Does Your Own Hunger Affect Lead Quality?
March 7, 2015
5 years ago in this very month, I funded 29 MCA deals for a total purchased amount of $608,000. 23 of those deals were renewals. It wasn’t my best month and it was also a different era. They were all split-processing accounts, not ACH. New deals could take six weeks to set up depending on the payment hardware. There was also no such thing as stacking then. The deals I was funding were from a good mix of warm leads, usually people who had filled out a form for financing somewhere online.
I didn’t always get warm leads. When I first started in sales in 2008, every rep got three or four actual leads a day. These were the golden geese, the Glengarry leads. The challenge was that they were sold to at least five ISOs at once so it was a race to get the merchant on the phone and establish a rapport with them first.
Caller number five was usually dead in the water. The least likable or least experienced of the remaining four would be cut by the merchant right away. That brought it down to 2 or 3 that the prospect would at least entertain.
None of these merchants had actually applied for a cash advance, but rather they had expressed an interest in business financing on a generic website and claimed that they accepted more than $5,000 in merchant account sales a month. Yet competing against four other companies to offer an expensive solution the merchant had never heard of was as good as the leads could possibly get. And if I started the day at 9 AM, then odds were I’d have made all 3 calls by 9:30.
I didn’t get paid a base salary so I couldn’t fake my way through the rest of the day. The remaining 9 hours were UCC lists and follow up calls with leads from previous days. I can’t imagine calling a UCC now in the age where stacking exists. The only option back then was to satisfy their outstanding advance in full with the proceeds of the new one.
Hi, my name is Sean Murray with ____________ and I’m calling about the advance you have with _____________. I know that company’s products can be awfully expensive and I was wondering if you were open to the opportunity of a lower holdback percentage, lower dollar for dollar cost of capital, and some additional money in your pocket.
I was notorious for cutting points off my upfront commission to get deals done. Sometimes I’d make nothing on the upfront commission but at least I’d get a new merchant account out of it and a backend cash residual. My residuals grew really fast.
Fast forward to 2011, I didn’t want to call UCCs anymore. I wanted the warmest leads possible. I was losing my edge on how to even approach UCCs because I had become so adjusted to higher quality material. I felt I had earned my way past them or that UCCs no longer offered the same value they once did.
So it was enlightening when I watched a junior account rep fresh out of college bring in more than 20 applications in his first week just from UCCs. Few funded, but I was impressed by his ability to engage prospects and bring in paperwork on leads I considered to now be crap.
He was hungry. He was new. He also realized that if he couldn’t bring in applications, that he’d be fired pretty quickly. He didn’t have the luxury of telling management that the leads sucked and to give him something else. This was all he would be given.
Watching him brought me back to my first few months as an underwriter in 2006 when there were very few MCA ISOs in existence. One day when deal flow was very slow, I was given a binder full of names and phone numbers of business owners who had applied for a mortgage in the past few years. The boss told me to “underwrite these files.” I learned immediately that all I was doing was cold calling random businesses. As a brand new hire, I was scared that if I didn’t “underwrite” them that I would be fired. So I started calling them with an offer to buy their future credit card receivables (the Merchant Cash Advance term was not widely adopted yet).
I got in applications and statements, I underwrote them, and then if approved, converted their merchant processing accounts and funded them. I didn’t get a commission because I was a salaried underwriter. All I hoped was that enough would fund (and not default) that I would be able to keep my job.
Eventually I was on a team where it was the responsibility of the underwriters to pitch the merchant on the product, gather the docs, close them on terms, underwrite the file, and fund it. The ISOs would just send us a lead and make 8-10 points if we somehow turned it into a funded deal. A few ISOs were sending us pure garbage, random names and phone numbers (literally a first name with no last name and a phone # of a non-lead) and passing them off as leads to see if our underwriting team could turn them into deals that they’d get paid on. Some were shocked when they heard we funded them. Others were mad that we weren’t funding enough.
