CAN Capital Still King – $4 Billion Funded
April 29, 2014While college kids across the country are creating alternative lending platforms in their dorm rooms, industry king CAN Capital announced today that they have provided small businesses with more than $4 billion. That puts them on pace to be funding approximately $1 billion a year. ($3 billion milestone back in March 2013).
Word apparently leaked out on DailyFunder ahead of time, drawing several members to tip their hats on the achievement.
As of March 31, Lending Club had also surpassed the $4 billion mark, but with a major distinction, it was almost entirely consumer loans. In the business space, CAN Capital remains on top after 16 years, which sadly makes them older than some of the kids writing code in this industry.
In a lot of ways, code has become the new focal point of alternative lending. There’s sex appeal in having a NASA-worthy underwriting algorithm right now and everybody’s getting caught up in it, some at their own peril.Why stop at a hundred data points when you can have a thousand? Screw it, why not TEN THOUSAND?!
While strong on technology, CAN originates like a boss, having funded over 55,000 small businesses. The tech side is challenging enough for some companies, but it’s the difficulty in marketing that catches many entrepreneurs off guard. In Alex Binkley’s requiem of a defunct startup, Funding Community, he detailed the challenge in generating interest. Who you attract is not always who you’re looking to fund in business lending.
In 2014, there’s no shortage of sexy buzzwords dazzling investors, yet it’s a 1990’s era funding company that continues to dominate. Three out of four eligible customers return to them for additional funds according to their report. Having survived Y2K, the dot com bust, and the financial crisis, they are proof that it takes a lot more than fancy code and a catchy name to master the risky world of business lending. With 16 years worth of data, it may take until 2030 for this year’s new entrants to truly know what they know. $4 billion says a lot but it’s standing tall through both the good times and bad that makes all the difference.
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Photos borrowed from HBO’s Silicon Valley series.
Lending Club Threatens The Status Quo
March 20, 2014
In late 2013, consumer peer-to-peer lender Lending Club announced their plans to start offering small business loans. That caused a stir in the merchant cash advance world for a few weeks, but the hype died down. The general consensus was that there would be little to no overlap between the applicants each target.
To this day, I continue to doubt that the overlap will be anything less than substantial. Nik Milanovic of Funding Circle would probably disagree with me. The main argument has been that Lending Club will only target small business owners with good credit, which assumes that businesses with anything less are the only users of merchant cash advances. Not to give anyone’s figures away, but I have seen data to suggest that a large segment of merchant cash advance users have FICO scores in excess of 660. Somewhere along the line we convinced ourselves that merchant cash advances were for businesses with really bad credit. That was never the purpose it was intended for, though it’s true that many applicants have low scores.
Historically, merchant cash advances were for businesses that posed a cash flow risk to banks. Split-processing eliminated that risk by withholding a percentage of card sales automatically through the payment company processing the business’s transactions. Funders today that rely on bank debits for repayment don’t have that safeguard, but they make up for the risk they take by doing something banks don’t do, require payments to be made daily instead of monthly. This allows businesses to manage their cash flow throughout the month and enables the funder to compound their earnings daily. It’s a phenomenon I wrote about in the March/April issue of DailyFunder (Razzle Dazzle Debits & Splits: Daily is the Secret Sauce)
According to the Wall Street Journal, Lending Club will require a minimum of 2 years in business and participation will initially only be open to institutional investors.
Lending Club’s website states that they will recoup funds on a monthly basis via ACH and that interest rates range from 5.9% APR to 29.9% APR + an origination fee. Terms range from 1 to 5 years and there are no early payment penalties.
TechCrunch openly pegs CAN Capital and OnDeck Capital as chief rivals for Lending Club in the space. CAN has enjoyed frontrunner status in the industry since 1998 and while they have been tested in the last 2 years, they haven’t come up against something like this.
In the same Wall Street Journal story, Lending Club’s CEO, Renaud Laplanche lays out who his competitors are with his quote, “The rates provide an alternative to short-term lenders and cash-advance companies that sometimes charge more than the equivalent of 50% annually.”
But will the impact be felt right away? In Laplanche’s interview with Fortune, he claims that it’s very likely they’ll focus on the 750+ FICO segment first, where institutional investors will be comfortable. But make no mistake about it, that will change quick, especially with a probable IPO in the next 8 months.
Is Lending Club really all that big? To draw a comparison, RapidAdvance got a $100 million enterprise valuation when they got bought out by Rockbridge Growth Equity about 6 months ago. Lending Club on the other hand was valued at around $2.3 billion at that time. It took OnDeck Capital 7 years to fund $1 Billion in loans. Lending Club is funding a billion dollars in loans every 3 and a half months. Granted, they’ve all been consumer loans, but let’s not kid ourselves about their capabilities.
Lending Club is funding more consumer loans than the entire merchant cash advance industry is doing combined. Thanks to the peer-to-peer model, they have infinity capital at their disposal. We can pretend that no one with good credit ever applied for a merchant cash advance or we can acknowledge the 3 billion pound gorilla in the room.
Lending Club and other peer-to-peer lenders that follow them will disrupt the alternative business lending status quo.
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Previous articles on this subject:
Will Peer-to-Peer Lending Burn the Alternative Lending Market?
Lending Club Business Loans are Here
Peer-to-Peer Lending will Meet MCA Financing
How to Value a Merchant Cash Advance Company (or Alternative Lender)
February 9, 2014If you’re at all interested in the future of the merchant cash advance industry, you need to read Wall Street Evaluates Merchant Cash Advance in the first issue of DailyFunder. It offers a fresh perspective through the eyes of financiers outside the industry looking in.
Names include:
- Jason Gurandiano, Managing Director in Deutsche Bank’s Financial Technology Group
- David Cox, Managing Director at Evercore Partners
- Thomas McGovern, Vice President at Cypress Associates
- Steven Mandis, adjunct professor at Columbia Business School.
The article is relatively broad but it communicates some very important points:
1. Some players in the space exist as lifestyle businesses. They’re not scalable, their success is largely attributed to what the owner does for it, and company’s long term vision is to basically make sure the owner takes home a nice paycheck.
2. Some of the big players in the space are on similar growth trajectories. Nothing differentiates each of them from the pack, and none of them really have an advantage over the other.
3. EBITDA is a bad valuation measure and growth is a good one.
On point #1, a lifestyle business is no good to a professional investor in this space. Aside from the success usually being owner-dependent, one question an investor is certain to ask a prospect is, “If I gave you $100 million today, what would you do with it?” There are many wrong answers to that question. If you said solicit more ISOs, buy more leads, or hire more sales people, they’re going to wonder why you haven’t done those things already.
On the same token, those answers would communicate that you’re going to do the exact same thing you’re already doing. It’s a mistake to think that scaling in such a manner will keep the original margins intact. It also does nothing to protect the company against change or enable it to grow exponentially.
On point #2, it’s great to be big, established, and growing at a moderate pace, but what good is that to an investor looking to double, triple, or quadruple their money? And who’s to say that a moderate growth strategy will continue as it has in the past?
Many many many (did I say many yet?) people have come into this space with visions of grandeur, to be bigger than CAN Capital in less than 24 months. What do their plans usually consist of? Pay higher than average commissions and fund deals they shouldn’t be funding. To date, none of those companies are bigger than CAN Capital and some of them are out of business. A growth plan can’t consist of funding deals you don’t want to and paying commissions you can’t afford. That’s called a suicide mission and it’s very effective.
Some big funding companies may appear sustainable on the outside but they’re woefully fragile on the inside. Jason Gurandiano said it best with this quote, “The general knock on merchant cash advance has been that they are an ISO-centric model.” I’m not discounting the value of ISOs in this business. To some extent they rule the roost, and that’s the problem in the eyes of investors. Many merchant cash advance companies rely on a handful of symbiotic relationships. The ISO relies on the funding company for commissions and the funding company relies on the ISO for deals. But what happens if:
- The ISO is enticed with higher commissions or better service with somebody else
- The ISO’s deal flow slumps
- The ISO goes out of business
- The ISO uses unscrupulous sales practices when selling the funding company’s product
- The ISO uses their relationship as leverage on the funding company to make bad decisions
- The funding company needs to reduce commissions but the ISO can’t sustain it
An ISO-dependent merchant cash advance company doesn’t have much control over growth. Believe me, I’ve been on those phone calls where the ISO is asked to send more business. But what happens if they have no more to send? Or what if they would just rather do most of their business elsewhere?
