As the revenue advance industry continues to evolve, we see the lines between traditional banking and alternative financing becoming increasingly blurred. This shift reflects an intriguing experiment playing out right now in the financial ecosystem—one that could shape the future of small business financing.
Our guest today for the third installment of Onyx IQ’s Executive Interview Series is Dave Shollock.
As a Director of Business Development for Merit Business Funding, Dave works at the heart of this fascinating transition. He is part of a unique venture: a revenue advance funding company that operates under the umbrella of a traditional financial institution.
With a wealth of experience in the revenue advance landscape, Dave is uniquely positioned to offer us a first-hand account of this transformation.
In this interview, we’ll delve into Dave’s experience in the industry and his expertise on this blend of traditional and alternative financing, exploring what it means for the future of the revenue advance industry, and more importantly, the implications for small businesses seeking funding.
Background and Professional Experience
Q: How did you get into the world of revenue advance?
I got into the revenue advance space back in 2014.
I was a partner in a mobile ice cream concept out of Philadelphia called Sweet Pea Homemade Ice Cream. We exhausted all the avenues to acquire capital via family and friends, so I searched online for different opportunities and I came across CAN Capital.
The application asked for three months of bank statements, and I could get funding in 24 to 48 hours. I had never heard such a thing.
So I went under CAN Capital careers and lo and behold, there was an opening in Philadelphia for a sales representative. So I put my application in.
We got declined for the funding for the ice cream venture, but a month and a half later I got the job. So that’s where I started.
CAN Capital, uniquely enough, is the pioneer of this industry. They started the revenue advance program back in the late 90s, early 2000s.
Q: What brought you to Merit Business Funding?
The idea for the venture actually came from our Founding Director, William Bromley.
I had been in the industry for a few years and had come to know William well. William has been in institutional banking for over 40 years, doing everything from starting and operating, to acquiring and merging banks.
He had studied the revenue advance product for some time, and in the winter of 2021/2022, while I was working as the Director of Business Development for Sansom Funding, we caught up and discussed the potential of working together in the revenue advance industry. We originally considered opening a funding company, but we realized that we were going to be fighting the same battle that all funders fight: the cost of capital.
We understood that if we truly wanted to make an impact on the industry, we needed to partner with a traditional financial institution. Throughout his career in banking, William had worked intimately with the executives at a well-known local and publicly traded bank. After a few rounds of discussions with the stakeholders at this organization, things quickly fell into place. As our partner, this financial organization is committed to creating a lending continuum where small business owners can come to the bank and have all of their needs met, from traditional funding to revenue advance.
We funded our first deal on November 22, 2022.
Here’s why our situation is truly unique: most lenders get their capital from either hedge funds or private investors, so the cost of capital is much more expensive to the borrower. Being situated directly in the bank, our cost of capital is much less, and we can better serve our clients.
Q: What does a typical day look like for you at Merit Business Funding?
I’m the Director of Business Development, but I wear different hats throughout the course of the day.
The first thing I do when I get in is go into our lending portal, Onyx IQ, to ensure that there aren’t any missed payments from the night before.
Then I check what the funnel looks like from the day prior, to see what deals are queued up to potentially be funded, which deals have offers out, and which deals need to be underwritten and prioritized.
We’re in our infancy stages still, so through the course of the day, I work with the team to continue to advance and build. Now we’re a team of eight, and are starting to branch certain individuals into actual departments and heads of those.
So I’m doing everything, from assisting with collections, sales, customer service, and advancing the team and educating them to grow this program as much as possible.
Industry Outlook: Revenue Advance
Q: What’s the competitive advantage of having a revenue advance product attached to a traditional financial institution?
Again, the vision of our partner is to create a lending continuum, which I think is a fantastic model, where clients can come to the bank and get everything from soup to nuts.
So a business owner whose credit will not be approved for any type of traditional funding, well, they can start with revenue advance and then can grow.
The beauty of Merit being part of a bank is that our partner organization also has two other departments that we work with hand in hand: the equipment financing department and the SBA department.
While a business may qualify for an SBA loan, it likely won’t see the funds for two to three months. What do business owners do if they need the capital now? Well, we work with these businesses to get them a revenue advance that meets their needs, collaborating with the SBA department.
Then you have equipment financing as well. What I’ve noticed, especially over the course of the past two to three years, is that brokers and ISOs are starting to expand their product offerings, because the revenue advance space has become saturated. So we work with our network and this department to help businesses secure revenue advances for the critical equipment that they need.
One of the most attractive advantages for businesses is that all of these products—revenue advance, SBA, and equipment financing—live within the same bank statement.
Q: What is your take on the state-level disclosure regulations that continue to appear?
