure of information as permitted by this Agreement.
Section 3.6. Solicitations. Merchant and each Owner authorizes Company and its affiliates to communicate with, solicit and/or market to Merchant and each Owner via regular mail, telephone, email and facsimile in connection with the provision of goods or services by Company, its affiliates or any third party that Company shares, transfers, exchanges, discloses or provides information with or to pursuant to Section 3.5 and will hold Company, its affiliates and such third parties harmless against any and all claims pursuant to the federal CAN-SPAM ACT of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003), the Telephone Consumer Protection Act (TCPA), and any and all other state or federal laws relating to transmissions or solicitations by any of the methods described above.
Section 3.7. Confidentiality. Merchant understands and agrees that the terms and conditions of the products and services offered by Company, including this Agreement and any other Company documentation (collectively, “Confidential Information”) are proprietary and confidential information of Company. Accordingly, unless disclosure is required by law or court order, Merchant shall not disclose Confidential Information to any person other than an attorney, accountant, financial advisor or employee of Merchant who needs to know such information for the purpose of advising Merchant (“Advisor”), provided such Advisor uses such information solely for the purpose of advising Merchant and first agrees in writing to be bound by the terms of this Section 3.7).
Section 3.8. Publicity. Merchant and each Owner authorizes Company to use its, his or her name in a listing of clients and in advertising and marketing materials.
IV. MISCELLANEOUS.
Section 4.1. Modifications; Amendments; Construction. No modification, amendment or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties affected. The headings of the sections and subsections herein are inserted for convenience only and under no circumstances shall they affect in any way the meaning or interpretation of this Agreement. For purposes of this Agreement, “including” shall mean “including, without limitation”.
Section 4.2. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by mail, overnight delivery or hand delivery to the respective parties to this Agreement. Notices to Company shall be sent to the following address:
Advanceme, Inc.
c/o General Counsel
2 Overhill Road, Suite 410 Scarsdale, NY10583-5323
Section 4.3. Waiver; Remedies. No failure on the part of Company to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise of any other right. The remedies provided hereunder are cumulative and not exclusive of any remedies provided by law or equity.
Section 4.4. D/B/A’s. Merchant hereby acknowledges and agrees that Company may be using “doing business as” or “d/b/a” names in connection with various matters relating to the transaction between Company and Merchant, including the filing of UCC-1 financing statements and other notices or filings.
Section 4.5. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Merchant, Owner(s), Company and their respective successors and assigns, except that Merchant and Owner(s) shall not have the right to assign its rights or obligations hereunder or any interest herein without the prior written consent of Company, which consent may be withheld in Company’s sole discretion. Company reserves the right to assign this Agreement or its rights or obligations hereunder with or without prior notice to Merchant.
Section 4.6. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to principles of conflicts of law. Merchant hereby submits to the jurisdiction of any New York state or federal court sitting in the Borough of Manhattan of the City of New York or any Georgia state or federal court sitting in Cobb County. Merchant hereby waives any claim that the action is brought in an inconvenient forum, that the venue of the action is improper, or that this Agreement or the transactions of which this Agreement is a part may not be enforced in or by any of the above-named courts.
Section 4.7. Costs. Company shall be entitled to receive from Merchant and/or Owner, and Merchant and/or Owner shall pay, all reasonable costs associated with a breach by Merchant of any of the Merchant Contractual Covenants or other obligations or any of the representations and warranties of Merchant and the enforcement thereof, including court costs and attorney’s fees.
Section 4.8. Term and Survival. This Agreement shall continue in full force and effect until all obligations hereunder have been satisfied in full; provided, however, that Sections 1.3, 1.4, 3.3, 3.6, 3.7, 3.8, 4.7, 4.12 and 4.13 shall survive indefinitely.
Section 4.9. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.
Section 4.10. Counterparts and Facsimile Signatures. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which when taken together shall constitute one and the same agreement. Facsimile signatures shall be deemed to be original signatures and each party hereto may rely on a facsimile signature as an original for purposes of enforcing this Agreement.
Section 4.11. Entire Agreement. This Agreement contains the entire agreement and understanding between Merchant, Owners and Company and supersedes all prior agreements and understandings, whether oral or in writing, relating to the subject matter hereof unless otherwise specifically reaffirmed or restated herein.