Again, there is absolutely nothing wrong with a purely ISO-centric model in general, but it is much less attractive to investors looking to do a deal in this industry and that’s the theme of this post.
Point #3 is unique because it addresses the how to value a company once you’ve found one worth investing in. Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) is not a viable valuation formula here as it doesn’t make sense to measure the worth of a company dependent on expensive debt by stripping away the cost of that debt.
According to Aswath Damodaran, debt to a financial service company should be treated like a raw material. In his 2009 paper, Valuing Financial Services Firms, he states, “debt is to a bank what steel is to a manufacturing company, something to be molded into other products which can then be sold at a higher price and yield a profit.” It is a perfect analogy for a merchant cash advance company.
Damodaran’s analysis covers a range of situations but I find an Asset Based Valuation intriguing. It states, “How would you value the loan portfolio of a bank? One approach would be to estimate the price at which the loan portfolio can be sold to another financial service firm,” There isn’t a lot of precedent for that in this industry unfortunately. Damodaran continues though with, “but the better approach is to value it based upon the expected cash flows.” For certain, one would have to take into account the renewal rate, renewal commissions, the average recovery timeframe, and the default rate.
If you bought $100 million in RTR today, how much would you get back 1 year from now or 2 years from now? This number is going to differ from company to company.
An Asset Based Valuation might be in order for a funding company that is winding down and shedding its existing portfolio, but it’s not appropriate for one with growth. One should assume that they’re buying a growing business when investing in a merchant cash advance company, not a packaged portfolio.
One question an investor might ask is, “what am I buying?” The average merchant cash advance company can be perceived as nothing more than a vehicle to maximize the spread between revenue and borrowing costs. They’re not really businesses in the traditional sense, more like arbitrageurs. They buy leads and/or they pay commissions, there are some fixed costs, but there’s not a whole lot more to it. There are virtually no barriers to entry and anybody can replicate the model. So you invest in the people who are doing it currently and their system (assuming it’s working so far). The value of that might only be equivalent to 1x – 4x annual profit. Why pay more when competition can drag margins down, regulations could disrupt the space in the future, or the investor could just as easily start their own company with the funds they have instead?
With that said, the average merchant cash advance company is more attractive to a lender than an equity investor. Additionally, they can also offer a nice monetary return by allowing people to participate in the funding of individual deals. Both are indeed what many investors choose to do, either lend money to these companies or syndicate. Why buy the cow when you can get the milk for free?
Merchant Cash Advance companies that make the headlines with big equity investments are not average. They create value, rather than just engage in arbitrage. They’re building something, changing something, disrupting something. They don’t profit off spreads in the market, they create the market and dominate it. Today this typically happens through technology, and not just any technology, but technology that leads to substantial future earnings. There’s a difference between spending a million dollars on a platform to make things more efficient and spending a million dollars on a platform that causes earnings to increase by 1,000%. Too many companies view technological investments in the former sense, a cost that eats into the spread instead of one that can blow the roof off of it.
Investors are looking for companies that plan to soar from Point A to Z, not ones that are moseying along from A to B.
RapidAdvance was said to have gotten an Enterprise Valuation in excess of $100 million when being acquired by Rockbridge Growth Equity. For the most part that number reflects Total Debt + Total Equity – Cash. When you buy a company, you’re buying their debts as well. 90% of their enterprise value could potentially have been the value of their outstanding debts. Of course I doubt it was, but it should put their eye opening valuation into perspective.
Contrast the RapidAdvance deal with the most recent valuation of Lending Club at $2.3 billion. Lending Club earns substantially lower returns per deal but they have an engine for growth that is virtually unmatched. In the month of August 2012, they booked $70 million in loans. In January of 2014, they booked $258 million. That’s 3.7x the monthly volume they were doing less than 18 months ago. That’s what an investor calls an opportunity.
How do you value a merchant cash advance company? There’s no easy way to do it and it largely depends on whether or not they’re an arbitrage shop chugging along or one creating substantial value.
There’s plenty of free milk out there. Why would someone pay top dollar for your cow?
– Merchant Processing Resource
Merchant Cash Advance Contract Language
July 24, 2013
Below is a look back at some of the contract language used in the industry.
2009 First Funds Contract
Purchaser agrees to purchase from Seller and the Seller agrees to sell to Purchaser, in consideration of the purchase price specified below (the “Purchase Price”), Seller’s interest in the percentage specified below (the “Specified Percentage”) of each of its future credit card receivables (the “Future Receivables”) due to Seller from the credit card processor identified below (“Processor”) until the amount specified below (the “Specified Amount”) of Future Receivables has been collected by Purchaser according to the additional terms and conditions set forth in this Purchase and Sale Agreement (“Agreement”).
The undersigned principal(s) of Seller (such principals, whether shareholders, partners or other owners are referred to herein as the “Guarantor’) hereby unconditionally, jointly and severally, guarantee Seller’s performance and satisfaction of all the covenants, representations and warranties set forth in Section 3 of the Agreement. This guarantee is continuing and shall bind Guarantor’s heirs, successors and assigns, and may be enforced by or for the benefit of any assignee or successor of Purchaser. Purchaser shall not be obligated to take any action against the Seller prior to taking any action against the Guarantor. Guarantor shall pay Purchaser for all its overhead and expenses incurred in enforcing this guarantee and underlying Agreement, including all Purchaser’s reasonable attorney’s fees. The release and/or compromise of any obligation of Seller or any other obligors and guarantors shall not in any way release Guarantor from his or her obligations under this guarantee. This guarantee shall be governed and construed according to the laws of the State of New York. ALL ACTIONS, PROCEEDINGS OR LITIGATION RELATING TO OR ARISING FROM THIS GUARANTEE OR UNDERLYING AGREEMENT SHALL BE INSTITUTED AND PROSECUTED EXCLUSIVELY IN THE FEDERAL OR STATE COURTS LOCATED IN THE STATE AND COUNTY OF NEW YORK NOTWITHSTANDING THAT OTHER COURTS MAY HAVE JURISDICTION OVER THE PARTIES AND THE SUBJECT MATTER, AND GUARANTOR FREELY CONSENTS TO THE JURISDICTION OF THE FEDERAL OR STATE COURTS LOCATED IN THE STATE AND COUNTY OF NEW YORK. Service of process by certified mail to Guarantor’s address listed below or such other address that Guarantor may provide Purchaser in writing from time to time will be sufficient for jurisdictional purposes. GUARANTOR FREELY WAIVES, INSOFAR AS PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION, PROCEEDING OR LITIGATION ARISING FROM OR IN ANY WAY RELATING TO THIS GUARANTEE. GUARANTOR WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO PURSUE A CLAIM AGAINST PURCHASER OR ITS ASSIGNS AS PART OF A CLASS ACTION, PRIVATE ATTORNEY GENERAL ACTION OR OTHER REPRESENTATIVE ACTION. Guarantor grants continued authority to Purchaser and its agents and representatives and any credit reporting agency employed by Purchaser to obtain Guarantor’s credit report and/or other investigative reports, and to investigate any references given or any other statements or data obtained from or about Guarantor or Seller or any of Seller’s principals for the purpose of this guarantee, Agreement or renewal thereof.
1. Methods of Collection; Use of Approved Processor.
Purchaser shall collect the cash attributable to the Specified Percentage in one of the following ways: (i) directly from Seller’s credit card processor; (ii) by debiting the Seller’s credit card processing deposit account or another of Seller’s accounts that has been approved by Purchaser; or (iii) by debiting an account established by the Seller with Purchaser’s approval specifically to hold funds that are due to Purchaser (“Dedicated Account”). Purchaser may decide in its sole discretion which of the three methods it will accept for the remittance of the Specified Percentage. If Purchaser elects to use method (i) or (ii), then Seller agrees to enter into an agreement with a credit card processor acceptable to Purchaser (“Approved Processor”). Purchaser reserves the right to change the collection method at any time, with five (5) days notice to Seller, if it is unable to collect funds on a consistent basis through the collection method initially selected.