As the company grew and the industry expanded, It eventually became normal to receive an application, 4 months merchant statements, 4 months bank statements, lease, voided check and a driver’s license and communicate with an ISO who did almost all of the legwork. All I had to do was underwrite the deal. When someone would submit much less, I got frustrated that I even had to look at it. My job was to underwrite files, not make half promises to ISOs based off of very little information. With so many completed files being submitted every day, I began to look at incomplete files differently. The fear that I would lose my job wasn’t there because I was already approving millions per month.
Fear was a huge motivator for me, especially in sales where I had no base pay. You either turned shit into gold or you lost.
It’s amusing to see how opinions vary today around the industry. Some ISOs still swear by UCCs, some stopped bothering with them years ago. Some say mailers are great. Others say they have tried them and they were terrible. Press 1s are the worst or Press 1s get deals funded. Web leads bring in too many annoying startups or web leads are the only type of leads that work.
What sucks and what doesn’t is undoubtedly affected by your attitude. If you’re used to the Glengarrys, then how patient will you be for what veterans consider to be junk?
In the upcoming March/April magazine issue that will be mailed out at the end of this month, I interviewed a 25-year old sales rep who had much more on the line than the fear of just losing his job. He became very successful after just a few years of cold calling.
For anyone out there who has bought leads only to bash them afterwards, was it really because they were bad? Or was it because you weren’t hungry enough?
It makes all the difference.
It’s Okay For a Business to Act Like a Business
February 10, 2015
A day after I delved into the fate of the industry’s bad paper, Fundera’s Brayden McCarthy discussed a paper of his own on Forbes, a Small Business Borrowers’ Bill of Rights. While our articles were quite different in substance, we both shared our beliefs on why the cost of commercial financing remains high.
McCarthy wrote that achieving a transformation, “will depend in part on facilitating greater transparency, accountability, and fairness across our sector, and reining in predatory actors.” He cuts right to the chase by attacking lenders all while ignoring the reality that businesses are regularly preying on financial companies too, especially in the technology age.
It’s an epidemic. There is actually an entire industry association that is dedicated to preventing repeat merchant fraud. Respecting that small business is the backbone of this country though, it probably wouldn’t be appropriate to draft a Lenders’ Bill of Rights, whereby merchants promise not to deceive, lie, or commit fraud against them. Instead the industry deals with it quietly, investing in new risk infrastructure and ultimately passing the costs on to the good borrowers.
Merchants aren’t inherently bad, but neither are the companies that provide them with financial services. Let’s agree that the world is good but that bad actors exist.
McCarthy’s argument for a Small Business Borrowers’ Bill of Rights is premised on the assumption that in every commercial financing transaction, one side is painfully unaware and uneducated about what’s going on around them despite being an owner, president, or CEO of a company.
I think a dose of self-deprecating reflection is healthy and 2014 definitely brought out many discussions about how to increase transparency and better serve small business. But there’s a line between self-improvement and self-loathing that nobody should lose sight of.
It’s okay to make a profit
Imagine that the CEO of a widget retailer grossing $2 million a year is looking for a new widget wholesaler to buy product from. The CEO sits down with a prospective wholesaler and asks for a quote. The wholesaler says they have deals with domestic widget manufacturers and Chinese exporters and based upon these relationships and the circumstances they can sell them in bulk at a price of $2 per widget. Unbeknownst to the retailer, the wholesaler quoted a competing retailer a price of only $1.80 per widget earlier that day. But this is business and if the wholesaler can charge more to this company, he will.
Unsure if he should accept the terms, the retailer pulls out a Widget Retailers’ Bill of Rights and demands the wholesaler charge not a penny more than what would adequately compensate the wholesaler for his work in the name of fairness. He also demands to be presented with unbiased facts on costs, benefits, and risks of every widget manufacturer, so that they can compare products on an apples-to-apples basis without pressure. And if they don’t do this, they will get Washington involved.
If you think this is supposed to be silly, it’s not. It’s McCarthy’s worldview applied. What’s missing from this scenario is that the wholesaler has a widget cost basis of about $1 and is selling them for $1.80 to $2.00, a nice margin. The retailer will sell these widgets for $10 a piece in their stores for an even better margin.
