Brokers and the “Biggest Players” in the Merchant Cash Advance Industry

Entrepreneurs who get merchant cash advances don’t often find them by searching the Internet. They are more likely to request it because a smiling salesperson has walked through their door.

Len Rogers says the broker who came to his Electric Bicycle Super Store in San Francisco to sell him a cash advance “took a very friendly approach.”

The pitch: “Listen, I like your business. I am here to help you so that I can get you some money. … The terms are flexible, ”recalls Rogers, who accepted two advances totaling $ 72,000 and made weekly repayments of nearly $ 1,800. “He befriended me. He was a good salesman.

Online loan in an offline world

Cash advances from traders are a form of online lending, but much of the selling of these products is done offline by brokers who call and visit customers like Rogers. Many businesses that finance cash advances to merchants depend on these independent sales agents to link cash-strapped entrepreneurs to their short-term, high-interest financing.

Merchant cash advance brokers sometimes have fits of conscience about hard selling, especially because high interest rates and repayment schedules can kill customers’ cash flow, says CC’s James Shepherd Sales Pro, which trains independent brokers and collects referral commissions for traders’ money. advance sales with national financing. The main reason brokers fail to close the sale is “you don’t feel good about it,” he says.

“There’s a lot of turnover in our industry, whether it’s employees or independent contractors,” Shepherd says. “For every 10 [brokers] entering the market today, only one will be in about six months.

Work on commission

Sales can mean big commissions, Shepherd says. Brokerage of a $ 20,000 advance can earn a commission of $ 2,200.

This commission-driven model has raised concerns as the mortgage meltdown has been fueled by similar practices. As the United States Financial Stability Review Board stated in a June report: “In other markets, business models in which intermediaries receive commissions for arranging new loans but don’t keep no interest on the loans they grant have, at times, led to incentives for intermediaries. less rigorous assessment and monitoring of loans.

Merchant cash advance lenders aren’t the only ones relying on brokers to connect with customers. Finance companies that sell short-term loans to small businesses are preying on the same networks of independent brokers, resulting in complaints of unscrupulous tactics. In a recent report to shareholders, OnDeck said it has reduced its reliance on third-party brokers. Other lenders have followed suit.

And there has been strong industry pressure to better educate brokers, says Sean Murray of the online magazine deBanked, which is developing its own training program with industry partners.

CAN Capital was virtually the only one offering cash advances to merchants until its technology patent to split credit card sales was revoked in 2007. “These competitors sued us, copied us in some ways, but they sort of wronged him in other ways as well, ”says Parris Sanz, General Counsel of CAN Capital. “I think in some ways they have adopted business practices that have not helped the reputation of the industry as a whole.”

‘I have to finance them all’

Yet the industry is hungry for customers, judging by its advertising to brokers. “Gotta Fund ‘Em All” indicates the subject line of an email ad that encourages brokers to partner with Strategic Funding. “We are easy! Says an advertisement from Everest Business Funding, with a photo of a woman in a negligee lying on a sofa smoking a cigar. “We simplify the fundraising process! “

“We want to steal all of your offers from our competition and give you faster and better approvals on your merchants,” Lendini boasts.

“Funding the Unbankable: Send Us Your DECLINED AND HIGH-RISK Offers,” read an announcement from Yellowstone Capital, one of the world’s largest finance companies, which also employs its own brokers. “Are you ready to roll with MCA’s biggest players?”

You may have never heard of Yellowstone Capital, but you may have seen profanity viral video of the company’s co-founder, David Glass, sacking the company’s president in 2012. detailed by Bloomberg, Glass was an inspiration for the 2000 film “Boiler Room” about high pressure stock sales and says it Vin Diesel training actor by approaching potential clients for the film. Glass pleaded guilty to insider trading charges in 2007, two years before co-founding Yellowstone Capital with Isaac Stern.

Culture of risk and reward

Glass is no longer part of the management team. But if the company’s holiday party is any indication, 2015 has been a strong year for Fundry, the parent company of Yellowstone: In a video of the event that has since been removed from YouTube, scantily clad waitresses serve up meals. shots and there’s a mind-blowing speech from Stern, calling on the employees who helped the company get $ 420 million in loans during the year. “Lockbox Steve – $ 65 million! Stern shouts to thunderous applause.

The company is a significant player in the high-risk market for cash advances to merchants, says Murray of deBanked. Advertisements to brokers say, “Give us your D sheets,” referring to potential clients with the lowest credit scores.

Yellowstone Capital has not responded to phone calls and emails seeking comment on this report.

“Take advantage of the opportunities”

How does Shepherd of CC Sales Pro deal with product discomfort? Make sure the customer is someone for whom the high interest rate is worth the speed and delivery of the money, he says.

For example, the oven of a pizzeria owner was destroyed in a fire. While the owner was waiting for a check for $ 30,000 from his insurance company, he found a used oven for $ 15,000. “So he knew the money was coming and he could start his business faster,” says Shepherd, who says he got a $ 50,000 cash advance for his own business in 2012.

“I always say to business owners, don’t get a cash advance from a merchant to solve your problems, get a cash advance to take advantage of opportunities,” he says. “If you get a cash advance from a merchant to solve problems – like cash flow or payroll – you’re just adding fuel to the fire.”

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