Section 4.12. Jury Trial Waiver. THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART OR THE ENFORCEMENT HEREOF, EXCEPT WHERE SUCH WAIVER IS PROHIBITED BY LAW OR DEEMED BY A COURT OF LAW TO BE AGAINST PUBLIC POLICY . THE PARTIES HERETO ACKNOWLEDGE THAT EACH MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH THEIR ATTORNEYS.
Section 4.13. Class Action Waiver. THE PARTIES HERETO WAIVE ANY RIGHT TO ASSERT ANY CLAIMS AGAINST THE OTHER PARTY AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER IS PROHIBITED BY LAW AGAINST PUBLIC POLICY. TO THE EXTENT EITHER PARTY IS PERMITTED BY LAW OR COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE ACTION AGAINST THE OTHER, THE PARTIES HEREBY AGREE THAT: (1) THE PREVAILING PARTY SHALL NOT BE ENTITLED TO RECOVER ATTORNEYS’ FEES OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVE ACTION (NOT WITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT); AND (2) THE PARTY WHO INITIATES OR PARTICIPATES AS A MEMBER OF THE CLASS WILL NOT SUBMIT A CLAIM OR OTHERWISE PARTICIPATE IN ANY RECOVERY SECURED THROUGH THE CLASS OR REPRESENTATIVE ACTION.
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Many sections of these contracts have been used, reused, rewritten, distributed, and redistributed by 3rd parties and are considered to be in the public domain. Sections are reproduced here for educational purposes. If you believe any section violates a copyright, e-mail webmaster@merchantprocessingresource.com
Merchant Cash Advance Competition
June 3, 2013
If I had a dollar for every time someone told me that Kabbage wasn’t a competitor in the Merchant Cash Advance space, I’d have my own funding company. It’s been argued that they only care about Ebay or Paypal and that their business model revolved around strengthening Ebay’s PowerSellers for the good of Ebay. I never really believed that was the case.
On September 11, 2012 I wrote this about Kabbage:
Some people feel that they are not a serious challenger to the status quo and that their tactics, methods, and headlines are merely shock value fodder for the rest of us to laugh at while we all rant and rave about ACH deals being the hottest thing since Square. We believe Kabbage is a company everyone should keep an eye on.
Kabbage analyzes many pieces of data in their underwriting including how many facebook fans a business has or added. And as of 2 weeks ago, what do you think happened?
Kabbage expanded their cash advance programs to brick and mortar businesses… (BusinessWeek)
And so here we are with yet another fierce well-capitalized competitor, a company that isn’t struggling to add technology but is rooted in it. Not only that, but last I heard they don’t work with brokers or agents. They cut out the middleman, much like Square did with ISOs.
Which brings me to the next few companies to keep an eye on:
Amazon: People say that their goal is to finance Amazon retailers for the good of Amazon. Sound familiar? I admit that Kabbage wasn’t owned by Paypal but there was a solid relationship there. Is it that ludicrous to think that Amazon will enter the brick and mortar cash advance business?
Groupon: They’ve been sniffing around this industry for quite a while. Keep an eye on them.
American Express: They already have their own cash advance program for premium merchants that accept a high volume of amex transactions. Every six months or so, their standards loosen. It’s only a matter of time until they have enough data to loosen their standards even more and compete head to head with the rest of the alternative business lending industry and cash advance industry.
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Scott Griest, the CEO of American Finance Solutions wrote in Disruption in the Alternative Business Lending Space that when all the dust settles in a couple years down the road, there will be only 4-5 large alternative business lenders. Consolidation and competitive pressure will thin out the herd and the strongest will prevail. The question is, will those 4-5 funding companies be the grass roots companies that propelled the industry to where it is today or will it be the big mega-corporations who are looking at our the industry like a delicious snack?
In one of the most read ever articles of MPR, I made this prediction in The End of an Era:
2014 will eliminate the weaker firms that remain and by 2015, Merchant Cash Advance will no longer be a term that anyone uses. Big banks and billion dollar technology companies will go on to rebrand all that which the funding warriors of the last decade have worked so hard to establish. MCA will simply assimilate into other financial products. The metaphorical Sally, Joe, and Tom will probably still be in the business, but be working for companies like Capital One, Wells Fargo, and American Express.
We weren’t kidding…
The Economics of Lending: Money vs. Goods and Services
May 21, 2013
If I were to offer you the choice between a free DVD with a retail value of $20 or a free $20 bill, which one would you take?
