A Fun QSR Chain or “Big Sandwich”?
November 27, 2023
As the small business financing space contemplates competition from merchant-integrated platforms like Square, Shopify, and Intuit, one behemoth is taking over the franchises themselves. The company is Roark Capital, an Atlanta-based PE firm with $37B in assets under management, and they taste delicious.
Roark Capital already owns Arby’s, Auntie Anne’s, Baskin-Robbins, Buffalo Wild Wings, Carvel, Cinnabon, Carl’s Jr., Hardees, Culver’s, Dunkin Donuts, Jamba, McAlister’s, Moe’s Southwest Grill, Schlotzky’s, Seattle’s Best Coffee, Jimmy John’s, SONIC, Jim’n Nick’s Bar-B-Q, Miller’s Ale House, North Italia, Nothing Bundt Cakes, and the Cheesecake Factory. Three of those are among the top fast-food sandwich chains in America (Arby’s, Jimmy John’s, and McAlister’s Deli). Roark is also presently in the process of acquiring Subway, the leading company in that category by nationwide sales. The deal was announced in August.
But now the FTC is saying not so fast on the basis that it might create a monopoly. According to Politico, “the government is focused in part on whether the addition of Subway gives Roark too much control of a lucrative segment of the fast food industry.”
“We don’t need another private equity deal that could lead to higher food prices for consumers,” railed Senator Elizabeth Warren on social media. “The FTC is right to investigate whether the purchase of Subway by the same firm that owns Jimmy Johns and McAlister’s Deli creates a sandwich shop monopoly.”
While many comments on social media made fun of this regulatory effort, perhaps such consolidation is a wakeup call for the small business finance industry. Once upon a time the textbook definition of a non-bank funding merchant was a restaurant or QSR sandwich shop. Although the target customer has broadened considerably since then, it may be worth keeping in mind that a large diversified portfolio of QSR funding customers might not be so diversified at all. Behind the scenes, it may actually all be a single counterparty. A small business might not be so small. You could be dealing with Big Sandwich.
Why I’m An Evangelist…. For Outside Accounting Firms in MCA
November 9, 2023David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
For over a decade, since the explosion of the merchant cash advance industry in the United States, my team and I at Better Accounting Solutions have been working with a growing number of people and businesses involved in the industry, including brokers, funders, syndicators and investors. We’ve spent time meeting and mingling with you at industry events like Broker Fair and spent more hours talking on the phone advising you than we can bill for.
All this experience has led me to one conclusion, one reinforced the longer we work together with many of you: to thrive and be successful in the merchant cash advance industry, you need a third-party independent financial expert embedded in your business and books.
To declare the obvious context and biases up front: yes, this benefits businesses like mine and yes, I know this from working with many of you. But people become knowledgeable and experts in their own field that they’ve spent years studying and developing, which is why I feel qualified to discuss this.
In the ever-evolving world of merchant cash advance and its challenging relationship with transparency and ethics, trust with your business partners is a must.
Having independent third-party financial experts that report to both parties-for example between a funder and their syndicators- is the only way to ensure complete transparency without bias or conflict. It eliminates the possibility of the funder misappropriating the syndicator’s investment and skimming off what the investors are owed. Firms like ours excel in tracking the numbers to see the deals that are working and the ones that aren’t, and can demonstrate what is trending down to stop a bad deal from spiraling into a company-killing problem.
People often choose to rely on a single in-house accountant to manage their books because they want exclusive focus, but there are plenty of downsides to that as well. Not only are accountants hired from another corporate job rarely equipped to accurately track deals in the complicated world of cash advance, but they are also incentivized to make their reports as favorable as they can to their own company, which may scare syndicators and investors whom they have no obligations to. By outsourcing these critical functions to a specialized firm, MCA funders send a clear message to investors and syndicators: they take financial accountability seriously and they are a trustworthy and transparent business to work with, with open books for their partners to peer in.
Industry scandals that bring our profession into disrepute- such as the collapses of MJ Capital Funding, LLC and 1 Global Capital– were able to happen because the investors pouring money into what they thought were legitimate MCA businesses weren’t given access to the companies books until it was too late and hundreds of millions of dollars were forever lost.
Obviously, you should be wise about people’s motives, even mine as the author of this article, but you should also take every piece of advice into consideration, particularly one that objectively suggests measures that fosters and promote trust and better business growth practices.
Remember, in the world of finance, trust is the most valuable asset of all.