1.1 Collection Directly from Processor.
If Purchaser agrees to accept the remittance of the Specified Percentage directly from the Seller’s Approved Processor, then Seller authorizes the Approved Processor to pay the Specified Percentage directly to Purchaser rather than to Seller until the Specified Amount has been received by the Purchaser from the Approved Processor. This authorization is irrevocable, absolute and unconditional. Seller further acknowledges and agrees that the Approved Processor will be acting on behalf of Purchaser to collect the Specified Percentage. Seller hereby irrevocably grants Approved Processor the right to hold the Specified Percentage and to pay Purchaser directly (at, before or after the time Approved Processor credits or remits to Seller the balance of the Future Receivables not sold by Seller to Purchaser) until the entire Specified Amount has been received by Purchaser. Seller acknowledges and agrees that the Approved Processor may provide Purchaser with Seller’s credit card, debit card and other payment card and instrument processing history, including without limitation Seller’s chargeback experience and any communications about Seller received by Approved Processor from a card processing system, as well as any other information Purchaser deems pertinent. Seller understands that Purchaser does not have any power or authority to control the Approved Processor’s actions with respect to the authorization, clearing, settlement and other processing of transactions and that Purchaser is not responsible for the Approved Processor’s actions. Seller agrees to hold Purchaser harmless for the Approved Processor’s actions or omissions.
1.2 Collection via ACH Withdrawals.
If Purchaser agrees to accept the remittance of the Specified Percentage by debiting the Seller’s credit card processing deposit account, then Seller (i) irrevocably authorizes the Approved Processor or their representative to provide daily reports to Purchaser regarding Seller’s credit card processing batch amounts, and (ii) irrevocably authorizes Purchaser, or its designated successor or assign to withdraw the Specified Percentages of the Future Receivables and any other amounts now due, hereinafter imposed, or otherwise owed in conjunction with this Agreement by initiating via the Automatic Clearing House (ACH) system debit entries to Seller’s account at the bank listed above or such other bank or financial institution that Seller may provide Purchaser with from time to time (“Bank Account”). In the event that Purchaser withdraws erroneously from the Bank Account, Seller authorizes Purchaser to credit the Bank Account for the amount erroneously withdrawn via ACH. Purchaser shall not be required to credit the Bank Account for amounts withdrawn related to credit card transactions which are subsequently reversed for any reason. Purchaser, in its sole discretion, may elect to offset any such amount from collections from Future Receivables. Seller represents that the Bank Account is established for business purposes only and not for personal, family, or household purposes. Seller understands that the foregoing ACH authorization is a fundamental condition to induce Purchaser to enter into this Agreement.
Before 2:00 P.M. EST of the day following each day that Seller conducts business, Seller shall cause Approved Processor or Approved Processor’s agent to deliver to Purchaser, in a format acceptable to Purchaser, a record from Approved Processor reflecting the total gross dollar amount of the preceding day’s credit card transactions processed by Approved Processor for Seller, irrespective of whether such amount consists of sales, taxes or other amounts collected by Seller from its customers (“Daily Batch Amount”). In the event that Seller is unable to procure Approved Processor’s compliance in a timely manner or as otherwise required under this section, within two (2) business days’ written notice by Purchaser to Seller of the same via facsimile to Seller at the fax number listed herein, Seller shall at its sole expense terminate its relationship with Approved Processor and exclusively engage the services of an alternative credit card processor that Purchaser approves in writing and enter into any merchant credit card processing agreement as the alternative credit card processor may require, which credit card processor shall thereafter be referred to and included within the meaning of “Approved Processor” herein. Alternatively, in the event of Approved Processor’s noncompliance, Purchaser is hereby authorized to estimate the Daily Batch Amount based upon Purchaser’s analysis of Seller’s historical experience and to collect the Specified Percentage of the Future Receivables as provided in Section 2 of this Agreement based upon such estimate. Purchaser will make appropriate adjustments upon the submission by Seller of statements with respect to the period of Approved Processor’s non-compliance. Further, Seller hereby irrevocably authorizes Purchaser to obtain information regarding its other bank account(s) from Approved Processor and/or from the sales agent, and to debit such bank account(s) in the event that Purchaser is unable to debit the Specified Percentage from Seller’s credit card processing account.
1.3 Collection from a Dedicated Account.
If Purchaser agrees to accept the remittance of the Daily Percentage by debiting a Dedicated Account, Seller agrees to complete all necessary forms to establish the Dedicated Account. Seller (i) irrevocably authorizes and will require Seller’s processor to deposit directly into the Dedicated Account a daily amount corresponding to Seller’s Daily Batch Amount multiplied by the Specified Percentage; and (ii) acknowledges and agrees that any funds deposited into the Dedicated Account by Seller’s processor will remain in the Dedicated Account until the Specified Percentage is withdrawn by Purchaser and then the remaining funds, minus any amount required to maintain the minimum balance for the account, will be forwarded to Seller’s Bank Account. If the Dedicated Account requires a minimum account balance, Purchaser may, in its sole discretion, fund the required minimum balance for the Dedicated Account out of the Purchase Price. Seller acknowledges and agrees that it shall not have the right to directly withdraw funds from the Dedicated Account.
2. Processing Trial; Commencement of Agreement. After this Agreement has been signed by Seller but prior to Purchaser’s acceptance, the parties shall conduct a processing trial of four or fewer business days in order to ensure that the Seller’s credit card transactions are being correctly processed through Approved Processor and that Purchaser timely receives the Daily Batch Amount in a satisfactory manner and format. Nothing herein shall create an obligation upon Purchaser to enter into this Agreement. The Agreement shall commence upon Purchaser’s payment to Seller of the Purchase Price.
3. Seller’s Covenants, Representations and Warranties. Seller and Guarantor represent, warrant and covenant the following as of this date and during the term of this Agreement:
a) Seller represents that it is not contemplating closing its business.
b) Seller represents that it has not commenced any case or proceeding seeking protection under any bankruptcy
or insolvency law, or had any such case or proceeding commenced against it, and it is not contemplating
commencing any such case or proceeding.
c) Seller represents that the Future Receivables are free and clear of all claims, liens or encumbrances of any
kind whatsoever.
d) Seller represents that it does not intend to temporarily close its business for renovations or other reasons
during the next twelve months.
e) Seller shall not take any action to discourage the use of credit cards which are settled through its processor or
to permit any event to occur which could have an adverse effect on the use, acceptance or authorization of credit cards for the purchase of Seller’s services and products;
f) Seller shall not change its arrangements with its credit card processor in any way which is adverse to Purchaser;
g) Seller shall not change the credit card processor through which the major credit cards are settled from Approved Processor to another credit card processor or to permit any event to occur that could cause a diversion of any of Seller’s credit card transactions to another processor without Purchaser’s prior written consent;
h) Seller represents that as of this date, all Seller’s credit card sales and transactions are being processed exclusively with Approved Processor or are being deposited exclusively into a Dedicated Account;
i) Seller shall not sell, dispose, convey or otherwise transfer its business or assets without the express prior written consent of Purchaser; Seller shall not enter into a concurrent agreement for the purchase and sale of future receivables with any purchaser aside from First Funds.
j) Seller shall furnish Purchaser with the bank statements for its Bank Account and any and all other accounts to which proceeds from Seller’s sales are deposited within seven (7) days’ of any such request by Purchaser;
k) Seller shall unconditionally ensure that the cash Seller receives from Approved Processor attributable to the
Specified Percentage of the Future Receivables is immediately thereafter available to Purchaser for collection
via ACH from Seller’s Bank Account;
l) Seller shall not attempt to revoke its ACH authorization to Purchaser set forth in this Agreement or otherwise
take any measure to interfere with Purchaser’s ability to collect the cash that Seller receives (i) from Approved Processor attributable to the Specified Percentage of the Future Receivables or (ii) from the Dedicated Account;
m) Seller shall not close its Dedicated Account, or close or change the bank account into which Approved Processor deposits the Future Receivables to another account without Purchaser’s prior written consent;
n) Seller shall not conduct its businesses under any name other than as disclosed to Purchaser or change any of its places of business without Purchaser’s prior written consent; and
o) Seller represents that the information it furnished Purchaser in this Agreement and preceding application, including without limitation, Seller’s processing statements, is true and accurate in all respects and fairly represents the financial condition, result of operations and cash flows of Seller at such dates, and since the dates therein, there has been no material adverse change in the business or its prospects or in the financial condition, results of operations, or cash flows of Seller.
4. Agency; Modifications & Amendments; Entire and Final Agreement. Purchaser does not have any power or authority or control over Approved Processor’s actions with respect to the processing of Seller’s credit card transactions. Purchaser is an entirely separate and independent entity from the Processor and ISO (if any) and their respective agents. Neither Approved Processor nor ISO (if any) is Purchaser’s agent and neither is authorized to waive or alter any term or condition of this Agreement and their representations shall in no way affect Seller’s or Purchaser’s rights and obligations set forth herein. This Agreement contains the entire and final expression of the agreement between the parties, and may not be waived, altered, modified, revoked or rescinded except by a writing signed by one of Purchaser’s executive officers. All prior and/or contemporaneous oral and written representations are merged herein. No attempt at oral modification or rescission of this Agreement or any term thereof will be binding upon the parties.
