Automation is speeding up acceptance for merchants who seek cash advances on their card transactions. Companies that are automating the acceptance process believe they are cutting out the waiting game for merchants, and in turn helping ISOs bring in more merchants faster.

“The whole industry is becoming more and more automated,” says Stephen Sheinbaum, president and CEO of Merchant Cash and Capital, a cash advance firm in New York. In September, MCC launched ASAP, an automated system for submitting and funding merchant cash advances. “What used to take 24 hours now takes 24 seconds,” he says.

But not every ISO or cash advance company is sold on automation. A computer-generated algorithm is no substitute for human analysis when brokering big loans, says Isaac Stern, managing partner of Yellowstone Capital LLC, a cash advance funder and ISO hybrid based in New York.

“There are companies making decisions about merchants without ever speaking to them. You cut out a lot of important information,” he says.

One of the more talked-about users of automation is Atlanta-based Kabbage, which uses social media analytics to help estimate a merchant’s ability to repay a loan. The application and approval process can take less than seven minutes, and Kabbage offers cash advances of $500 to $50,000. Kabbage is also testing loans of $100,000 to some clients.

Stern says Yellowstone doesn’t subscribe to the same model. He finds automation appropriate for smaller deals but not for large advances. “If I’m going to give someone $50,000, I want to speak to them,” he says.

Through ASAP, which stands for Automated Submission and Preapproval Process, MCC has automated the underwriting process for cash advances. Sheinbaum believes automation can give salespeople a competitive advantage when pitching merchant cash advance.

“Often, the agent who is the most successful is the one who can get the merchant to stop shopping,” he says.

While on the phone with a merchant, a salesperson can go into the ASAP application and enter information in 10 or so fields of information relating to the merchant’s average monthly processing. The system pre-approves that merchant, and the salesperson can go back and adjust rates, commissions, the duration and amount of the advance, and other specifics.

Once the merchant accepts the terms, the salesperson can press a “generate contract” button and forward the contract to the merchant – all within the span of a five-minute phone call.

“We can streamline the pre-approval process from days or hours down to 30 seconds once they have the information. It’s a really, really powerful tool,” Sheinbaum says.

As long as the information the salesperson enters into the system is accurate, the merchant can obtain funding within 24 hours.

Sheinbaum believes that over time, technologies like ASAP will be more forward-facing to the merchant. Merchants will likely be able to go directly to certain funding companies and get these quotes on an automated basis.

Automation can create a more merchant-friendly approval process while making it easier for merchants to explore their funding options, says Dan DeMeo, CEO of Capital Access Network, a New York-based small-business finance provider.

“Essentially, it leaves a better experience for the merchant in their quest to obtain financial alternatives. And perhaps, over time, that will allow it to be cheaper, too,” he says.

This past fall, CAN introduced Mobile Funder, a cash advance funding mechanism designed to help ISOs secure small business capital for merchants. By digitizing the application process, Mobile Funder enables sales agents to complete a merchant application within 20 minutes – a process that once took a week and a half.

While in the merchant’s physical establishment, the salesperson can request pieces of information from the merchant, take pictures of documents and enter information into the Mobile Funder application. The salesperson can then provide an on-the-spot estimate of how much the merchant can borrow.

Previously, this process took eight or nine days because the ISO, merchant and other parties had to exchange information on paper. Now, they can do everything online, including an electronic signature. The merchant can obtain an approval in 24 hours and funding within 72 hours.

“Through that technology, it potentially speeds up the transaction and helps the ISO close more deals faster,” DeMeo says.

Isaac Stern says he won’t fund off an algorithm, and he probably never will.

In the past few years, his company, Yellowstone Capital, has successfully shifted its business model from strictly ISO to ISO plus merchant-cash-advance funder.

Often, companies rely on algorithms to speed up the approvals process for merchant cash advances. But Yellowstone’s success, he says, comes from carefully examining each merchant deal before deciding whether to fund a business. Yellowstone’s system takes 24 to 48 hours for approval, but upwards of two weeks for an advance.

“I can’t see taking my hard-earned money and letting a computer decide who gets it,” Stern says.

Andrew Reiser, CEO of Strategic Funding Source in New York, believes that in some cases, algorithms can be useful to approve merchants for loans. If the salesperson has the proper information about the merchant, that business can receive funding quickly.

But automation doesn’t work in every case, he contends, because it’s impossible to compile every piece of information about a merchant into a database. Some information is intangible. “Having personal information is what’s going to speed the automation process more than technology,” he says.

Strategic Funding Source is developing its own 24-hour funding product that will be able to approve merchants in less than a day. However, Reiser notes that most merchants don’t fit neatly into the “approval” or “decline” categories.

“The reality is that most of the industry is in the gray,” Reiser says. “No one is going to finance someone in 24 hours if they don’t have the information to do that.”

Reiser says it’s like trying to get funding for two pizza restaurants: One makes good pizza, and one makes horrible pizza. Even though a lender might be less willing to give money to a company that reputedly makes bad pizza, that kind of information isn’t something you can incorporate into an automated cash advance application.

“It’s not just about the numbers. It’s about the numbers and the insights,” he says.

Even as the industry becomes more automated, ISOs might still play a key role in ferreting out the good borrowers from the bad. Companies like Yellowstone, Reiser says, rely heavily on ISOs to provide those kinds of insights.

“Some of the ugliest deals that have come to us have been some of our most successful deals because the ISOs had a personal relationship,” he says. “And some of the most beautiful deals on paper were not.”


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