The more regulations, the better, because it’s going to eliminate the bad actors.
It’s going to be a challenge, because each state has different regulations, so being in tune with which regulation pertains to each state may be somewhat of a challenge initially.
It would be easier if there was just a national regulation blanket across the revenue advance industry. But we know that’s not how it’s going to work.
But yes, regulation is going to be a great thing for us—that’s another reason why the timing was right to implement this product within a traditional financial institution.
Because we want to be the good guys. If more banks get involved, it will drive down the cost of capital to the merchant and eliminate all the bad players.
So we can really be the pioneers of doing this the right way because this is a product that business owners need: they need quick capital and it’s very difficult for them to achieve that, especially in these uncertain times.
Q: Why aren’t more banks working in the revenue advance space?
Banks are in this space, but they’re not directly in the space.
For instance, Wells Fargo was the main backer at Can Capital for years. I just think it’s the uniqueness of the industry, and not many are willing to take the leap of faith to just do this directly within the bank as we are.
Being a part of the bank, you know the financial situation of your clients probably better than the clients know themselves.
Our hope is to get more banks involved. Maybe initially it’s banks syndicating with us, or it’s banks passing on their clients to us.
We’re trustworthy, we’re reputable, and we’re publicly traded. We can be of assistance to banks looking to work in the industry because we have years of experience underwriting these types of deals—something many traditional financial institutions don’t have.
So at the end of the day, we view this as an opportunity to get more banks involved, which in turn should drive down the cost of capital to the merchant. And it will bring a core of reputable funders together that are all involved in the industry for the right reasons; to do the right thing.
That’s why we’re very, very selective as to the ISOs we bring on board. We started a charter ISO program, working with ISOs and brokers that are trustworthy and have the same vision as we do.
If we do this right early on, it will be very beneficial for everybody involved.
Lending Technology
Q: What role does technology play in funding these deals?
Technology is ever-evolving. Every second that goes by, there’s new technology, so you have to stay up to speed with the advancements of the industry.
Onyx was one of three CRM providers that we considered. Jay Keller, the founder of Onyx, had experience within the revenue advance space, which was very appealing to us. We look at Onyx, and it does everything we need—and more.
But the one thing with technology is, it can only do so much.
Q: There needs to be a human element as well, correct?
Yes, there needs to be some type of human element.
We’re all on board with automation, to an extent. Onyx has been very good to offer us Optical Character Recognition (OCR), where we have a quick glance at a business’ bank statements, and then use the results from OCR and MoneyThumb to move forward.
But then we have the human factor, and we engage in due diligence. I’ve seen and heard enough throughout my time in this industry where a funder tries to go totally automated and it doesn’t work—there’s something to be said about the human eye and looking at statements.
Maybe an automation tool is declining too many deals or approving too many deals. So it could work on both sides of the coin. We’re trying to utilize Onyx to help us streamline and be as competitive as possible as far as turnaround time, but relying on the human aspect as well.
Wrapping Up
Q: What makes somebody successful in the revenue advance industry?
Number one is hard work.
Number two is patience.
And number three is the desire to succeed.
I think communication and transparency are two of the main aspects that you need to be successful in anything in life, so those would be two more.
You bring all of them together, and you have these five attributes.
This industry, and the way it operates, is like a roller coaster. Say you’ve got a deal, you’re almost ready to fund it. Then, on the funding call, the merchant updates their financial situation and the deal falls through. So now you go back to the starting line.
So it’s a roller coaster, and certain days are more challenging than others. But you have to take the good with the bad, and you have to communicate the good and the bad the same way—the customers will appreciate that, your ISOs will appreciate that, and your team will appreciate that too.
Q: What does the future of revenue advance look like?
I think the revenue advance industry will continue to grow, but it may not be at the pace that it grew pre-COVID.
Right now, the time from application to close is much longer, which is a double-edged sword. Because you want to fund, but you want to be secure and make sure all parties are comfortable with the deal.
You turn on the television and the radio, and everybody’s talking inflation, inflation, inflation. So I think a lot of merchants are hesitant right now—they don’t want to get themselves in over their heads.
But I think once we navigate these waters, inflation starts to slowly come down, and we get back to a sense of normalcy, revenue advances will start moving as they were in 2018 and 2019.
When I got into this industry, it was a $5 billion industry. In 2015 it was in the $10s of billions. During the next five years, it will likely be around $40 billion.
Business owners need access to capital, and most banks have only become tighter and tighter and tighter.
So the alternative finance world is going to be the main catalyst to fund these business owners. There are many opportunities for new ideas—and for growth.
To learn more about the Onyx IQ platform, reach out for a demo here.