5. Governmental Approvals. Seller possesses and is in compliance with all permits, licenses, approvals, consents and other authorizations necessary to own, operate and lease its properties and to conduct the business in which it is presently engaged. Seller is in compliance with any and all applicable federal, state, and local laws and regulations, including, without limitation, all laws and regulations relating to the prosecution of the confidentiality of information received from credit card users.
6. Exclusive Use of Processor. Seller understands that services of Approved Processor are the exclusive means by which Seller may process its credit card transactions, unless it has set up a Dedicated Account, in which case all of Seller’s credit card processing must be subject to daily withholding of the Specified Percentage in the Dedicated Account.
7. Sale of Future Receivables; Non-Consumer Transaction. Seller and Purchaser agree that the Purchase Price paid by Purchaser in exchange for the Specified Amount of Future Receivables is for the purchase and sale of the Specified Amount of Future Receivables and is not intended to be, nor shall it be construed as, a loan or an assignment for security from Purchaser to the Seller. Seller and Guarantor hereby acknowledge and agree that neither party is a “consumer” with respect to this Agreement and underlying transaction, and neither this Agreement nor any guarantee thereof shall be construed as a consumer transaction.
8. No Right to Repurchase. Seller acknowledges that it has no right to repurchase the Specified Amount of Future Receivables from Purchaser.
9. Sale of Additional Future Receivables; Schedules; Right of First Refusal. Nothing herein shall obligate either party to sell and purchase future credit card receivables; however, Seller grants Purchaser the right of first refusal to purchase any such additional future credit card receivables that Seller may wish to sell during the term of this Agreement and during the period ending ninety (90) days after termination of this Agreement. Under such right of first refusal, if Seller desires to sell additional future credit card receivables, Seller agrees to sell such receivables to Purchaser only, and not to any other prospective purchaser, so long as Purchaser purchases such future credit card receivables on terms that are no less favorable to Seller as the terms and conditions of this Agreement.
10. Default. A “Default” shall include, but not be limited to, any of the following events: (a) The breach by Seller of any covenants contained in this Agreement; (b) Any representation or warranty made by the Seller in this Agreement, proving to have been incorrect, false or misleading in any material respect.
11. Remedies. In the event of a Default, Purchaser shall be entitled to all remedies available under law. Without limiting the generality of the foregoing, in the event of Seller’s default under Section 10 herein, Purchaser will be entitled to require Seller to purchase the remaining Future Receivables for an amount equal to the amount by which the Specified Amount of Future Receivables exceeds the amount of cash received from Future Receivables that Purchaser had previously collected under this Agreement, which amount Purchaser may automatically debit from Seller’s Bank Account via ACH without notice to Seller. No failure on the part of Purchaser to exercise, nor any delay in exercising any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise of any other right. The remedies provided hereunder are cumulative and not exclusive of any remedies provided by law or equity.
12. UCC-1 Financing Statements. Seller authorizes Purchaser to file one or more UCC-1 Financing Statements prior to each sale of Future Receivables for purposes of providing public notice of the purchase by Purchaser from Seller of the Specified Amount of Future Receivables. The UCC-1 Financing Statements will state that the sale of the Future Receivables is an outright sale and not an assignment for security.
13. Notices. All notices, requests, demands and other communications hereunder, including disputes or inaccuracies concerning information furnished to credit reporting agencies shall be, unless otherwise provided herein, in writing and shall be delivered by mail, overnight delivery or hand delivery to the respective parties to this Agreement at their respective addresses listed on the face of this Agreement or at such other address that either may provide to the other in writing from time to time.
14. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of Seller, Purchaser and their respective successors and assigns, except that Seller shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of Purchaser which consent may be withheld at Purchaser’s sole discretion. Purchaser may assign this Agreement without notice to Seller.
15. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Seller consents to the jurisdiction of the federal and state courts located in the State and County of New York and agrees that such courts shall be the exclusive forum for all actions, proceedings or litigation arising out of or relating to this Agreement or subject matter thereof, notwithstanding that other courts may have jurisdiction over the parties and the subject matter thereof. Service of process by certified mail to Seller’s address listed on the face of this Agreement will be sufficient for jurisdictional purposes.
16. Purchaser’s Costs of Enforcement; Attorney’s Fees. Purchaser shall be entitled to receive from Seller and Seller shall pay to Purchaser, all Purchaser’s costs and expenses, including Purchaser’s collections overhead and Purchaser’s reasonable attorney’s fees, in enforcing any of the terms of this Agreement, regardless of whether or not a legal action has been commenced. If Seller files action against Purchaser and the matter is dismissed or Purchaser prevails in the matter, Seller agrees to pay all of Purchaser’s attorney fees and costs incurred whether in court or arbitration.
17. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.
18. Limitation of Liability. In no event will Purchaser be liable for any claims asserted by Seller under any theory of law, including any tort or contract theory for lost profits, lost revenues, lost business opportunities, exemplary, punitive, special, incidental, indirect or consequential damages, each of which is hereby expressly waived to the fullest extent permitted by law by Seller.
19. Waiver Of Jury Trial; Limitation On Action. PURCHASER AND SELLER KNOWINGLY, WILLINGLY AND VOLUNTARILY WAIVE, INSOFAR AS PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION, PROCEEDING OR LITIGATION BROUGHT BY PURCHASER, SELLER OR GUARANTOR HERETO ARISING FROM OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE UNDERLYING TRANSACTION. SELLER SHALL COMMENCE ANY ACTION OR COUNTERCLAIM BASED IN CONTRACT, TORT OR OTHERWISE ARISING FROM OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE UNDERLYING TRANSACTION WITHIN ONE YEAR OF THE ACCRUAL OF THAT CAUSE OF ACTION AND NO SUCH ACTION MAY BE MAINTAINED WHICH IS NOT COMMENCED WITHIN THAT PERIOD. SELLER KNOWINGLY, WILLINGLY AND VOLUNTARILY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO PURSUE A CLAIM AGAINST PURCHASER AS PART OF A CLASS ACTION, PRIVATE ATTORNEY GENERAL ACTION OR OTHER REPRESENTATIVE ACTION.
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2006 AdvanceMe Contract
In exchange for payment by Company to Merchant of the purchase price specified below (“Purchase Price”), Company hereby purchases from Merchant and Merchant hereby sells to Company all of Merchant’s right, title and interest in and to the amount specified below (“Specified Amount”) of Merchant’s future receivables (“Future Receivables”) arising from payments by Merchant’s customers with cards (“Cards”) of a type settled, directly or indirectly, by Processor (as defined below). Merchant will remit the Specified Amount of Future Receivables to Company by causing a processor acceptable to Company (“Processor”) to pay Company each day an amount of cash equal to the percentage specified below (“Specified Percentage”) of all Card receivables due to Merchant on the day in question (“Receivables”). Company will continue to receive the Specified Percentage of Receivables until Merchant has remitted to Company the entire Specified Amount of Future Receivables.
Company will not increase the Specified Percentage without Merchant’s prior written consent. Merchant (i) will enter into an agreement acceptable to Company with Processor to obtain processing services (“Processing Agreement”) and (ii) hereby authorizes Processor and/or Operator (as defined below) to pay daily the cash attributable to the Specified Percentage of Receivables to Company rather than to Merchant and to debit the Account (as defined below) in such amounts until Company receives the cash attributable to the entire Specified Amount of Future Receivables.
Merchant agrees (i) to conduct its business consistent with past practice; (ii) to exclusively use Processor for the processing of all of its Card transactions, to not change its arrangements with Processor in any way that is adverse to Company and to not take any action that has the effect of causing the processor through which Cards are settled to be changed from Processor to another processor; (iii) to not take any action to discourage the use of Cards and to not permit any event to occur that could have an adverse effect on the use, acceptance or authorization of Cards for the purchase of Merchant’s services and/or products; (iv) to not open a new account other than the Account to which Card settlement proceeds will be deposited and to not take any action to cause Future Receivables or Receivables to be settled or delivered to any account other than the Account; (v) not to sell, dispose, convey or otherwise transfer its business or assets without the express prior written consent of Company and the assumption of all of Merchant’s obligations under this Agreement pursuant to documentation reasonably satisfactory to Company; and (vi) to maintain a Minimum Balance (as defined below) in the Account (collectively, the “Merchant Contractual Covenants”).