Unless the DVD was something you were going to buy anyway or unless it was a rare item that is hard to find, you’d probably accept the cash. I would too, and that’s because I can turn around and exchange the $20 for anything I want. This isn’t to say that someone wouldn’t accept a DVD and give you something of value in return. You could probably do this but it would be a hassle compared to buying something with cash. Cash is the ultimate liquid asset. It has the same numerical value to all that evaluate it and it is acceptable everywhere.
If this is the case, then why do governments set limits on transactions that only involve cash vs. transactions that involve cash in exchange for a good or service? The reference I’m making here is to usury. Many states govern the interest that can be charged on a loan. This is done to protect borrowers but in doing so, they end up hurting them.
For example:
A manufacturer spends $100 to create a commercial refrigerator, but they sell it to a business for $1,000. That’s equates to a fee of 900%. Once the business books it as inventory, they will attempt to sell that refrigerator to a consumer for an even higher price to make a profit. While it’s a nice windfall for the manufacturer, it’s capitalism at its finest.
But what if the manufacturer lent the business $100 cash in exchange for $1,000 back? Does that change the transaction significantly? In our example above, the manufacturer gave the business an item worth $100 and got $1,000 cash in exchange. The business hopes to sell that item for more and turn a profit but a couple things could happen:
- Consumers might not be willing to pay more than $1,000 or anything at all for that model/make/color
- The refrigerator could get damaged and lose its value
If these scenarios were to occur, the business may try to liquidate the inventory for a lesser amount and take a loss, but doing that might not be easy. The refrigerator might have to be inspected and appraised before a buyer is confident to make the purchase. This problem doesn’t happen with cash. People don’t go out and appraise the value of a $100 bill to determine if it’s worth more or less than $100. The other possibility is that the business can’t liquidate it at all and they end up losing the entire $1,000 they spent.
What’s interesting is that if the business had accepted a $100 bill in exchange for paying $1,000 at a later date, that $100 bill wouldn’t have the real risk (discounting hyper-inflation) of becoming worthless tomorrow or becoming the object of a difficult liquidation.
So when faced with choices again… would you rather take a refrigerator someone spent $100 to make and try to sell it for more than $1,000 or would you rather someone give you $100 cash and you do whatever you want to try to turn that into more than a thousand bucks? On the one hand you have a refrigerator which might have a decent retail market and on the other hand you have cold hard cash that you can do anything with to try and make the necessary profit. You might choose refrigerator but you might choose the cash especially if you had a rock solid idea for that hundred bucks.
If you’re an expert in your trade, you might be able to build your own higher-quality refrigerator for the same cost of $100 and be able to sell it for $2,000. Sure beats buying a crappy lower quality one and struggling to sell it for more than a thousand doesn’t it? Then you could pay the $1,000 owed and walk away with $1,000 in profit.
Sounds awesome except some states might deem the transaction illegal because to give a business $100 cash in exchange for $1,000 over a certain time period is usurious and predatory to the borrower. But selling a refrigerator valued at $100 to a business for $1,000 is okay, even if the business is never able to sell it.
In the eyes of a state, it is okay for a business to pay a 900% markup for an illiquid asset but it is dangerous to pay a 900% markup for the most liquid asset of all. I don’t understand it. If the idea is to prevent lenders from poaching borrowers or borrowers from making bad business decisions, then why is it okay for someone to sell a product for a lot more than they paid for it? Is a manufacturer selling a $100 refrigerator to a business for $1,000 usurious?
Perhaps your answer would be that a business owner wouldn’t engage in such a transaction if he/she didn’t believe it could be sold for more, either because there is an established retail market or because of sufficient market research. That is a weak defense because businesses get stuck with inventory they can’t sell all the time. Whether the market changed or it was just a bad business decision, Americans attitude towards speculation on a good or service is one of total acceptance. But give a man a dollar and he can’t be trusted to earn back more than a few cents on it. A legislator might evaluate these potential returns on a $1 investment like this:
Turn it into $1.05? sure!
Turn it into $1.15 maybe…
Turn it into $2.00? Let’s make laws to prevent people from thinking that way!
In many states, if you borrow a dollar so you can make three but it cost you a dollar in interest to make this happen, it’s illegal. But if you pay a dollar for an old banana peel with the hope of selling it for $3, that’s a business transaction.
I could rehash examples over and over, but where I’m going with this is that there are things like credit history and risk criteria that prevent people from borrowing a dollar at a relatively low rate. Naturally, the more risky the borrower, the higher the cost. After a certain level though, the law intervenes. If the amount of risk warrants a very high rate of interest, more than what is allowed by law, the government would rather the borrower get nothing than allow the transactions to go through. It’s a very sad position the government takes on its citizens, that the borrower is not capable of generating the return they believe or that that they lack the intelligence to know what they’re engaging in and therefore the transaction should be stopped altogether. In a utopian society, saving people from themselves might seem fair and just, but in reality there are millions of people and businesses with less than stellar credit, disqualifying them from borrowing at all because to compensate for risk would require a rate of interest disallowed by law.
