Helping ISOs plan ahead to bring the future to the present
Darrin Ginsberg is the founder and Chief Executive Officer of Super G Capital LLC, a business-to-business lender that specializes in providing growth and acquisition capital to ISOs in the payment processing industry. Capital is needed by these ISOs to help them increase their merchant base.
"On average, most ISOs today are barely growing by 10 percent per year or writing just enough new business to offset the merchant attrition that they are experiencing," Ginsberg said. "So, if you want to really grow your business, the fastest and most effective way is to obtain funding from Super G Capital and purchase a portfolio. You have several choices when buying a portfolio. You can buy a static portfolio, which is a book of business that contains a specific list of merchants; you can buy a portfolio in addition to an ISO's forward going business; or you can buy back residuals from your own agents and subagents."
Ginsberg noted that Super G has been providing quite a bit of capital the last two years to ISOs who are buying back their own agents' residuals because this is a very easy transaction to close that doesn't take much due diligence and can typically be bought for a much lower multiple than that of a third-party portfolio.
"By financing the buyback of your own agents' residuals, you can now make more money every month without doing any more work than you are doing today and even have positive cash flow along the way," he said. "This is my definition of working smarter, not harder."
Super G Capital was formed in 2008 and has grown to become one of the market leaders in the residual lending space today. The company has provided over $100 million in funding to approximately 200 ISOs throughout the United States. Super G is growing its business by lending into other vertical markets, and in March of 2017, it acquired Novus Capital Group to help increase its market share in the software and technology venture debt space. Super G Capital provides loans ranging from $100,000 to $5 million, and since inception has funded over $200 million in loans to all types of industries, Ginsberg stated.
Increasing competition
Having previously run an ISO, Ginsberg knows how competitive the payment processing industry can be, particularly now with very well-funded technology companies that have entered the space.
"I call it the Silicon Valley effect on payments. PayPal, Stripe, and Square have made payment processing more common place and more well-known with much more marketing dollars than any of our ISOs have ever marketed," he said. "They have spent tens of millions of dollars in advertising. I don't know of any ISOs in our space that have spent or could spend anywhere near that kind of money on advertising simply to obtain market share. ISOs need to pay attention to this competition and evolve and even emulate some of the new simplified pricing methodologies that these Silicon Valley companies are using that seem to be more popular with today's millennial merchants."
Loan approval process
ISOs can qualify with Super G Capital if they have a minimum of $5,000 in residuals per month. Getting approval for a loan is quick and easy, and it can be done in as little as five business days. Underwriting is fairly simple at Super G. Residual statements are reviewed, and as long as your accounts are fairly diversified and not too top heavy with only a few large or high-risk merchants, you can be approved and funded within a week, Ginsberg said.
Super G provides loans ranging from one to four years that are secured by an ISO's merchant portfolio. "The good thing about borrowing against your portfolio instead of selling it is that when you are done paying off your loan, you still own 100 percent of your portfolio," Ginsberg said. "Once you sell your portfolio, you will never earn any more residuals from that merchant base again. If you plan on being in business for years to come, then you are simply shooting yourself in the foot if you sell off small pieces of your portfolio along the way, when you can leverage your portfolio with Super G and still own the asset.
"Another benefit of a loan versus the sale of your portfolio is that if you borrow the funds, this is not a taxable event like a portfolio sale is. You actually get to deduct all of the interest on the loan from your taxes."
As Super G Capital has grown, it now has cheaper capital available to be more competitive on larger deals from $1 million to $10 million. Our financing is not as cheap as bank financing but can be used in addition to a bank line to help finance an acquisition when it would cost more to finance through equity.
Ginsberg is very positive about the future. "I think that the payments industry is going to do nothing but grow, and I think there is only good news ahead in the payments space," he said. "The number of electronic transactions continues to grow in all forms including credit cards and ACH as do the number of merchants and the types of merchants accepting cards.
"The only thing that might change is who brings these merchants to the table and who earns the residuals from signing these new merchants. The advice I would give to ISOs interested in the payment space going forward is to specialize in a few verticals that you know and understand and not try to be a shotgun marketer."
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