The owners of Merchant (such owners, whether shareholders, partners, members or other owners are referred to herein as “Owners”) hereby guarantee the performance of all of the covenants made by Merchant in this Agreement, including the Merchant Contractual Covenants.
To the extent set forth herein, each of the parties is obligated upon his, her or its execution of the Agreement to all terms of the Agreement, including the Additional Terms set forth below. Each of above-signed Merchant and Owner(s) represents that he or she is authorized to sign this Agreement for Merchant and that the information provided herein and in all of Company’s forms is true, accurate and complete in all respects. If any such information is false or misleading, Merchant shall be deemed in material breach of all agreements between Merchant and Company and Company shall be entitled to all remedies available under law. Company may produce a monthly statement reflecting the delivery of the Specified Percentage of Receivables from Merchant via Processor and/or Operator. Merchant hereby agrees to a $___ administrative fee per month for the production of the monthly statement and further agrees that Company and its designees may debit such administrative fee from Merchant’s bank account each month via the automated clearing house (“ACH”) system. An investigative or consumer report may be made in connection with the Agreement. Merchant and each of the above- signed Owners authorizes Company, its agents and representatives and any credit reporting agency engaged by Company, to (i) investigate any references given or any other statements or data obtained from or about Merchant or any of its Owners for the purpose of this Agreement, and (ii) pull credit reports at any time now or for so long as Merchant and/or Owner(s) continue to have any obligation owed to Company as a consequence of this Agreement or for Company’s ability to determine Merchant’s eligibility to enter into any future agreement with Company.
I. PROCESSING TERMS AND ARRANGEMENTS.
Section 1.1. Processing Agreement. Merchant understands and agrees that the Processing Agreement and the authorizations to debit set forth above irrevocably authorize Processor and Operator to pay the cash attributable to the Specified Percentage of Receivables to Company rather than to Merchant until Company receives the cash attributable to the entire Specified Amount of Future Receivables from Processor and/or Operator. These authorizations may be revoked only with the prior written consent of Company. Merchant agrees that Processor and Operator may rely upon the instructions of Company, without any independent verification, in making the cash payments described above. Merchant waives any claim for damages it may have against Processor or Operator in connection with actions taken based on instructions from Company, unless such damages were due to such Processor’s or Operator’s failure to follow Company’s instructions. Merchant acknowledges and agrees that (a) Processor and Operator will be acting on behalf of Company with respect to the Specified Percentage of Receivables until the cash attributable to the entire Specified Amount of Future Receivables has been remitted by Processor and/or Operator to Company, (b) Processor and Operator may or may not be affiliates of Company, (c) Company does not have any power or authority to control Processor’s or Operator’s actions with respect to the processing of Card transactions or remittance of cash to Company, and (d) Company is not responsible for, and Merchant agrees to hold Company harmless for, the actions of Processor and Operator. For purposes of this Agreement, the term “Operator” shall mean any party Company designates to debit any amounts from Merchant’s or Owners’ accounts as authorized or permitted by this Agreement.
Section 1.2. Instructions to Processor. Merchant will irrevocably instruct Processor to hold the Specified Percentage of Receivables on behalf of Company and to remit directly to Company the cash attributable thereto at the same time it remits to Merchant the cash attributable to the balance of the Receivables. Merchant acknowledges and agrees that Processor shall provide Company with Merchant’s Card transaction history.
Section 1.3. Indemnification. Merchant indemnifies and holds each of Processor and Operator, their respective officers, directors, affiliates, employees, agents and representatives harmless from and against all losses, damages, claims, liabilities and expenses (including reasonable attorneys’ fees) suffered or incurred by Processor or Operator resulting from actions taken by Processor or Operator in reliance upon information or instructions provided to Processor or Operator by Company.
Section 1.4. Limitation of Liability. In no event will Processor, Operator or Company be liable for any claims asserted by Merchant under any theory of law, including any tort or contract theory for lost profits, lost revenues, lost business opportunities, exemplary, punitive, special, incidental, indirect or consequential damages, each of which is hereby expressly waived by Merchant.
Section 1.5. Processor Commissions. Merchant understands and agrees that Processor will charge a fee or commission for processing receipts of Receivables (the “Processor’s Fee”) as set forth in the Processing Agreement and that the Processor’s Fee will be deducted from the portion of the Receivables payable to Merchant and not from the cash attributable to the Specified Percentage of Receivables payable to Company.
Section 1.6. No Modifications. Merchant will comply with the Processing Agreement and will not modify the Processing Agreement in any manner that could have an adverse effect upon Company’s interests, without Company’s prior written consent.
Section 1.7. Account. Merchant represents and warrants that Merchant’s sole bank account (“Account”) into which all settlement proceeds of Receivables will be deposited is that account identified by account name, account number and bank name and address that is shown on the face of the voided check that Merchant shall provide to Company along with this Agreement, the delivery of which voided check is a condition precedent to Company’s obligations under this Agreement. If Processor transfers to the Account or any other account of Merchant or Owner(s) any funds that should have been transferred to Company pursuant to Sections 1.1 and 1.2 hereof, or if Merchant otherwise has monies deposited in its or Owner(s)’s account(s) that otherwise should have been transferred to Company pursuant to Sections 1.1 and 1.2 hereof, Merchant shall immediately segregate and hold all such funds in express trust for Company’s sole and exclusive benefit. In any such circumstance, Merchant shall maintain in the Account a minimum balance equal to Company’s undivided interest in such funds or the Specified Percentage multiplied by the Merchant’s average daily Card volume based on the processing records provided to Company prior to the execution of this Agreement (assuming twenty-one days of processing per month) multiplied by three (3), whichever is greater (“Minimum Balance”), until such funds are paid to Company. Merchant and each Owner authorizes Company, Processor and Operator to debit such funds directly from all such accounts, including the Account, and agrees to not revoke or cancel such authorizations until such time as Company has received the entire Specified Amount of Future Receivables. Merchant acknowledges and agrees that Company, Processor and Operator may issue a pre-notification to Merchant’s and/or Owner(s)’s bank(s) with respect to such debit transactions. Within twenty-four (24) hours of any request by Company, Merchant shall provide, or cause Processor or Operator to provide, Company with records and other information regarding Merchant’s Card sales, the Account and any other accounts of Merchant or Owner(s).
Section 1.8. Processing Trial. After this Agreement has been signed by both Merchant and Company but prior to Company’s determination as to whether to pay the Purchase Price, Merchant agrees to permit Company to instruct Processor and/or Operator to conduct a short processing trial (the “Processing Trial”) to ensure that Merchant’s Card transactions are being correctly processed through Processor and that the cash attributable to the Specified Percentage of Receivables will be appropriately remitted to Company. Company agrees to make a determination as to whether to purchase the Specified Amount of Future Receivables promptly after the commencement of the Processing Trial. If Company elects to purchase the Specified Amount of Future Receivables, then all of the cash received by Company in connection with the Processing Trial prior to the payment of the Purchase Price shall be applied to reduce the Specified Amount. Nothing herein shall create an obligation on behalf of Company to purchase any Future Receivables, and Company expressly reserves the right to not purchase the Specified Amount of Future Receivables and not pay the Purchase Price to Merchant. If Company decides to not purchase the Specified Amount of Future Receivables and not pay the Purchase Price, this Agreement shall have no further effect and Company shall, promptly after receipt from Processor or Operator, return to Merchant any cash received by Company in connection with the Processing Trial.
Section 1.9. Excess Cash. In the event that the amount of cash remitted to Company pursuant to this Agreement exceeds the Specified Amount (such excess being the “Excess Cash”) by at least $20.00, Company agrees to pay such Excess Cash to Merchant within thirty (30) days after receipt thereof by Company. In the event the Excess Cash is less than $20.00, Company agrees to pay such Excess Cash to Merchant within thirty (30) days after its receipt of a written request from Merchant, provided such request is made within six months of Company’s receipt of such Excess Cash. Merchant acknowledges and agrees that Company has no obligation to take any action (including against Processor or Operator) with respect to any cash being held by Processor or Operator, which will become Excess Cash once it is paid by Processor or Operator to Company, prior to the receipt of such Excess Cash by Company.