Maybe it’s the consumer that ends up getting screwed on price but even that seems unlikely since widgets are selling off the shelves at lightning speed. So what would be fair and adequate compensation for every party involved? What if the manufacturers are producing widgets for 7 cents each? Is there another layer of possible unfairness here?
Everybody has some kind of incentive and that’s how a marketplace works. If the price is too high, customers won’t buy, they’ll negotiate the price down or they’ll shop elsewhere.
In McCarthy’s Bill of Rights, he rejects the very notion of self-interest. “Some lenders charge higher interest rates just because they can,” he writes. This is how capitalism works. Find your customers price point and sell for a profit. Don’t forget we’re talking about commercial transactions only here!
You ever wonder why they’re called deals?
I’m reminded of someone from the peer-to-peer lending world that once asked me why folks refer to merchant cash advances as deals. They’re not loans, they’re not units, they’re deals!
And true to their deal making roots, terms on them are almost always negotiable. Two companies come together to make a deal… get it? Traditional merchant cash advances are also not loans. They’re literally contracts negotiated by businesses to sell future revenues at a discount in return for upfront cash flow. The concept couldn’t be any more commercial.
And over on the lending side, McCarthy might have you believe that the average small business CEO is unsophisticated shark bait in this unfair world so I pulled up the stats on the industry’s most famous small business lender. According to the S-1 filing, 90% of OnDeck Capital’s borrowers gross between $150,000 and $3.2 million a year in revenue and have been in business for an average of 7.5 years. These are bright companies.
Curiously there’s a group of financiers that are unabashedly capitalist. They will charge whatever they can get away with, take half a business if they want and even call their customers shark bait to their faces. Hopefully they clean up their act before Washington steps in! Thankfully the regulators have not yet put an end to ABC’s Shark Tank though I’m sure McCarthy will propose they do so.
That means you too Marcus Lemonis… Rumor has it you do things to make money all while applying high pressure sales tactics on TV to get people to agree and without telling the business owners the unbiased facts about every other financing option in the entire marketplace.
If it’s okay on TV, it has to be okay in real life.
Business on a deeper level
I didn’t mean to take a stab at Brayden McCarthy personally but his message reflected a culmination of emotions that some people feel in this industry when they’re struggling to keep up. They can’t believe that a client would take something more expensive when they had an offer for something less expensive. Almost 7 years ago I competed against another salesman for a client to whom we both made almost the exact same offer; Same advance amount, same holdback %, same closing fees, but a different receivable purchase amount. The ONLY difference was that the other guy’s price was $2,000 more expensive. Everything else was the exact same and he knew it. And you know what happened? He went with the more expensive offer…
I remember confronting that salesman about it a few days later after I had let my anger cool down. A lot of thoughts had gone through my mind, that perhaps the other guy had lied, coerced him, or conducted some kind of shady trick. Why else could this have happened?! It seemed completely illogical. Of course it was none of those things. The other salesman developed a strong rapport with the customer and they spent most of their time talking about football on the phone.
“He freaking loved me,” the salesman said.
“That can’t be it,” I thought. Still hurt and determined to get the truth, I sent the lost prospect a very long email complete with mathematical formulas (I even used exponents, square roots, and fancy squigglies for good measure) to show how much he would’ve been better off with my offer. He responded almost immediately. “You see, this is exactly why I didn’t go with you,” he wrote.
While I was busy trying to open the customer’s eyes to the magic of the Black-Scholes model, the other salesman was talking to him about whether or not Eli Manning was really franchise quarterback material.
Still a very inexperienced salesman at the time, I had learned a new truth. Business went deeper than just prices, market efficiencies, and a desire to make money, it was also about relationships. Treating one side like an uneducated idiot has become a cornerstone of regulations to protect consumers, and perhaps even rightfully so but imagine the widget retailer grossing $2 million a year walks into a business negotiation and is immediately told that he is too dumb and too unaware to not only understand how to assess a deal but to foresee the consequences of his own decisions if he makes a deal.
Transparency is good, relationships are greater. There’s no need to codify sour emotions into an awkward Bill of Rights. Let two businesses make a deal. It doesn’t have to be the smartest, the fairest, or the best, just something both ultimately agree to. I can’t imagine it any other way.
