By John Tucker
1st Capital Loans LLC
In two prior Street SmartsSM articles, I delved into how merchant level salespeople (MLSs) can rebrand as alternative financing professionals. While, in general, this would include reselling a range of commercial lending products, my conversation focused solely on merchant cash advances (MCAs) and alternative business loans. That is because of the ease with which MLSs can cross over from leading with payment processing to leading in with MCAs and alternative business loans.
If you want to review the two prior articles, please refer to Street SmartsSM articles "The merchant cash advance" and "The alternative small business loan," published by The Green Sheet, April 25 and May 9, 2016, in issues 16:04:02 and 16:05:01, respectively.
In this article, I will discuss setting up your broker office to resell MCAs and alternative business loans.
When you begin constructing your network of funders, vet all potential partners to make sure their standing in the marketplace is high, both in terms of platform efficiency and track record of ethical behavior. Look for all of the following when vetting potential funding partners:
A paper grade represents the current risk profile of your merchant, which determines what his or her approval amount, risk based buy rates, and other conditions will be. In terms of this space, A Paper is considered to be the best in quality; F Paper is considered to be the worst.
The paper grade will be determined by the merchant's estimated FICO score and how many of the following profile weaknesses appear in the merchant's profile:
Establish one to two funders for each paper grade, as some funders specialize or are better suited for only certain types of paper grades. Following are the typical parameters for the six paper grades:
For the last few years, competition in this sphere has increased dramatically. Numerous new funders have entered the market and are doing second-, third- and higher-position stack deals. In this scenario, one company funds a merchant (first position), but another company comes in and does a second-position stack on top of that, and then another company does a third-position stack, etc. I've seen this go up to 11 stacks on a merchant's profile.
Merchants who stack on a second position automatically go down two paper grades from their original paper grade. Thus, if a B Paper merchant adds just one stack, his or her business goes straight down to a D.
If you don't want to go it alone, companies in the space, for example, Cardinal Equity LLC, www.cardeqgroup.com, can partner with you in a co-brokering structure. This enables you to focus on the sales process rather than having to devote time to managing funder networks. I recently reached out to Cardinal Equity's Director of Operations, Amanda Kingsley, for commentary in relation to our rebranding discussion.
"Cardinal Equity is an umbrella company with a main focus on building relationships and supporting a process for originating offices," Kingsley said. "We want to enhance the user experience when qualifying and applying, no matter how a business owner decides to apply. The unique service concept envisioned with collaborative innovation from direct partners, falls right in line with the financial technology marketplace."
Regarding how a company like Cardinal could assist MLSs who are rebranding to lead in with the merchant cash advance and alternative business loan products, Kingsley said, "We offer a trusting outlet for the working broker by offering service rather than selling. We enhance a broker's capability to reach new qualified outlets and convey information to clients that better characterizes what our industry offers. Our training for direct partners includes introductory basic training and in-depth pre-underwriting to different points of an application, to help indirect companies become more efficient and, in turn, create better experiences for their clients."
As you go forward in rebranding as an alternative financing specialist, you can stay connected and network with industry professionals through both deBanked and The Daily Funder.
Should you decide to pursue this path, I wish you nothing but success in your quest to rebrand, rebuild and reignite your office as an alternative financing specialist.
John Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in accounting, business management and journalism. Tucker also has over nine years of professional experience in commercial finance and business development. You can contact him by email at email@example.com or by telephone at 586-480-2140.
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