Section 1.10. Reliance on Terms. The provisions of this Agreement are agreed to for the benefit of Merchant, Owner(s), Company, Processor and Operator and, notwithstanding the fact that Processor and Operator are not parties to this Agreement, they may rely upon the terms of this Agreement and raise them as defenses in any action.
II. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Merchant and Owner(s) represent, warrant and covenant the following as of the date hereof and during the term of this Agreement:
Section 2.1. Merchant Contractual Covenants. Merchant shall comply with each of the Merchant Contractual Covenants as set forth herein.
Section 2.2. Business Information. All information (financial and other) provided by or on behalf of Merchant to Company in connection with the execution of or pursuant to this Agreement is true, accurate and complete in all respects. Merchant shall furnish Company, Processor and Operator such information as Company may request from time to time.
Section 2.3. Reliance on Information. Merchant acknowledges and agrees that all information (financial and other) provided by or on behalf of Merchant has been relied upon by Company in connection with its decision to purchase the Specified Amount of Future Receivables.
Section 2.4. Compliance. Merchant is in compliance with any and all applicable federal, state and local laws and regulations and rules and regulations of card associations and payment networks. Merchant possesses and is in compliance with all permits, licenses, approvals, consents, registrations and other authorizations necessary to own, operate and lease its properties and to conduct the business in which it is presently engaged.
Section 2.5. Authorization. Merchant and the person(s) signing this Agreement on behalf of Merchant have full power and authority to enter into and perform the obligations under this Agreement and the Processing Agreement, all of which have been duly authorized by all necessary and proper actions.
Section 2.6. Insurance. Merchant shall maintain insurance in such amounts and against such risks as are consistent with past practice and shall show proof of such insurance upon the request of Company. Section 2.7. Change Name or Location. Merchant does not and shall not conduct Merchant’s business under any name other than as disclosed to Company and Processor and shall not change its place of business.
Section 2.8. Merchant Not Indebted to Company. Merchant is not a debtor of Company as of the date of this Agreement.
Section 2.9. Exclusive Use of Processor. Merchant understands and agrees that the services of Processor are the exclusive means by which Merchant can and shall process its Card transactions.
Section 2.10. Working Capital Funding. Merchant shall not enter into any arrangement, agreement or commitment that relates to or involves Future Receivables, whether in the form of a purchase of, a loan against, or the sale or purchase of credits against, Future Receivables or future Card sales with any party other than Company.
Section 2.11. Unencumbered Future Receivables. Merchant has good, complete and marketable title to all Future Receivables, free and clear of any and all liabilities, liens, claims, charges, restrictions, conditions, options, rights, mortgages, security interests, equities, pledges and encumbrances of any kind or nature whatsoever or any other rights or interests that may be inconsistent with the transactions contemplated with, or adverse to the interests of, Company.
Section 2.12. Business Purpose. Merchant is a valid business in good standing under the laws of the jurisdictions in which it is organized and/or operates, and Merchant is entering into this Agreement for business purposes and not as a consumer for personal, family or household purposes.
III. ADDITIONAL TERMS.
Section 3.1. Sale of Future Receivables. Merchant and Company agree that the Purchase Price paid by Company in exchange for the Specified Amount of Future Receivables is a purchase of the Specified Amount of Future Receivables and is not intended to be, nor shall it be construed as, a loan or financial accommodation from Company to Merchant.
Section 3.2. No Right Merchant acknowledges and agrees that it has no right to repurchase the Specified Amount of Future Receivables from Company and Company may not force Merchant to repurchase the Specified Amount of Future Receivables.
Section 3.3. Remedies. In the event that any of the representations or warranties contained in this Agreement is not true, accurate and complete, or in the event of a breach of any of the covenants contained in this Agreement, including the Merchant Contractual Covenants, Company shall be entitled to all remedies available under law, including the right to non-judicial foreclosure. In the event that Merchant breaches any of the Merchant Contractual Covenants specified in clauses (ii) or (iv) on the first page of this Agreement, Merchant agrees that Company shall be entitled to, but not limited to, damages equal to the amount by which the cash attributable to the Specified Amount of Future Receivables exceeds the amount of cash received from Receivables that have previously been delivered by Merchant to Company pursuant to this Agreement. Merchant hereby agrees that Company and Operator may automatically debit such damages from Merchant’s bank accounts via the ACH system or wire transfers. The obligations of Owners, including the guarantee on the first page of this Agreement are primary and unconditional and each Owner waives any rights to require Company to first proceed against Merchant.
Section 3.4. Financing Statements. To secure performance of the Merchant Contractual Covenants and all of the other obligations of Merchant to Company under this Agreement or any other agreement between Merchant and Company, Merchant grants to Company a continuing priority security interest, subject only to the security interest of Processor, if any, in the following property of Merchant wherever found: (a) All personal property of Merchant, including, all accounts, chattel paper, documents, equipment, general intangibles, instruments, inventory (as those terms are defined in Article 9 of the Uniform Commercial Code (“UCC”) in effect from time- to-time in the State of New York), and liquor licenses, wherever located, now or hereafter owned or acquired by Merchant; (b) all trademarks, trade names, service marks, logos and other sources of business identifiers, and all registrations, recordings and applications with the U.S. Patent and Trademark Office (“USPTO”) and all renewals, reissues and extensions thereof (collectively “IP”) whether now owned or hereafter acquired, together with any written agreement granting any right to use any IP; and (c) all proceeds with respect to the items described in (a) and (b) above, as the term “proceeds” is defined in Article 9 of the UCC. Merchant understands and agrees that Company may file one or more (i) UCC-1 financing statements at anytime to perfect the interest created under the UCC upon the sale, and (ii) assignments with USPTO to perfect the security interest in IP described above. The UCC-1 financing statements may state that the sale of the Specified Amount of Future Receivables is intended to be a sale and not an assignment for security.
Section 3.5. Protection of Information. Merchant and each person signing this Agreement on behalf of Merchant and/or as Owner, in respect of himself or herself personally, authorizes Company to disclose to any third party information concerning Merchant’s and each Owner’s credit standing (including credit bureau reports that Company obtains) and business conduct. Merchant and each Owner hereby waives to the maximum extent permitted by law any claim for damages against Company or any of its affiliates relating to any (i) investigation undertaken by or on behalf of Company as permitted by this Agreement or (ii) disclosure of information as permitted by this Agreement.
Section 3.6. Solicitations. Merchant and each Owner authorizes Company and its affiliates to communicate with, solicit and/or market to Merchant and each Owner via regular mail, telephone, email and facsimile in connection with the provision of goods or services by Company, its affiliates or any third party that Company shares, transfers, exchanges, discloses or provides information with or to pursuant to Section 3.5 and will hold Company, its affiliates and such third parties harmless against any and all claims pursuant to the federal CAN-SPAM ACT of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003), the Telephone Consumer Protection Act (TCPA), and any and all other state or federal laws relating to transmissions or solicitations by any of the methods described above.
Section 3.7. Confidentiality. Merchant understands and agrees that the terms and conditions of the products and services offered by Company, including this Agreement and any other Company documentation (collectively, “Confidential Information”) are proprietary and confidential information of Company. Accordingly, unless disclosure is required by law or court order, Merchant shall not disclose Confidential Information to any person other than an attorney, accountant, financial advisor or employee of Merchant who needs to know such information for the purpose of advising Merchant (“Advisor”), provided such Advisor uses such information solely for the purpose of advising Merchant and first agrees in writing to be bound by the terms of this Section 3.7).
Section 3.8. Publicity. Merchant and each Owner authorizes Company to use its, his or her name in a listing of clients and in advertising and marketing materials.
IV. MISCELLANEOUS.
Section 4.1. Modifications; Amendments; Construction. No modification, amendment or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties affected. The headings of the sections and subsections herein are inserted for convenience only and under no circumstances shall they affect in any way the meaning or interpretation of this Agreement. For purposes of this Agreement, “including” shall mean “including, without limitation”.
Section 4.2. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by mail, overnight delivery or hand delivery to the respective parties to this Agreement. Notices to Company shall be sent to the following address:
Advanceme, Inc.
c/o General Counsel
2 Overhill Road, Suite 410 Scarsdale, NY10583-5323
Section 4.3. Waiver; Remedies. No failure on the part of Company to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right under this Agreement preclude any other or further exercise of any other right. The remedies provided hereunder are cumulative and not exclusive of any remedies provided by law or equity.