Despite FinTech Disruptions, Many Thing Stay The Same
January 5, 2015
2014 was an unbelievable year!
I kicked off last year by opening an account with Lending Club so that I could understand their product. Today I have tens of thousands of dollars invested on their platform and picking up new loans has become part of my daily routine. You could say I’m not surprised they went public a few weeks ago.
I also launched the industry’s first trade publication and ran it as both publisher and chief editor. We produced 6 issues and distributed more than 20,000 print copies combined. Unfortunately the publication will not be continuing further. It is wild to think that it both started and concluded in 2014 as the magazine had a cult-like following.
7 conferences in 4 cities. Las Vegas (twice), San Francisco, New Orleans, and here in New York. I spoke at two of them. Hoping for at least 1 Miami conference this year. Please??? It’s so cold here right now.
OnDeck Capital took a lot of flak in 2014 from both industry insiders and the media. They shrugged it all off and went public on December 17th. Considering they’ve operated on the fringe of the merchant cash advance industry for so long, it was one of those things you had to see to believe. I didn’t get inside the building but I saw the IPO was real from the outside.
I started off 2014 not knowing what a Bitcoin was. Now I have a copy of the entire blockchain, operate a full node (don’t worry I have port 8333 open), have 10 dedicated mining devices running 24/7, have made purchases with bitcoin, conducted countless transfers, and just finished coding a working prototype application using Coinbase’s API. And when I realized that bitcointalk.org and my cryptography books weren’t enough to satisfy my appetite, I found myself talking about bitcoin on IRC; #bitcoin and #bitcoin-pricetalk on irc.freenode.net. I also know who Satoshi Nakamoto really is now too but he made me promise not to tell anyone.
I rebranded Merchant Processing Resource to AltFinanceDaily, retiring a name I’ve used for 4 years.
I interviewed former Congressman Barney Frank, one of the two architects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (it was only a few questions).
I got asked by a credible movie producer if I would help him on a storyline for a script about Wall Street and the alternative business lending industry. Don’t worry I turned it down!
I jumped on the payment disruption bandwagon and used Square to process credit card transactions all year. You should know that I previously did merchant account sales. I could’ve boarded my own account and set my own fees but I went with Square anyway.
I finally got set up to syndicate on merchant cash advances.
I ran my first 5k in Central Park.
I moved to a different part of Manhattan.
Of course a whole lot more happened. It was a roller coaster year which leads me to believe that 2015 will be impossible to predict. There’s a lot more room to grow in FinTech but it might be time for fresh ideas. Everyone and their mom built an online lending marketplace platform in 2014.
Similarly, it’s also a tough time to become a loan broker or MCA ISO especially if you’re undercapitalized. The easy profit ship has sailed. Press 1s and UCCs aren’t winning business models, at least not ones that will invite outside capital or ensure survival long term.
2014 changed finance but in many ways it stayed the same.
It still takes 2-4 days to confirm an ACH didn’t reject! This is annoying all around. If I add funds to Lending Club on a Monday, it’s not accessible until Friday evening. If you debit a merchant on Monday, you won’t really know if you have it until a few days later. Believe it or not I actually mailed out more checks in 2014 than in any other year of my life. The ACH system appears to be fine until you use something that is far more advanced, something I will probably write about over the next month. Instantaneous payments, low transaction fees, no bank involvement. Yeah, it’s time for ACH to go away…
And with banks, well… I have opened business bank accounts over the last few years with 3 different banks. The one I opened in 2014 required a two hour in-person interview, a process that involved filling out forms by hand and being threatened that the government would shut everything down in a heartbeat if they found out that I so much as breathed wrong on an ATM. It was a repeat of prior account opening experiences. Although I’ve never had an account closed for doing anything wrong (because I’m not actually doing anything wrong), it is easy to see how much regulatory pressure banks are under. Swiping your debit card upside down could cause the entire bank to get an Operation Choke Point subpoena. They want your business but they’re scared to death of anything you might do with a bank account.