Originations Increased, Losses Decreased for Shopify Capital
November 2, 2023
Shopify Capital is still experiencing an increase in business loan and merchant cash advance originations, according to the company’s latest Q3 earnings report. The company recently stopped disclosing precisely how much it is they are originating, however. It used to give precise numbers but starting this year Shopify now only cites its loans and merchant cash advance receivables balance.
“Transaction and loan losses decreased for the three months ended September 30, 2023 compared to the same period in 2022, primarily due to a decrease in losses related to Shopify Capital.”
So funding is up, losses are down, which is precisely the opposite situation that is going on at rival PayPal.
Shopify somewhat skimmed over its Shopify Capital business in its Q3 earnings announcements and on its official call except to state that it’s a strong segment that is growing.
Nice Yacht, Someone Financed It
October 26, 2023
Every sentence sounds better ending with the word “yacht.” Enjoying crackers and cheese on a yacht. Sipping champagne aboard a luxurious yacht. Even making money financing high-end yachts, the charm remains intact. Over the past six years, East Harbor Financial has been offering a range of financing solutions under their Luxury Assets category, which includes exotic cars, aircraft, and vessels. While the company has been in business for 11 years, President Bruno Raschio’s foray into the yacht industry provides a unique perspective from an outsider turned insider.
According to Yatco.com, there are currently 592,000 yachts in the United States and the global market size was valued at $8.91 billion in 2022, with expectations to expand 5.8% from 2023 to 2030. The most Raschio has ever financed on one unit was $2 million and he admits there is a lot of money to be made in this sector, but people must be willing to welcome the risk that comes with it.
“Lenders who embrace risk and identify a specialized market can consistently generate profits in a business,” said Raschio. “Nonetheless, market corrections often possess the capability to level out the gains amassed during prosperous years.”
Raschio emphasized that the industry has many brokers that do not necessarily need an in-depth knowledge on yachts. Nevertheless, the significance of understanding yachts itself is always advantageous. In the case of private lenders, like his own company, Raschio advised focusing on financing high-quality yachts that possess strong market appeal and retain their value.
With the increase in manufacturing costs, Raschio states that prices may not revert to pre-Covid rates, like when they initially joined the yacht industry. For instance, A-credit rates, which used to range from 4½ to 5% before the pandemic, have now risen to 8 to 9%. Similarly, rates for B, C, and D credit ratings, previously between 10 to 13%, have surged to 14 to 19%.”
“Consider this scenario, if you were buying a million-dollar yacht before, you’d typically put down 30%, leaving you with a financing amount of $700,000,” he said. “However, in a post-Covid market, if the same yacht is selling for $1.5 million and you still put down 30%, you’d be looking at financing $1,050,000. That means you’re financing nearly $50,000 more than its pre-Covid value.”
East Harbor specializes in financing high-end yachts, brands like Sunseeker, Azimut, Ferretti, Pershing, and Princess. Transactions typically range from $600,000 to $1 million, covering yachts that fall within the 40 to 75-foot size range. Working with clients nationwide, the primary regions where the company provides financing are South Florida, which is the largest market, California’s Newport Beach, the second largest, and various areas along the east coast, the third-largest market. The company exclusively offers short-term loan options, typically lasting between 5 to 8 years, as opposed to the more common 15 to 20-year loan terms for yachts.
“We prefer to expedite our financing process since we rely on private funding,” Raschio explained. “Furthermore, this type of financing is generally costlier than traditional bank loans. Therefore, many individuals find it more sensible to present it as a short-term solution, where you secure your financing, achieve your objectives, and exit, or sell the boat.”
Upon entering the boat financing business, Raschio first’s client came to him with a million-dollar yacht with a $500,000 down payment. It seemed like a solid deal, but there was also a high likelihood that the yacht was going to need very expensive repairs. Its details like this that can change the entire dynamics of the deal and it was a teaching moment for him.
“As an example, a major repair on a used yacht that’s heavily depreciated could cost more than the entire used yacht price,” said Raschio.
Sales Slump? There’s Ways to Overcome It
October 9, 2023
From beginning as an entry level rep seven years ago to his current role as the Director of Sales and Operations at Tip Top Capital, Sergio Zamudio has gained a deep appreciation for the importance of maintaining motivation, especially during slower weeks. A slump can get even a good salesperson down so he encourages a shift in perspective. Instead of focusing on the number of contacts made in a day, one should evaluate how many of those contacts can become qualified prospects.
“It’s kind of like the marble theory,” Zamudio said, “if I throw a certain amount of marbles in a jar, how often do I come across a blue marble? Well, as long as I keep digging, and I keep looking, I’m going to get something.”
