Page 40 - GS170601

Views

Cash advance revisited the merchant by 10 percent or more. The upfront fee was
either a percentage or fixed amount, the higher the better.

Payback time frames were extremely short, no longer than
five to six months. Some companies sold the product as a
“quick loan,” an incorrect term since the process of getting
the money took weeks, not days. Others referred to the ad-
vances as SBA loans, lines of credit, bridge loans and work-
ing capital loans. The only truth was that the merchant
would receive extremely expensive working capital, along
with an expensive terminal.
Big changes

Much has changed since then in terms of companies partic-
ipating in the industry. It seems there are now more small
cash advance companies than ISOs, perhaps because, with
cash advance, the return on time spent is so profitable.
Yes, you still have bottom feeders who charge outrageous
amounts on top of higher costs, but some excellent, well-
financed companies have entered the sphere to present
more transparent products and limit the amount that can
By Steven Feldshuh be charged to a business.
Merchants' Choice Payment Solutions East These and other fundamentally sound companies limit “up
selling” or “ripping off” by sales agents, require that agents
f you’d asked me about 10 years ago why I wasn’t fully identify themselves and their business relationships,
offering cash advance products to my sales group, I and enforce contracts requiring agents to act in a profes-
would have lectured you about the “evil program” sional manner. I believe these well-funded, ethical compa-
I that sucks the life out of merchants. In those days, the nies can help sweep away some of the trash still out there.
concept was new, with few companies participating.
Today, it appears almost every processor offers at least one,
In addition, a handful of those offering cash advance built if not multiple programs for merchant funding. Should
poor reputations by misleading and ripping off small we all get involved in cash advance, or should we leave it
businesses. Regulations were nonexistent. Advances alone? Does someone need special credentials or training
were referred to as loans. There were no guarantees. The to be good at this business? Can credit card folks compe-
paperwork appeared to have been written by third graders; tently represent this product, or should we work with spe-
explanations were limited and secretive. The truth was cialists? Are the rates still a killer and the upfront costs still
not told. It reminded me of the golden days of the $129 a deterrent?
per month terminal lease. Also, most merchants who took
out cash advances were required to switch their credit Ten years ago I wanted nothing to do with cash advance.
card processing to a new company because only certain Over time, it became a question of how involved I should
processors could do what was referred to as “split funding.” get. However overcoming my own resistance was just the

Bad deals beginning.
Split funding was explained as split payments to the lender Reluctant sales force
and merchant based on the credit card receivables. This A major issue I encountered is that few sales agents grasp
also meant a much higher cost of processing to the mer- the cash advance concept right away, and many feel that
chants. Even though our customers complained and didn’t learning to sell the product would be a bother – no matter
want to leave our company for processing, they still did, be- what I do. I’m not sure whether this reluctance arises
cause they desperately needed the money to run their busi- because credit card folks like sticking with only what they
nesses. We started to lose accounts to these cash advance know, or that they just don’t want to get involved with this
companies. product.

Along with processing rates of extraordinary heights, mer- The reason most agents cite for not pursuing cash advance
chants were also charged lease costs for terminals that could is high rates. The answer I give them is that if your merchant
do the split funding. Then there was the upfront fee for get- needs money and can’t get it from family, friends or a bank,
ting the advance, which could reduce the actual funding to he or she will find it somewhere.

40