All the major peer-to-peer platforms of 2014 became centralized. Lending Club and Prosper don’t even fall in the p2p category anymore. The market trend has been to create a platform designed for the little guys and then hand it over to a bank or institutional money to do all the funding. In some ways it’s easier to deal with a handful of big players instead of thousands or millions of retail investors. But with the regulatory environment uncertain on so many new investment products, it’s probably also safer to deal with institutional investors, lest the regulators claim they violated a consumer protection law they thought up this morning.
Banks continue to be the biggest obstacle to innovation because at the end of the day, all payments flow through them. How can one deBank and truly disrupt?
Hopefully we’ll find out in 2015. Happy belated New Year.
With OnDeck IPO, Strangers Walk Among Us
December 18, 2014The future isn’t ours to make anymore. Not ours alone anyway. Last week the industry was a group of insiders. Today the outsiders walk among us.
$ONDK looking good, but surely this will fall by tomorrow.
— Nealio (@IpoBandwagonTagAlong) Dec. 17 at 11:07 AM
I don’t know who IpoBandWagonTagAlong is but he’s now an influencer in the industry. Almost 13 million shares of OnDeck Capital traded today, its very first day on the NYSE.
$ondk new ipo watching this..seems similar business to $lc
— kunal desai (@kunal00) Dec. 17 at 01:59 PM
It hurts to see “seems similar business to [Lending Club]” as the information being gleaned about OnDeck. I could spend an entire week contrasting the differences but it doesn’t matter anymore. Opinions about OnDeck and the industry they’re part of are about to be formed in tweet-sized pieces at rapid fire pace. Anything longer and the opportunity presenting itself on a trade might pass. Wild.
If you’re in the merchant cash advance business, you’re about to learn that describing the purchase of future sales in anything more than 140 characters is going to work against you. You will inevitably be asked if you do what OnDeck does and you better be concise.
Exactly 140:
“We provide working capital to small businesses by leveraging their future sales. It’s not a loan but it is in some ways similar to OnDeck :)”
Or you could simplify it further and just write:
“Seems similar”
Proud to have OnDeck join the NYSE’s community of the world’s leading, most-recognized companies (NYSE: $ONDK ) pic.twitter.com/ReozilWjbR
— NYSE (@nyse) December 17, 2014
The most striking thing I experienced on opening day was watching so many OnDeck bears transform into OnDeck bulls. Lots of buy orders were placed by those that have been chugging hater-ade for years.
I think that despite reservations with their business model, there was a desire to touch the company in some way, to feel like they were a part of the industry’s milestone. I totally get it. But that brings up an interesting question, how much of the stock can you touch until you start to hold some sway?
I mean shareholders are owners right?
Theoretically, could a terminated ISO buy up shares and then start making demands about re-establishing a partnership? What is the protocol here? Can OnDeck’s ISOs buy OnDeck? Or OnDeck’s competitors? I don’t mean a controlling stake but enough to make some noise. Imagine OnDeck being a funder for the ISOs by the ISOs! If a huge ISO is terminated, does that have to be announced to the public at the same time that the ISO community finds out?
This is a very gossipy industry and coincidentally, I run practically all the industry gossip websites so people like me want to know.
What if a merchant owns shares of the company it is applying to? Is that a positive underwriting data point?
With an office close to the New York Stock Exchange, I was able to at least snap off a few pics of the big banner displayed outside.
And if you’re wondering if I bought stock in OnDeck, I did not. I didn’t buy Lending Club either. It has nothing to do with how I feel about either company.
According to Crain’s, OnDeck’s “$1.32 billion market cap at its debut was the biggest for a venture capital-backed New York City tech company since 1999.” The stock exploded upward almost 40% from its open today. A lot of folks in the industry bought in and the rest is history.
Congratulations OnDeck Capital.
Getting in on the ONDK and LC IPO
December 4, 2014According to Investopedia, “Getting a piece of a hot IPO is very difficult, if not impossible.”