To inspire the team, Tip Top offers various incentives. The top producers in the office are recognized with a monthly trophy. And weekly rewards are given out, which can range from tickets to a Giants game or seats at a Broadway show. The underlying idea is to encourage the team to focus on what they can control, such as striving for another sale, rather than dwelling on tough days beyond their control.
“What we do to try to get people motivated and going is that we like to do bonus incentives,” said Zamudio, “We do this thing called a monthly trophy. Everybody’s very goal oriented and tries to beat one another to try to win the trophy, which goes to the top producers in the office.”
For Gerald Watson, CEO of the Watson Group, 25 years of experience has taught him a few things. When a week is slow, sales reps should “look at their existing book of business, whether it’s people they’ve done fundings for or even prospects,” he said. His advice is that reps should engage them in discussions about other financing products they might require. “Same customer, new products, that’s a real fundamental business strategy,” Watson said.
If all else fails, get accustomed to asking for referrals. Ending an interaction with something as simple as, “’Oh by the way, do you know anyone that…’” can go a long way,” Watson explained. “If there’s no opportunities with existing clients, you always want to get into the habit of asking for referrals.”
Will Murphy, COO at Everlasting Capital, is no stranger to a slump. The company started with one back in 2012 when his partner was making 400 calls a day for three months with no success. Finally, after all that, a deal got funded and it encouraged them to keep at it. While maintaining determination is certainly woven in to the fabric of their sales culture, Murphy also cited the importance of checking in on clients constantly. “We have a lot of trade secrets that we’ve learned over the years that we’ve implemented into play to (1) stay in front of the client, (2) stay in front of renewals, and (3) provide the best customer service that we possibly can because you got to stay relevant in this industry, or you’ll pretty much be forgotten,” said Murphy.
From A to D: How LCF is Aiming High
October 9, 2023
Robert Kleiber was a banker. He started his career at Citi in 2000 and rose up the ranks to become Head of Small Business Banking for North America by 2014. By then times were changing and disruptive fintech technology was becoming the talk of the town. Kleiber saw it firsthand and wanted in. So, he made the daring move to leave Citi in 2016 to go make his mark in the rapidly evolving world of small business finance.
He first served as the CFO of an NYC-based fintech company until another unique opportunity presented itself. It was at a growing company on Long Island that he hadn’t really known that much about previously. The way Kleiber tells it to AltFinanceDaily, the company had a way of communicating the scale of its aspirations that got him really excited. He went for it. The company was called The LCF Group, a revenue-based financing provider that was headquartered in New Hyde Park. Today, Kleiber is the CFO & COO of the LCF Group. Founded in 2011, the company has solidified itself as a stalwart in what folks often call the “C & D paper” space.
“The goal,” Kleiber reveals, “is to be largest subprime funder by the end of next year.”
That’s a lofty ambition. In an industry oft-filled with big talk and rosy projections, LCF’s trajectory actually appears to support this possible outcome. Between in-office and remote, the company already has approximately 200 employees and it’s been on a hot streak of recruiting talent. Most compelling of all, however, is that LCF recently acquired select strategic assets and licensing rights to a well-regarded name in the industry, Reliant Funding. At the time of the announcement, the company said that “This strategic move not only enhances LCF’s portfolio but also empowers us to offer merchant funding through both ISO partners and directly under the LCF and Reliant brands.”
“On the direct side, our plan is to build up Reliant on originations […] and get them back to where they were before,” Kleiber says.
In that regard, LCF fully intends to leverage the Reliant name back into a powerhouse funding arm in the prime paper arena, first by going direct to merchant and then by taking on ISO/referral business for it. Between its two brands then, the company is on its way to covering the gamut from A – D. Unsurprisingly, all of this activity requires strong technology to make everything work. Kleiber says that they have 20-25 developers constantly building out their systems, which they rely on to not only increase the speed in which they can approve deals but also to achieve maximum compliance.
“We take compliance super serious,” Kleiber says. “Our differentiator is transparency, operating above board.”
LCF’s new Director of Sales, Jason Redding, who previously spent ten years at OnDeck, echoes same. “Even though it’s C & D paper, we’re doing this the correct way,” Redding says. Redding, who experienced the incredible ride at his former employer from startup to IPO and beyond, explains that LCF is giving him a similar feeling of what that journey was like. “Being part of something like that again is something I’m looking forward to,” he says.
And yet when it comes down to product, the company is perfectly content for the time being to focus on what they’re good at, which is revenue-based financing through and through. They’ve determined it’s better to lean in and try to be the best at something rather than try to offer too many different things.