At this time last year, 53% of Americans had credit scores of 700 or better. 700 is that magic threshold and it means that 47% of Americans are going to have a hard time obtaining credit or won’t be able to get it at all. When the laws were written to protect borrowers, I highly doubt the legislators understood they would be locking out almost half the country.
It’s ironic then that in times of financial crisis, government points the finger at banks for keeping credit tight, when it is nearly impossibly to free it up because of how regulated it is.
Credit has been screwy the last few years because government intervention is wreaking havoc on the market. The maximum allowable interest rate on an SBA 7(a) loan maturing in less than 7 years is the Prime Rate + 2.25%. That would be 5.5% annually. FICO states that the odds of a borrower becoming delinquent on their loan (90 days or more behind) range from 15% to 87% if their score is less than 700.
How can you expect to make money if you can only charge a maximum of 5.5% when 47% of all Americans have a 15 to 87% chance of going delinquent or defaulting? You can’t and that’s why the Small Business Administration exists. In order to manipulate banks into making wildly unprofitable loans to businesses, the Federal Government via the SBA guarantees up to 85% of the losses banks are stuck with. It’s a bandaid solution to the broken market that usury laws create.
The SBA also empowers banks to crush private sector competition since many non-bank financial institutions do not participate in the SBA program and therefore need to charge vastly higher rates to compensate for risk.
But even the SBA has strict criteria on default coverage. Many borrowers do not meet the SBA’s criteria, leaving the bank unable to lend to them.
It is no surprise then that the end result of continued credit market dysfunction has led to non-bank financial institutions getting creative. If you can’t loan a man a buck in return for two, then buy 2 bucks worth of his future success in exchange for a buck today. That was the original basis behind Merchant Cash Advance financing and the concept is rooted in factoring. Americans accept the buy/sell arrangement in business no matter how much risk each party is taking and so if we start treating cash as an asset, of which there is nothing more liquid, then we’ve finally cured the disconnect of money versus product/service.
For those with heavy debt, critics point fingers at the lenders, disregarding the cash the borrower got as a seemingly empty asset with no value that disappeared over night, a trick they’ll conclude was all part of the lender’s plan to saddle the borrower with evil debt and interest charges.
Somewhere along the line, a few people stopped thinking about how they could turn a dollar into two and started thinking how they could use the dollar to pay for something they already got while worrying about the dollar and interest owed on it at a later date. As this psychology has taken root in our culture, people have painfully learned that the ability to borrow runs out and the reality of owing a lot of money interferes with the comfort of living the way they did before. Lenders have taken losses and legislators have enacted laws to prevent people from hurting themselves. It all comes back full circle as we wonder now why banks aren’t lending and people can’t get credit.
There are many solutions, some temporary, some long-term, some will help a little, and some will help a lot. All of the debates, arguments, and finger pointing don’t change the fact that no matter how much progress we make, there are people out there that are wondering how they can borrow a dollar today to pay for something they already got. Businesses borrow to pay for past due rent, pay off inventory, taxes, payroll, and equipment. There are instances when a cash infusion is appropriate because the business will bounce back and there are instances when a loan will prop an insolvent business up for a short while, only for it to finally fail because the profitability or cash-flow problems were never fixed.
In America we all understand the trading of goods and services for money, but when money is traded for money, we get confused. If you are willing to pay $1,000 for a refrigerator it cost someone else $100 to make with the belief that you could resell it for $2,000, then there is no reason why the manufacturer shouldn’t be able to borrow $100 and go direct to the consumer themselves. The $900 interest fee is justified. Let’s not forget that a competing lender will charge less to try and steal the borrower away. The market will takeover until the perfect balance is met between risk and reward. When we legislate away this natural process we cause dysfunction, creating the needs for bandaids like government guarantees to force a market into existence while disrupting all of the other ones.
Undo the regulations and inspire the masses to turn a dollar into two, a hundred, or a thousand! The possibilities are endless with cash. If you can’t think of a way to turn a healthy profit with the most liquid asset on Earth, then chances are your luck won’t be much better with selling refrigerators or anything else.
– Merchant Processing Resource
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