Section 4.4. D/B/A’s. Merchant hereby acknowledges and agrees that Company may be using “doing business as” or “d/b/a” names in connection with various matters relating to the transaction between Company and Merchant, including the filing of UCC-1 financing statements and other notices or filings.
Section 4.5. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Merchant, Owner(s), Company and their respective successors and assigns, except that Merchant and Owner(s) shall not have the right to assign its rights or obligations hereunder or any interest herein without the prior written consent of Company, which consent may be withheld in Company’s sole discretion. Company reserves the right to assign this Agreement or its rights or obligations hereunder with or without prior notice to Merchant.
Section 4.6. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to principles of conflicts of law. Merchant hereby submits to the jurisdiction of any New York state or federal court sitting in the Borough of Manhattan of the City of New York or any Georgia state or federal court sitting in Cobb County. Merchant hereby waives any claim that the action is brought in an inconvenient forum, that the venue of the action is improper, or that this Agreement or the transactions of which this Agreement is a part may not be enforced in or by any of the above-named courts.
Section 4.7. Costs. Company shall be entitled to receive from Merchant and/or Owner, and Merchant and/or Owner shall pay, all reasonable costs associated with a breach by Merchant of any of the Merchant Contractual Covenants or other obligations or any of the representations and warranties of Merchant and the enforcement thereof, including court costs and attorney’s fees.
Section 4.8. Term and Survival. This Agreement shall continue in full force and effect until all obligations hereunder have been satisfied in full; provided, however, that Sections 1.3, 1.4, 3.3, 3.6, 3.7, 3.8, 4.7, 4.12 and 4.13 shall survive indefinitely.
Section 4.9. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.
Section 4.10. Counterparts and Facsimile Signatures. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which when taken together shall constitute one and the same agreement. Facsimile signatures shall be deemed to be original signatures and each party hereto may rely on a facsimile signature as an original for purposes of enforcing this Agreement.
Section 4.11. Entire Agreement. This Agreement contains the entire agreement and understanding between Merchant, Owners and Company and supersedes all prior agreements and understandings, whether oral or in writing, relating to the subject matter hereof unless otherwise specifically reaffirmed or restated herein.
Section 4.12. Jury Trial Waiver. THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART OR THE ENFORCEMENT HEREOF, EXCEPT WHERE SUCH WAIVER IS PROHIBITED BY LAW OR DEEMED BY A COURT OF LAW TO BE AGAINST PUBLIC POLICY . THE PARTIES HERETO ACKNOWLEDGE THAT EACH MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH THEIR ATTORNEYS.
Section 4.13. Class Action Waiver. THE PARTIES HERETO WAIVE ANY RIGHT TO ASSERT ANY CLAIMS AGAINST THE OTHER PARTY AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER IS PROHIBITED BY LAW AGAINST PUBLIC POLICY. TO THE EXTENT EITHER PARTY IS PERMITTED BY LAW OR COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE ACTION AGAINST THE OTHER, THE PARTIES HEREBY AGREE THAT: (1) THE PREVAILING PARTY SHALL NOT BE ENTITLED TO RECOVER ATTORNEYS’ FEES OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVE ACTION (NOT WITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT); AND (2) THE PARTY WHO INITIATES OR PARTICIPATES AS A MEMBER OF THE CLASS WILL NOT SUBMIT A CLAIM OR OTHERWISE PARTICIPATE IN ANY RECOVERY SECURED THROUGH THE CLASS OR REPRESENTATIVE ACTION.
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Your Life or Your Bank Statements
February 20, 2013“Um, I don’t feel comfortable sending them to you because they’re private.” One of the most interesting things I experienced as a broker and underwriter is the amount of times I heard merchants tell me their bank statements were too private to send in. I understand it’s not exactly the same thing as telling someone your phone number, but if you’re applying for a loan or intend to sell your future receivables, this doesn’t really cross the line as being too personal.
Let’s be honest here, there’s plenty of folks who get defensive over this simply because they’re overdrawn and they don’t want the lender to see it. I’ve heard every trick in the book, “the last 2 months statements are lost and my bank refuses to send me copies”, “I switched bank accounts yesterday and my old bank won’t send me my previous statements now”, or “I’ll send them over as soon as I have 100% final approval on the loan.” These excuses won’t work and they set off red flags with underwriters. Besides, if you lie about something during the application process and then proceed to sign a guarantee on the loan agreement that you’ve disclosed EVERYTHING, then you’ve already placed yourself in breach of contract or worse, you’ve committed fraud.
But on the flip side, just as many applicants are worried that submitting their bank statements could lead to identity theft. Maybe there is a slight chance it does, but probably only if you’re sending them to someone that already has all of your other identifying information like your social security number. That’s the “interesting” part I spoke of earlier because few people flinch when filling out their social security number on the application. Don’t get me wrong, I’m not trying to induce worry in businesses that want money. What am I trying to say is that waiting until late in the application process to do research on the lender or broker is too late. You need to be 100% confident in the recipient of your personal information before you even fill out the preliminary application on the first day.
When it comes to identify theft, Your social security number, name, address, and date of birth is really all it takes for you to be fully compromised. The rebuttal on the bank statements is always “But I don’t want someone to know my bank account number because then they might try to take money out of it.” Really? Have you ever written a check to someone? Have you ever signed up for direct deposit? Have you ever seen a waste basket full of bank receipts next to an ATM machine? I hate to say it but your bank account information is already public and you probably give it out to people on a daily or weekly basis. Routing numbers are shouted from the rooftops and you can see that for yourself at routingnumbers.org. If someone is going to try to debit money out of your account, your bank statements aren’t really necessary. It’s sad, but it’s true. Financial institutions review and audit businesses that debit their customers, but sometimes bad guys slip through the cracks. Generally if an unauthorized debit does happen, you are not liable for the loss. According to FTC.gov:
Since December 31, 1995, a seller or telemarketer is required by law to obtain your verifiable authorization to obtain payment from your bank account. That means whoever takes your bank account information over the phone must have your express permission to debit your account, and must use one of three ways to get it. The person must tell you that money will be taken from your bank account. If you authorize payment of money from your bank account, they must then get your written authorization, tape record your authorization, or send you a written confirmation before debiting your bank account. If they tape record your authorization, they must disclose, and you must receive, the following information:
The date of the demand draft;
The amount of the draft(s);
The payor’s (who will receive your money) name;
The number of draft payments (if more than one);
A telephone number that you can call during normal business hours; and
The date that you are giving your oral authorization.If a seller or telemarketer uses written confirmation to verify your authorization, they must give you all the information required for a tape recorded authorization and tell you in the confirmation notice the refund procedure you can use to dispute the accuracy of the confirmation and receive a refund.
In the event these rules are violated and a debit happens anyway, the FTC advises this:
If telemarketers cause money to be taken from your bank account without your knowledge or authorization, they have violated the law. If you receive a written confirmation notice that does not accurately represent your understanding of the sale, follow the refund procedures that should have been provided and request a refund of your money. If you do not receive a refund, it’s against the law. If you believe you have been a victim of fraud, contact your bank immediately. Tell the bank that you did not okay the debit and that you want to prevent further debiting. You also should contact your state Attorney General. Depending on the timing and the circumstances, you may be able to get your money back.
It’s important that you know these rules, but it’s twice as important to do a background check on the financial service company before you send them ANYTHING. Your social security number is your crown jewel. Be smart about who you send it to. And as for your mysteriously missing January bank statement? There’s a pretty good chance your story about where it went or why it’s never coming back isn’t going to work. Good luck and safe funding!
– Merchant Processing Resource
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MCA Industry More Fractured
February 1, 2013
Everyone agrees that the Merchant Cash Advance (MCA) industry has grown substantially over the last few years. Our best calculations estimated that $600 million in MCA deals took place in 2010. Some believed that figure was too low, especially when Capital Access Network (CAN) projected they would fund $700 million all by themselves in 2012. Could CAN really be funding more alone than what the entire industry including them funded in 2010?
The debate starts there because they have put a large focus on their NewLogic subsidiary, a company that specializes in short term loans, not MCAs. And like NewLogic, much of the growth the industry experienced in the last few years has not been centered around split-funding purchases of credit card sales, but on the alternatives. We’ve made it a point in previous articles to point out the lack of consensus on what the product is being called now, especially since everyone is offering their own version of short term financing. We even went so far as to say that by 2015, the term MCA won’t even exist anymore. We may have exaggerated a bit, but after playing around with Google’s Trends tool, we realized that prediction was much more than a hunch.