The Motley fool says:
If the bankers think a stock will soar, they earmark much of the shares for their favorite institutional clients (ones that bring in the most in commissions). In a sense, brokerages use lucrative IPOs to curry favor with big clients, to win and retain their business. When brokers aren’t so confident about the company’s prospects, they will try to sell the stock to less-favored institutional clients.
Admittedly these are generalities, not unyielding truths.
But when Lending Club mass e-mailed all their platform lenders on November 17th that they would be rewarded with a chance to get in on the IPO, people got excited. They wouldn’t just automatically get stock though, they’d be given the chance to buy it. An allocation was not guaranteed and a limit as to how much was not immediately disclosed, though it was recently revealed that platform lenders could buy up to a maximum of 350 shares.
At $10-$12 a share, that’s an opportunity to spend a max of $3,500 to $4,200 on the IPO. Getting in won’t make you a millionaire but it’s a little way for Lending Club to say thank you to all those who invest on their platform.
I got the offer and turned it down. I’m very bullish on Lending Club stock but I feel like I’m already invested enough in them as a company through platform lending to need to get even more in. For those not sure how Lending Club really works, their system is not actually peer-to-peer. Investors buy Lending Club notes that are tied to the loans they issue. You are ultimately only investing in Lending Club with every note you buy. You have no relationship or claim to the borrower.
With that being the case, my tens of thousands invested in them is enough, especially from a retail investment standpoint. But I enjoyed the proposal nonetheless because it felt like a gift for getting in on the ground floor of something huge.
I also liked telling people over the last two weeks that I could get in on the Lending Club IPO.
“You hear about Lending Club going public?” I’d ask a friend. And then brag, “Yeah, well I have a chance to get in on the IPO if I want. I could talk to my guy to try to get you in but I don’t know if I can swing it. Maybe though.”
I was pretty damn important.
Until someone told me they could get in on the OnDeck IPO today. He apparently had an inside guy and that inside guy was E*Trade, as in he could apparently get in on OnDeck’s IPO just for having an E*Trade account.
One had to wonder why any schmo with a brokerage account was being asked to buy in. It didn’t sound good for OnDeck but I let my friend have his moment. His guy could try to get me in, etc.
The mass blanket invitation to get in might appear that brokers aren’t so confident about the company’s prospects. But actually back in January of this year E*Trade forged a “retail alliance” with middle-market investment bank Jefferies LLC. A Reuter’s story said that, “E*Trade is betting that it can score points with investors by guaranteeing access to IPOs that brokerage firms normally reserve for their best customers.”
OnDeck’s underwriters include Morgan Stanley, Bank of America Merrill Lynch, JPMorgan Chase, Deutsche Bank and Jefferies. This is in line with “giving its customers access to initial public offerings and follow-on offerings underwritten by middle-market investment bank Jefferies LLC” though I haven’t confirmed the alliance is the cause of this.
Just as with Lending Club’s allocation offer, no one is guaranteed anything with OnDeck through E*Trade. There’s a required approval process which may ultimately yield nothing.
And yet it still feels a little weird, maybe because I’ve been hearing about an OnDeck IPO for years now and I just can’t grasp it’s actually happening. It’s one thing for a big banker to talk about it and another for an old college buddy, my doorman, and Jim who’s the cashier at the local hardware store ask me if I know anything about this OnDeck loan stock advance thing they heard about.
All I know is that sentiment on them is mixed but that ultimately insiders believe it’s great for the industry.
As for both of these the IPOs? I don’t know. I’m not getting in on either of them but it has nothing to do with how I feel about the companies. I can’t wait to watch this all unfold though.
Check out the 224 page OnDeck Prospectus!
Merchant Processing Resource is Now AltFinanceDaily
December 1, 2014
Back in July 2010, I launched www.merchantprocessingresource.com as an independent resource for merchant processing and merchant cash advance. At that time I was celebrating my 4th anniversary of working in the merchant cash advance business and realized there was little to no information about the industry online.
For the last 4 and a half years, this website under that name has been visited by hundreds of thousands of people, many of whom were new to the business or interested in getting into it. I’ve received thousands of emails and responded to an insane amount of questions.
