As some Audit readers know, we’ve started a push with the Society of American Business Editors and Writers to try to find and review noteworthy local and regional business reporting that gets lost in the news crush.
Here’s a post from SABEW’s president, Rob Reuteman, urging members to send us their stuff, and here’s one from me explaining how it’s going to work.
The idea was to get a peek at what the locals are doing, some insight into local economies and, maybe, if our hunch is right, a few surprises. One motivation was a gnawing sense we were missing some good stuff, a sense that is invariably confirmed every year around prize time, when out of nowhere a small paper like the Bristol (Va.) Herald Courier walks off with the Public Service Pulitzer for a series exposing the mismanagement of state natural gas royalties.
We’ll figure how we’ll handle the submissions depending on the volume and, well, quality (we’re critics, okay?), but from the early entries, we’re off to a promising start.
This-multi-part probe in the Washington (D.C.) Business Journal of a fallen leader of the murky business known as “merchant cash advance industry” falls into the things-I’m-glad-to-see category.
Merchant cash advance, we learn, is basically payday lending for small business; in return for upfront cash, businesses allow the lender a percentage of gross receipts from their credit card swipes.
The piece looks at the rise and fall of Lee Jundanian, who founded something called RapidAdvance in 2005, was named Maryland Entrepreneur of the Year by Ernst & Young in 2008, and filed for bankruptcy two years later.
True, not everyone is going to care to page through a long look at a local crash-and-burn case; and, also true, the merchant cash advance business is relatively small: MCA operators issue between $750 million and a $1 billion a year in loans. And while the series, by Bryant Ruiz Switzky, is reported to within an inch of its life, it must be said there aren’t a lot of fun personal details about Jundanian.
But we do get one key insight into character. WBJ leafed through 100 or so lawsuits filed by RapidAdvance against its borrowers for non-payment and finds that Jundanian offered some of the hardest money in a hard-money business. According a 2007 report by an industry leader trying to stave off regulation, the “safe retrieval percentage”—one that won’t strangle the borrower’s business—is between 2 and 9 percent of revenue, though it can routinely go to a business-destroying 20 percent. WBJ’s analysis of 39 cases found that Jundanian’s business took 35 to 50 percent in a third of the cases, with an average of 28 percent overall. The results were predictable.
What I found especially valuable was the window it offered on the harrowing pressures faced by small businesses in the wake of the financial crisis and the Great Recession. This strikes me as a grossly under-reported phenomenon.
WBJ called dozens of businesses sued by RapidAdvance and found, among the many disconnected phone lines, several compelling vignettes, including that of Bryan Light, who runs an auto-parts store in Alvin, Texas.
Light was forced into the arms of RapidAdvance when his kidney failed while the economy crashed; he got a $24,000 advance in June 2007, agreeing to fork over 45 percent of every credit card swipe until he repaid $35,280. Like a lot of borrowers in that business, he was accused of cheating by having customers pay cash or use a different credit-card terminal. Here’s Light:
“There were a couple of occasions where we didn’t take any credit card sales for two weeks. They wanted to know why. It was like, ‘I’m sitting here starving and you want money?’” Light said. “I sent proof that we had no deposits that month. I sent them all the information they wanted and it did no good. They were bullying me around for no apparent reason other than that they weren’t getting paid back fast enough. It was a nightmare.”
Light made it, no thanks to RapidAdvance:
“Things have improved, thankfully, but paying them back nearly put me out of business,” he said.
One bad apple doesnt mean the whole industry operates like Rapid. Ive been selling merchant cash advance for over six years and have a long list of clients who have benefited from merchant cash advances. The problem is merchants take the advance for the wrong reasons, like paying peter to pay paul. Merchants should only take the advance if they are expanding, buying out a partner, for marketing, etc. MCA providers I work with donot lend to businesses who are failing and believe me its easy to underwrite a merchant and determine if they qualify for a MCA. Great article thou.
#1 Posted by George, CJR on Tue 24 Aug 2010 at 10:10 AM
While I'm not here to defend the MCA biz nor Rapid, I feel compelled to ask. How on god's green earth does *any* business man who is short on capital choose to cough up 45% of revenue with the expectation that they'd survive? The only problem I have with this article (admittedly I haven't seen the WBJ article yet) is that there seems to be no accountability on behalf of the business owner. Actually it seems to slant that the business owner has no choice (read: "Light was forced into the arms of RapidAdvance")....forced? Really? You make it sound as if there was a gun to his head.
Again...not endorsing or absolving anyone...but just because your an idiot when it comes to running your business doesn't make it someone else's fault when you make a poor decision.
My two cents.