At the LCF office in New Hyde Park, one can find various departments working to carry out the company’s mission. Among the introductions and small talk made during a walkthrough, one line uttered by a veteran member of their team stands out. “In this industry you don’t have to be earth shatteringly different, just operate with honesty, integrity, and transparency, and success will follow.”
Fundfi Secures New Credit Facility
October 2, 2023
Fundfi Merchant Funding LLC, a leading provider of Merchant Cash Advances (MCA), is proud to announce securing their newest credit facility to continue growing its funding portfolio.
The new line of credit, secured through a strategic partnership with Crown Partners LP, exemplifies Fundfi Merchant Funding’s unwavering commitment to supporting small and medium-sized businesses by providing them with accessible and flexible funding solutions.
This substantial financial injection arrives at an opportune moment for Fundfi Merchant Funding as it seeks to capitalize on a growing demand for alternative financing options among businesses facing challenges in securing traditional bank loans.
Efraim Kandinov, Co-Founder and CEO of Fundfi Merchant Funding LLC stated, “This line of credit not only bolsters our financial capabilities but also underscores our unwavering commitment to supporting businesses on their journey to success.
We understand the unique challenges entrepreneurs face, and this new funding empowers us to make a more profound impact in helping them thrive and achieve their dreams.”
Natasha Dillon, Co-Founder and CFO of Fundfi Merchant Funding LLC, commented, “This infusion represents a tremendous vote of confidence in our company and its mission. We are excited to leverage these funds to continue supporting businesses when they need it most and to innovate our offerings to better serve our clients.”
About Fundfi
Fundfi Merchant Funding LLC, headquartered in New York, is a leading provider of Merchant Cash Advances (MCA), offering tailored financing solutions to businesses across various industries selected.
TikTok for Lead Generation? It’s Different
September 28, 2023
Today, TikTok is no longer just a platform for dance challenges, but a marketing tool rivaling social media giants like LinkedIn, Instagram, and Facebook. But does it hold the same weight for this industry looking to attract clients?
“You have to have fun with it and tell [your target customer] the truth about how we work and what we can do for them, no exceptions, and they will understand and trust you,” said Sonia Alvelo, CEO at Latin Financial. “Get creative and have fun with it at the same time. This is a different beast.”
Alvelo signed her company up on TikTok this past year and said, “It’s attracting good business.” Managing the account herself, their content is educational while also highlighting the environment and work ethic of the company. Their TikToks feature playful moments like office lunch breaks turned into music videos, fun clips showcasing employee food preferences, and footage from panels Alvelo has participated in. And she makes sure to have some content available in both English and her native Spanish.
“It is more educational content, that way it will attract new clients and give us the advantage of teaching them about the industry,” said Alvelo. “We also highlight our work ethic, how we treat our employees and the environment in which we work at Latin Financial.”
Initially skeptical, Alvelo learned that many small businesses on TikTok are seeking funding but hesitate to approach traditional banks. She’s studied where those businesses are online and the potential opportunity to connect with them where they are, including LinkedIn, which she actually found less conducive to this type of dealmaking despite its business atmosphere. She gives a thumbs-up to Facebook, explaining that its personalized environment allows those potential customers to really see you and feel like they know you.
“…You can make a lot of money advertising your company and what you do,” she said of Facebook.
“Instagram is good but it’s a networking platform and if you invest the right way you get a lot of leads and turn that into funded deals,” said Alvelo. “TikTok is the new approach to get all the new businesses less than two years old. And why not? Maybe to others it’s not the way to go, but for me and Latin Financial we are here to educate and for businesses to have all the knowledge to continue to be in business for a long time.”
Meanwhile, Alex Cespedes, Business Development Specialist at Financial Lynx, mentioned that their active engagement on TikTok only started in March despite being on the app for a year. They showcase a range of content, from funding successes, to visiting offices, to their sponsorships of different events. Still trying to figure out how to maximize the effectiveness of it all, Cespedes stated that LinkedIn and Instagram have been their bread and butter so far. The content they create on Instagram later gets reposted on TikTok and he’s found that it’s been hit-or-miss.
“…TikTok has been a little lesson but I think it’s because no one’s kind of figured it out yet,” said Cespedes. “Even on Instagram I see other brokers and other financing companies that do well and their stuff gets views and you see engagement on their posts, but then even when you go over to their TikTok, if they have one at all, it’s much less.”
The reigning demographic for users on TikTok is ages 18-24, whereas their business owner clientele is predominantly in their 40s-50s. Cespedes explained that Instagram resonates more with their target demographic for now.
“…I think that’s what it is now, it’s just a little bit of a lack of alignment, the TikTok age range is still a little too young for our industry, at least not right in the center of it.”