In 2010, 95% of all merchant cash advances relied on merchant processing. For those that remember, funding was in many ways secondary to acquiring merchant accounts. But the industry has evolved and other related financial alternatives have sprouted up around it.
Over time I found myself exploring new avenues and relaying what I’ve learned or what I knew with the rest of the world.
Merchant Cash Advances may have started off as a product for those underserved by banks but it has morphed into an option for bankable businesses that would rather skip the bank. In a sense, today’s capital-seeking merchants are deBanking.
Consumers too are turning to peer-to-peer platforms and crowdfunding campaigns instead of credit cards and bank loans.
And then there’s myself. I started buying into Lending Club loans in January of 2014, almost a year ago. The returns crush what I could earn with a savings account or CDs. The bank is the least attractive option if you want to earn a return on your money.
But it goes beyond lending and earning interest. All the big conferences this year were filled with bitcoin enthusiasts, a payment technology and currency that is not only independent of government, but of banks. Of course I gave it a look and loved it. I shared my feedback in a post titled, My Journey to Bitcoin.
Merchant Processing and Merchant Cash Advance may have kicked off this blog, but four and a half years later, it’s time to acknowledge the other forces, many of which I have already been covering for quite some time.
With 2015 right around the corner, the world is deBanking in more ways than one.
I’m AltFinanceDaily.
Are you?
The Funding Calls That Won’t Stop
November 23, 2014“Your business has been approved for a loan…”
Last week, Chicago Public Radio (WBEZ 95.1 FM) investigated a trend in the small business community, the use of merchant cash advance financing. The station called me in advance to answer some questions about merchant cash advances and I gave my best explanation of the industry and its products.
Of the discussion that lasted more than 30 minutes, only about five of my sentences made it on the air. While I clarify some of my positions below, it was sobering to learn the context of how they were used, as a defense to real life merchant complaints.
The satisfaction rate with merchant cash advances are pretty high and I say that mainly because it’s so rare to hear complaints from anyone other than journalists that can’t believe anyone would accept rates above 6% APR. And while there are indeed bad actors in the industry (as there are in any industry), the gripe one merchant had about phone solicitations that just won’t stop is a recurring theme.
It’s happening to me too.
As an account representative in 2010 calling real time leads sold to five parties at once, I did what anyone would do, I pretended to be a small business myself and inquired through the website that we bought leads from and entered my cell phone as the point of contact
Ring. Ring. Ring…
Within a half hour, representatives from four companies called me, and I learned exactly who my competition was, how they explained the product, and what they would say to win me over. Two of the four were really good and one even referenced my name personally, saying something to the effect of, “If you get a call from Sean Murray, his rates are worse than mine.” Obviously he had already done what I was doing now, which was pretend to be a small business so he could prove to the prospect he was well informed about the alternatives. He had heard my pitch already and was now throwing me under the bus by planting the seed that I was going to offer something more expensive even if it wasn’t the truth.
In the end none of them won because it was all a farce. One never called me again after the first call. Another kept at it for a week and the remaining two followed up for a month.
And then it got quiet…
I had been marked as a dead lead and forgotten about until three months later when one company sent a follow up email. “Smart,” I thought. But then a call came six months later, and then more emails, some from companies I didn’t originally engage with.
And they continued at regular intervals, every couple of months an email or call. Was it interesting? Yes. Annoying? No.
Until this year.
The volume of emails have slowed but I’ve somehow ended up on robo calling lists. “Press 1 to talk to a funding specialist or press 9 to be added to the Do Not Call list”
The press 9 option doesn’t work for me. Sure, I might be removed from that marketer’s list, but it in no way removes you from anyone else’s list. I knew that already of course because I’ve been on the other end before.
The first time I got one of these calls, I was excited to tell the sales representative who I really was, level with him, and explain that it was a really good idea to take me off the list. But much like other business loan robo call complaints, the representative wouldn’t tell me anything about himself or his company.
I got yelled at.
Every time I tried to ask a question, he’d get louder, insisting I tell him my monthly gross sales volume for the “cash advance I wanted.”
A rogue actor maybe, but I’ve since gotten additional business loan robo calls and have made no progress in getting myself removed. I just hang up now.
