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Table of Contents

Lead Story

Agent playbook on vetting partners


Industry Update

MCX, a non-Apple, non-NFC mobile wallet

CFPB gives RTPs more time

Funding options for IADs


Prepaid metering benefits African water needs

The ins and outs of mobile banking for businesses


Guilt by trade association: The crackdown on legitimate law-abiding businesses

Theodore F. Monroe
Attorney at Law


Street SmartsSM:
Are you selling or telling Part 3: Everyone likes to smile

Tom Waters and Ben Abel
Bank Associates Merchant Services

Let's get vertical

Dale S. Laszig
DSL Direct LLC

Managing your ISO during the first year: 10 tips

Aaron Nasseh
Finical Inc.

The benefits of mobile payments

Michael Gavin
Merchant Warehouse

Company Profile

Merchant Cash and Capital LLC

New Products

Tokenization secures all channels

Enterprise Tokenization
Total System Services Inc.

Managed plan for data breaches

Data Incident Management Program
Conformance Technologies


Pedal to the park, not to the metal


Readers Speak

Resource Guide


Skyscraper Ad

The Green Sheet Online Edition

September 22, 2014  •  Issue 14:09:02

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Funding options for IADs

The merchant cash advance alternative funding option for small to midsize businesses (SMBs) has been well documented. But ATM ISOs are SMBs, too, and yet not as much attention has been given to the alternative funding avenues available to them. Super G Funding LLC, which specializes in funding ISOs, devoted a white paper to the challenges and opportunities for ATM ISOs, also termed independent ATM deployers (IADs), in finding capital to grow their businesses.

Like most merchants, IADs are having trouble obtaining traditional bank loans in the present economy, said Super G Funding in Lending Challenges and Solutions for Growing Your IAD in Today's Economy. Fortunately, a number of financing options are available to IADs, including equity investment strategies. IADs can turn to venture capitalists, angel investors, public investors and corporate investment firms to gain capital, said Super G Funding.

However, the downside to going the equity investment route is that investors carry more risk than traditional lenders. "As equity investors rarely have the same rights as debtors, companies are not required to repay the original investments should the business collapse," the paper noted. "Since there is the risk of losing their investment should a business fail, equity investors require higher returns than lenders and usually demand a seat on the board and require approval for any major changes or expenditures – often taking control out of the hands of the IAD's management team."

Alternative to the alternatives

Another funding option for IADs is selling off merchant portfolios, with multiples ranging between 12 to 35 times monthly residuals and larger portfolios commanding the highest multiples. But Super G Funding recommended that IADs sell portfolios only when they exit the business.

However, an alternative to the alternatives exists: borrowing against residuals through residual loans, which allows IADs to remain in business and maintain control. "A residual loan resembles a cash advance product but doesn't take a cut of each day's transaction fees," Super G Funding said. "Instead, it takes monthly draw-downs for interest and principal before the borrowing IAD receives the residuals."

Under the terms of a residual loan, the IAD has its processor temporarily assign distribution of residuals to the lender; the lender takes its monthly cut and forwards the remainder to the IAD. In addition, residual loans can be easier to get than bank loans, can be funded in five to seven business days and can qualify for loans that are often five times their monthly residual streams.

"Because a residual loan's criteria are based on an IAD's residuals, credit history is not a factor," said Super G Funding Chief Executive Officer Darrin Ginsberg. "Instead, the lender looks at the past 12 months of residuals – what makes up the residual stream, how those residuals are performing – and then bases the risk factor on those criteria."

IADs in the same SMB boat

Super G Funding reiterated the analysis of Meredith Whitney, CEO of New York-based Meredith Whitney Advisory Group LLC, who said small business credit has "contracted at one of the fastest paces of any lending category."

Todd McCracken, National Small Business Association President and CEO, added, "Not only have small-business owners been unable to find new credit over the last four years, nearly a third have had their existing credit slashed, and one in 10 had their loans called in early." However, the biggest factor hindering IADs seeking traditional funding is that banks do not understand the IAD business model based on residuals.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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