The power of an email blast offering merchant cash advances came as a shock to Kevin Frisch owner of Banquest Payment Systems, a Lakewood, N.J.-based ISO. He was immediately inundated with more calls and email messages than he could handle.

 “The response was overwhelming. We were blown away,” says Frisch, CEO of Banquest.

With fewer banks lending to small merchants these days, alternative business lending is more in demand than ever. It’s even attracting investments from Wall Street hedge funds and venture capitalists.

All this translates to a welcome money-making opportunity for ISOs struggling to find additional revenue streams as merchant acquiring becomes more competitive.

“Alternative lending is skyrocketing, and I think you’re going to see more and more of it in the coming years,” said Darrin Ginsberg, founder and CEO of Super G Funding LLC, a Newport Beach, Calif.-based lending company.

Of the ISOs and agents interviewed for this article, most consider merchant cash advances a highly profitable product and a valuable retention tool. Some ISOs have even started taking a hybrid approach to their business, focusing on lending as well as merchant acquiring.

But cash advances can become a costly proposition for ISOs and merchants alike. ISOs can earn more by putting up some or all of the money needed to fund advances, but they should have a lot of cash on hand to pull it off. For merchants, cash advances have come under scrutiny for having high interest rates and short repayment periods, making it difficult for some businesses to pay off the debt.

“It’s expensive money for the merchants,” said Michael Steinberg, who works in Miami Beach, Fla., as an independent liaison between merchant cash advance companies and ISOs.

In spite of the risks, ISOs point to several advantages of selling merchant cash advance. Frisch says the income Banquest takes in from a cash advance far exceeds what the ISO can make on any merchant account. “It’s beyond comparison,” he said.

Because setting up a cash advance requires asking merchants some questions about how their business works, Banquest has forged a much stronger bond with its cash advance clients than it would through a merchant account alone.

“They will never call you to discuss their rates. They’re yours,” Frisch says.


Small-Business Lending Void

Based on his day-to-day interactions with ISOs and merchant cash advance companies, Steinberg says the cash advance business is strong right now because banks are not lending money to small businesses.

Without cash advances helping small merchants, Steinberg believes a substantial number of them would stagnate or go out of business.

“I know that in the long run, I have helped way more businesses than I have hurt,” he said.

Jeremy Abel, regional sales director for U.S. Merchant Systems in Fremont, Calif., said he has seen cash advance rescue a struggling business. One of his agent’s clients, a stereo equipment business, was in danger of closing its doors after a steep decline in business just before one of its busiest times of the year. The business had moved to a new building, but its customers didn’t know and started to think the store had closed.

Abel helped the agent set up the business with a cash advance to help market the new store. “The amount we got him was good enough to keep him in business,” Abel said.


ISOs Cite Pros, Cons Of Advances

Cash advances can help ISOs boost revenues, but some acquirers have mixed feelings about them.

Independent agent Michael Noel of Glastonbury, Conn., has been in the payments business for 25 years, but he is a relative newcomer to selling merchant cash advance. He resisted for a long time because he felt like it took advantage of merchants. But his clients begged for it, and he started losing customers to competitors because he didn’t offer it.

So this past year, Noel took the leap into the cash advance world, and he admits that there’s a lot of money to be made. “It doesn’t hurt my feelings when I get a check for $1,700 for doing this,” said Noel.

Getting involved was a challenging decision for Noel nonetheless, and he remains conflicted. “It seems like the money is too easy,” he said.

But Noel insists the most compelling reason for providing cash advances, beyond the money, has been account retention. “I felt I needed to get involved,” he said.

Cash advances are a last resort for Ferne Glemby, president and owner of CardPlus Payment Systems LLC in Westwood N.J.

“I’ve had good experiences, and I’ve had very bad experiences,” she said.

In 2007, she had a longtime client who owned two restaurants in Manhattan and wanted to expand to California. Glemby set him up with nearly $1 million in funding to help with the expansion.

After about a year in business, it started to become clear that his approach to dining wasn’t succeeding in the California market. And at the same time, the economy collapsed.

The one-two punch cost him not only his California restaurant, but also one of his longstanding Manhattan locations. And after 10 years of providing service, Glemby lost a customer.

“I made a lot of money. None of it felt good after that,” she said.


The Risk Of Putting Up Cash

Making money through merchant cash advance requires some risk and knowhow on the part of the ISOs.

When a local hair salon saw an opportunity to expand its business by acquiring the space next door, the timing wasn’t in the business’ favor. Money was tight, and the salon was still paying off a previous merchant cash advance.

Despite the odds, the salon contacted its merchant services provider, Turnkey Processing, about getting another advance.

“We decided to take that risk and funded them for a lot more than what they’d be eligible for under anyone else’s guidelines,” said Steven Martorelli, CEO of Meriden, Conn.-based Turnkey, which has its own in-house lending program.

Within three months, the business’ revenues tripled, and they were able to pay off the loan sooner than expected.

Knowing your clients can be key approving cash advances, and it can be a slippery slope for merchants to use an advance to catch up on bills. “An exploitative cash advance can bleed a business until it dies, and that’s what you want to avoid as a merchant, and more importantly as a lender,” Martorelli says. ?


An expanded version of this article is
scheduled to appear in the November-December print issue of

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