Call it sweet irony perhaps. Or maybe a wake up call (pun intended). I applied on a website once four years ago and the rest is history.
My experience with repeat solicitations is marginal compared to somebody that has actually used a merchant cash advance. With the filing of a public UCC-1, anyone in the industry can easily access that data and convert it into a marketing list. And they do.
Brokers that scorn UCC marketing acknowledge that these businesses could be getting called 5-10 times a day. My own clients had reported repetitive calls back when I was an account representative. And while UCC marketing is very cost effective, in today’s market where more than a thousand companies are offering similar financial products, it’s probably safe to say it’s overly saturated.
And if 5-10 calls per day were even remotely accurate, I’d surmise that level of volume is marring the industry’s reputation as a whole.
I could argue though that when customers have a great many options to choose from, they win. With more than a thousand companies offering merchant cash advances and business loans, it’s truly a buyer’s market. Play all the companies against each other and you should end up with the best possible terms. It’s a great time to seek capital.
Except we’ve got to do something about those phone calls, or at least the robo calls.
Every angry robo dial recipient becomes one less person likely to speak positively about the the nonbank financing industry. Aged leads, UCCs and phone calls might be inexpensive, but the cost to undo negative preconceived notions is immeasurable.
Do you want to be known as the company that helped small businesses or the annoying people that won’t stop calling? If merchants are taking to the air waves to complain, it will only be a matter of time before the FTC and FCC become interested.
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Regarding my comments on the radio about APRs and daily amortization, they were pulled from a conversation that compared daily payment loans to purchases of future sales. I DO believe bad actors exist and every business owner should have an accountant, lawyer, or savvy third party review any contracts they enter into, financial or otherwise.
Ready to Trade ONDK and LC?
November 16, 2014
On November 10th, OnDeck Capital finally made their S-1 public. Immediate reactions from inside the industry were mixed. The bears criticized the years of losses while the bulls pointed out that the tide is turning. With a profitable 3rd quarter, OnDeck’s bet on the long game might finally be proving itself.
And without delving into their S-1 for now, the industry should be bracing itself for change. The mysterious world of daily funders (financial companies that deal in daily payments) is about to come under the scrutiny from another body, stock analysts.
Unlike journalists which have bruised the industry with sensational headlines and surface level criticism (high costs, light regulation), analysts will be tasked with truly understanding the fundamentals of nonbank business lending. Not to mention that everyday retail investors looking for an edge will want to learn more about the industry than what a single company’s quarterly financials will tell them.
Daytraders might make decisions based on melodramatic stories but those buying and holding for the long run will be conducting something that’s rarely taken place in this industry, research. Expect these questions to be asked and deeply considered:
- Who are OnDeck’s competitors? (and not just the top 3, but the hundreds that follow them)
- What are ISOs/brokers and how do they operate?
- How do they generate deal flow?
- What is Merchant Cash Advance and how is it similar or different to OnDeck?
- What is the real regulatory environment? (Because there are actually applicable regulations despite articles that say there aren’t any)
- Why does OnDeck collect payments daily?
- Why is OnDeck’s model so much different than Lending Club’s?
Look for the last bullet point to be explored greatly. If OnDeck and Lending Club are both innovative small business lenders broadly targeting the same market, why is OnDeck charging an average of 50% APR paid daily over 6 months and Lending Club charging as low as 5.9% APR paid monthly up to 5 years?
Their products couldn’t possibly be more different. And while Lending Club’s IPO path has curiously stalled, there is nothing to indicate that it will not proceed. That means we should expect comparisons between the two upcoming tickers LC and ONDK, a lot of them.
Details about commissions, closing fees, marketing practices, and transparency will be talked about in open forums by the general public. If it’s controversial, it will be debated. If it’s unique, it will be scrutinized. To an extent, OnDeck, Lending Club, and many of their competitors will cede control of their destiny to the general investing public.
There are folks in the industry giddy over the chance to buy and sell stock in both companies. They have years of experience on the front lines. But just as they’re gearing up to trade ONDK and LC, so too is everyone else.
Get ready for major change…
