Merchant cash advances (MCAs) offer small businesses a financial lifeline in times of uncertainty.
As an advance of capital repaid using future credit card sales, MCAs are considered one of the most flexible forms of small business funding. MCAs are helping SMBs navigate cash flow shortages and short-term expenses in the current economic environment… one where traditional funding is increasingly difficult to come by.
Given the pivotal role that MCAs play in the world of alternative lending, we sat down with an expert industry expert—Mike Dell—for the second installment of our Executive Interview Series. As a Business Development Specialist for Wall Street Funding, Mike helps small businesses succeed with fast and affordable financing.
Expect to learn how Mike got his start in the industry, what he thinks of the recent rise in state-level regulation, his advice for funding big deals, and much more!
Background and Professional Experience
Q: How did you get into the world of alternative lending?
I’ve always been interested in investing in a broad sense—the consummate seeker of yield. That’s actually what exposed me to the world of alternative lending, specifically merchant cash advances (MCAs).
I was in the mortgage business at the time. Although it’s a great industry, I weathered many, many storms. I met some MCA stakeholders through an investment advisor, and these stakeholders were syndicating MCA deals. I was involved in a very small way at first, but I found the industry interesting and decided to make a switch professionally
I was just looking for something new and something exciting, and now I’ve been with Wall Street Funding for over four years, and it’s been great.
Q: What does a typical day look like for you at Wall Street Funding?
I manage our relationships with our many partners across the United States—brokers and ISO organizations who send us business opportunities. Here, I split my time between onboarding new partners and servicing existing relationships.
Another part of my daily role is working on individual deals that are within our pipeline.
I also spend some time mentoring and helping out some of our ISO partners that are younger or new to the MCA space. I host meetings, provide insight, and inform them about what we do specifically.
But at the end of the day, we’re getting deals in. So I constantly follow up with our underwriting team to make sure we make decisions that lead us to be more competitive and help us close deals.
Industry Outlook: Merchant Cash Advance
Q: What’s the impact of the current economic uncertainty on the MCA industry?
To answer, I think it is important to focus on merchants.
Small businesses are up against a difficult economic environment in which the cost of borrowing from traditional lenders is skyrocketing, or changing profoundly, at the very least. Until recently, many (although not all) merchants were able to secure affordable bank financing, lines of credit, and things like that. Now? All of these financial products are seeing a pretty steep rise in cost.
Instead, our cost doesn’t change as a function of different economic metrics, so cash advances are in high demand. Our money is looking cheaper or less cost prohibitive, as our adjustments are nowhere near those of traditional financing. If anything, the cost of our capital is even more palatable than it’s been for a few years.
So MCA demand is high, and I think it’s going to be even higher in the near future.
Q: That’s good news. What about the recent rise in state-level regulations? Is this bad news?
I’ve actually spoken to the owners of a lot of the broker shops we work with, as well as salespeople individually. There’s tremendous fear on their part. While understandable, I have a different opinion.
I was in the mortgage industry well before there was a lot of individual state regulation, and then broader federal regulation. I went through all that, and for all the fear that existed, it actually was a beautiful thing.
There are a lot of opinions on whether regulation is good or bad. I think there’s a lot of fear around it right now, but that has to do more with uncertainty. We’re humans; we seek certainty. So anytime we’re served up something uncertain, that’s fear. So what I’m trying to instill in people is that I’ve lived through a version of this, and if you do good business, you’ll be fine.
In every industry, there are some participants that actually hurt the business, they give it a bad name. What we found in the mortgage industry is that regulation actually got rid of those kinds of bad actors. In my experience, those that do good business and abide by the rules do fine. I would even argue that they do very well as a function of it.
In the states where we are seeing regulation, deals are still being funded, but with less competition because the players that don’t want to abide by the rules are dropping off. This is bigger than us, and it’s going to happen whether we want it to or not, so we might as well embrace it. We’re meeting a need, so let’s continue to meet that need and better serve merchants within the framework of the new rules.
Funding Big Deals
Q: What’s your advice to funders and brokers looking for big money deals? Let’s say their first $1 million deal.
Focusing on documents is key.
As a function of the size of their business, bigger merchants have every document you need pretty much at their fingertips. However, you can still save a lot of time and back and forth by knowing exactly what you need. A lot of sales reps become intimidated by the size of a deal, and they’re afraid to ask for any more documents. And I get it: there’s a big potential commission on the line.
But the sales reps that have done well treat it like every other deal: they realize upfront that they should be asking for financials and make it a priority.
With a lot of these larger deals, the merchant has something defined that they’re looking to do, and they’re trying to figure out the best way to finance it. So, ask them what they are looking to do, and a lot of times, then you can just reverse engineer this information into a great deal that makes sense for all parties involved.
Finally, you might be dealing with the CEO, CFO, and a team of attorneys—the more touch points you have, the more you need a team to help you sell this deal. Make sure that you have a great team around you that is committed to working with the merchant’s stakeholders and getting the deal done.
I think this is precisely our strong point at Wall Street Funding.
Q: What role does technology play in funding these deals?
There are only a few ways you can portray things like a credit report or a bank statement. Some technologies work on showing them in a slightly different way, but there’s only so much they can do.
Platforms like Onyx IQ focus instead on building a system that’s as efficient as possible for all merchants, no matter how tech-savvy they are.
Technology is valuable when it can take antiquated data points and digest and streamline them in a faster, more accurate way. Think of taking bank statements and credit reports and moving them through a streamlined workflow to portray them to the decision-maker in a clean, concise format.
Funding big deals is about playing offense, and here technology helps.
I used to have partners call me to find out what was going on. I had to talk with the underwriter, receive phone calls constantly, and wait for 20 minutes—that’s what I called defense.
What’s offense? A streamlined workflow with automatic notifications. The merchant always has the information that they deserve when they need it. Merchants now not only have access to me, but they get continual updates from Onyx IQ, which in turn allows them to focus on other deals.
So technology allows me to play more offense than defense, and that’s a tremendous value add to me.
Wrapping Up
Q: What makes somebody successful in this industry?
What makes people successful—and I think this bears out in the numbers—is taking good quality applications and asking the questions that others don’t.
Very simple questions, such as “what’s the end goal here?”, “what is your objective?” Ultimately, it’s about being detail-oriented. Also, it’s important not to put all your eggs in one basket. Because if that deal goes sideways, the whole month is kaput. So don’t get married to any one individual deal.
Q: Are you excited about anything that’s coming down the MCA pike? What does the future hold?
I keep hearing about other funders having versions of “low-level” AI—interesting stuff coming in terms of data digestion and machine engines.
So basically the ability to input your own business rules, automate the process, and render decisions without a lot of intervention. At least to a certain level.
And then marrying that low-level automatic decision-making with the more high-level decision-making. I think it’s a recipe for grand success. Because every deal is nuanced, you need human decisions and manual interventions.
There’s a future for all of us in this business because I don’t think anyone has mastered everything, and pure AI can’t do everything in the finance decision-making world.
To learn more about the Onyx IQ platform, reach out for a demo here.