John
#2 Posted by John M., CJR on Tue 24 Aug 2010 at 04:56 PM
I do not understand why there was not significantly more research done in the WBJ article into the Rapid management team (that remains in place today). Why was all the corporate behavior attributed to Jundanian, who did not participate in the day to day? Corporate policy is driven by “C” level executives….
#3 Posted by Alan P, CJR on Tue 24 Aug 2010 at 09:16 PM
I agree, everyone is trying to throw Jundanian under the bus to save their own tail it seems. Guilty by association I say...C Levels are still running the same company today!
#4 Posted by Steve J, CJR on Wed 25 Aug 2010 at 01:18 AM
People at the company know what happened and so do many of Rapid's ISO partners. It's real simple: The company hit a major economic speed bump and was having trouble refinancing (and understandably so). What happened next is classic. Senior managers Jeremy Brown, Joe Looney, and Rory O'Connell, who ran the joint, took zero accountability, did anything possible to protect their jobs and, together with Andy and Jon Cherner (Jundanian's so called partners), made Jundanian the scapegoat. Whoever believes in karma should hold this bunch of "back room" Beltway bandits responsible and accountable for all of their cunning actions. I say bring in the regulators and class action attorneys. They'll have a field day going through the hundreds of merchant files in the public records and interviewing people in underwriting and collections. Once fully informed, they'll be able to talk circles around the Cherners' used car sales pitch. If they're lucky they'll get a free set of floor mats thrown in.
#5 Posted by me, CJR on Sat 4 Sep 2010 at 01:52 PM
I agree that the MCA industry is "grossly under-reported" but the article you promote here, written by Switzky and published by the WBJ, is way off the mark. I applaud your efforts to connect The Audit with SABEW and give more prominence and recognition to "local media" success stories, but I this particular article includes an inaccurate character assassination of Lee Jundanian, who has been a champion to small business owners for many years--even though the company he founded (Rapid Advance) did apparently begin to mistreat its merchant customers, unbeknownst to Jundanian. Most of us love to see business villains exposed. It's one of the greatest benefits, if not a responsibility, of a free press. But when a reporter gets it wrong, as Switzky did in pegging the blame on Jundanian, it's a greater evil to see a villain misidentified and the true villain(s) escaping scrutiny. To Switzky's credit, he has stumbled upon rich territory with the MCA industry and specifically Rapid Advance --and the whole investigation and discussion around the need for regulation would be great journalism. But trying to pin Jundanian as the face of the dark side of that industry was totally missing the mark. Thousands of small businesses have Jundanian to thank for their financial well-being and success. And Jundanian took a personal fall in an attempt to save the company, though that company does seem to have departed from Jundanian's vision and purpose to support small businesses (not drive them further into financial distress). The assumptions Switzky had to make in connecting Jundanian to the bad practices of Rapid Advance made Jundanian a twice victim--both of his own company turning on him and now of Switzky's inaccurate destruction of his reputation. Promoting this bad journalism here at CJR only worsens the injustice. See more on this, including a comment from a former VP at Rapid Advance at: http://bit.ly/aQ4WaM
#6 Posted by Marc A, CJR on Thu 23 Sep 2010 at 12:16 PM
I currently have merchant advance from Advanceme/Capital Access Network started started May 2010. Somewhere in July I noticed a gross stortage in my credit card deposits, we signed for a 20% retrieval rate. It was not immediately apparent but after further investigation, Avanceme had been retrieving closer to 40-50% of my credit card transactions. I cannot tell you how serious this is as well as breech of contract, You can't run a business like that. I immediately contacted them after weeks, they replaced some of the funds. Then in August it happened again. After such gross shortages, I have contacted them again. Dragging their feet they did replace some funds and offer a mere credit toward the balance due. As you can imagine this is not good enough. I was expanding my business, my landlords check bounced, causing more problems and I still have not recovered from these errors or delibrate attempts to put me out of business. I have been contacted by the legal department and we shall see where it goes. I need results and would appreciate any comments regarding this or others who have experienced this problem. I can not be the nly merchant that this happend to. Inthe past I have not had such a bad experience, but this is too much.
#7 Posted by Dsaunders, CJR on Fri 1 Oct 2010 at 09:29 AM
the industry is full of crooks- from the funders to the brokers reselling the product, there is zero accountability for this industry. However, if you look at Wall Street, and, the derugulation of the financial sector, and, the lobbyist who keep reform at bay, it is to no surprise, this industry exists. Look at the financial meltdown of this country with the big investment firms- who- even goldman sachs was behind this very industry- and- you will find that there is a huge problem with regulation/reform within the private sector. nothing has changed and this industry continues since 1998 with no apparent stoppage- now, every processing company, agent, broker out there can enter this cash advance business and charge closing fees, professional service fees, and, walk away with a commission.
#8 Posted by iso, CJR on Thu 10 Mar 2011 at 12:38 AM