If MCA has grown so much in the last few years, why is it that 38% more people searched for MCA on Google in December 2007 than they did in December 2012? Why is it that searches for MCA information peaked in February 2009 and never recovered? According to Google’s search data, nearly 50% fewer searches are being made for MCA today than there were three years ago.
Notice that MCA as a term did not really exist on the Internet prior to June 2007. We presented our estimate of when that term was coined in Before it was Mainstream. It first appeared in print in May 2005, but didn’t pick up traction until March, 2006 in private Internet forums. The first Merchant Cash Advance Internet blog began in July 2007, weeks before people began to first start searching for information about the term. It is very likely they were also trying find the blog itself.
So is Google’s data just plain wrong? Is something fishy? The only thing wrong is the belief that the MCA industry is just about MCAs. The creation of alternatives and the recent practice of private labeling have contributed to the decline of MCA.
three new terms: merchant loans, ach loan, merchant financing
Business Cash Advance takes a dive. Seriously, who calls it that anymore? Merchant Funding is on the way back up.
There were 500% more searches for small business loans in April 2004 than there were in December 2012.
So what does this all mean? We leave you to draw your own conclusions. 2007-2009 was a period of sudden mass awareness of MCA but there has never been as much money in the industry as there is now. There are experts that say business owners feel that the recession never ended, causing them to continue hunkering down instead of seeking financing to expand. There are insiders who will attribute this to the negative stigma the product had and the need to call it something else. We believe the most likely suspect though, is the fracturing of the MCA industry. It’s possible that people aren’t typing “small business loans” or “merchant cash advance” into Google because so many companies are promoting alternative financing options that people are looking for those specific products instead.
Whatever the answer is, it appears that alternative business financing has grown tremendously but the MCA term has not. Share your thoughts about this with us. We want to hear theories.
– Merchant Processing Resource
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Made for Each Other?
December 12, 2012You want fast cash loan? “We have Short term loans online from £1 – £1000 with no fax required. Instant approval, 24 hour self-service account access and 15 minute cash payout guaranteed.” Not exactly the kind of advertising you’d see in the Merchant Cash Advance Industry. It sounds like a payday lender headline, the kind of marketing that critics would jump on and rally regulators to put an end to. It’s the antithesis of what many alternative loan providers that operate in the MCA space have come to stand for. And it could be coming to a theatre near you.
Meet Wonga, an online payday loan company in the U.K. with a representative APR of 4,214%. According to many news sources, they’re looking for an entry point into North America and they may have found one (Watch out Silicon Valley, the Redcoats are coming!). In a deal that would be valued at around $250 million, Wonga is getting cozy with On Deck Capital (ODC). It was only a few years ago that former ODC CEO Mitch Jacobs was warning the public about the high costs of Merchant Cash Advances. It appears their views may be evolving. Not that we have anything against either company, because we don’t. It’s just that when you think of how respected ODC is in the market today, it’s hard to picture them being gobbled up by a company that offers fast cash loans from 1£ and up for a four figure interest rate.
Or maybe this is exactly what we’ve been predicting all along. One of Wonga’s primary investors is Accel Partners, the guys that got in early on Facebook and did a nice deal with Capital Access Network. They are joined by Greylock Partners, a self-described “Leading Silicon Valley Venture Capital Firm,” that coincidentally also invested in Facebook. So what the heck are these two companies doing in the U.K.? It sure looks like they are fulfilling our Silicon Valley Invasion prophesy:
How the Facebook IPO Affects the Merchant Cash Advance Industry 5/18/2012
The Bubble That Wasn’t 8/17/2012
The End of an Era 9/19/2012
Ten Days 9/28/2012
You can't get much more Silicon Valley VC than this...
Bloomberg.com’s article about the advanced stage talks between ODC and Wonga came just TWO DAYS after Steven Mandis walked into the room and bought a material stake of the 2nd largest company in the industry, RapidAdvance.
It seems like just yesterday we were all saying something about financing based off of credit card sales, but now? Now… it’s starting to look like you can get fast cash loan 15 minutes, no fax!
This business gets more interesting every day.
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Update: 12/13/12
Wonga does make loans to businesses already in the U.K. The application process takes about 12 minutes and funding happens in 30 minutes. This would be a game changer in the U.S. Refer to this article: http://techcrunch.com/2012/05/07/wonga-extends-its-payday-loans-to-small-businesses-in-uk/
– Merchant Processing Resource
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Movember Rocked!
December 1, 2012
Movember: Mo’ Merchants, Mo’ Deals
The pre-holiday season is usually big in the Merchant Cash Advance (MCA) industry but this year seemed different. We’ve been saying that we’ve entered a new era for a long time, but it’s finally starting to seem real. It feels like 2007 again in a way, when everybody was getting rich and nobody even knew what the heck they were selling. It took years for account reps to finally stop referring to advances as loans and by then it was too late because the ACH loan industry was born.
E-mails like this don’t happen very much anymore:
You know… the ones where the deal would be blatantly shotgunned to multiple companies at once. The major broker shops would “accidentally” CC everyone instead of BCC to let the funders know who was in charge.
That’s not to say that deals don’t get shopped, Some do, but the circumstances have changed. To minimize the risk of being flooded with bad paper, funders ask resellers to put their money where their mouth is. The syndication game has become THE game in town and it’s led to Super ISO networks like the Factor Exchange. A user on the DailyFunder that seems to be intimately familiar with Factor Exchange is quoted as explaining the model like this:
The “mom and pop” ISOs and “Onesy-Twosey” brokers are backed by one giant ISO network and The Factor Exchange assumes half of the risk by syndicating 50% on nearly ever deal…
The massive volume of FEX submissions to lenders gives the ISOs power to negotiate for better rates and terms, One point of submission reaches 15+ lenders, the merchants credit is only pulled once, and the commission is passed straight through to the ISOs because FEX makes their money from participation.
Companies like this empower the smaller brokerages…
Who Did Mo’ Deals in Movember?
Yellowstone Capital broke their single day funding record… TWICE. This actually happened on back to back days. Executive management reported that they funded approximately $3 million in 48 hours.
Who Got Mo’ Money?
Wall Street wizard and business professor, Steven Mandis acquired a stake in Bethesda-based RapidAdvance. The news is all the more interesting with the fact that RapidAdvance is easily one of the top 5 largest players in MCA. Single individuals don’t exactly just walk through door and buy a stake in companies like this. Mandis is taking on a Strategic Advisor position and it’s our guess Rapid is about to enter another major phase of growth.
Who Got Mo’ Likes?
Merchant Cash and Capital’s (MCC) facebook fan page has gotten thousands of Likes since the third week of Movember when they announced their charity campaign. For every new Like until December 7th, MCC is donating $1 to the American Red Cross to help people that were affected by Hurricane Sandy.
Who Got Mo’ Wins?
RapidAdvance was the first team to clinch the playoffs in the MCA industry fantasy football league for charity. Something tells us that Mandis is behind their incredible winning streak.
Who got Mo’ Leads?
You did if you bought leads from either one of our lead advertising partners, Meridian Leads or SmallBusinessLoanRates.com.
Lendio has also been making a splash on the MCA lead scene with Dave Young being a big contributor on DailyFunder. To discuss pricing, he can be reached at dave.young[at]lendio.com
Who lied Mo’?
According to CNN’s statistics, 247 million people in the U.S. went shopping on Black Friday. That’s equal to the entire American population over the age of 14. Something doesn’t smell right with these numbers. It’s our guess that CNN is using Mitt Romney’s polling experts. 😉
But someone else lied just a little bit Mo’. On Movember 26, 2012, PRWeb published a release that claimed ICOA Inc., a small tech company in Rhode Island was acquired by Google for $400 Million. The release turned out to be a hoax as part of a stock pump and dump scheme. Many critics have been left wondering why PRWeb didn’t do anything to verify its authenticity. Considering PRWeb is such a widely used PR service in the MCA space, we can testify that they’ll pretty much publish anything so long as you pay the fee. Some smaller companies use it as part of their SEO campaigns, which explains why there are so many strange looking releases out there that seem to repeat the same keyword in every sentence.
ABC Funding Co Just announced a program that will help small businesses in need of cash by providing these small businesses in need of cash with a special type of financing that will hep them if they are a small business in need of cash. Not exactly New York Times material…
Will Movember be followed by Make-a-lot-of-Doughcember? We’ll find out!
– Mo’chant Processing Resource
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