BPC-MCA-SMB-Financing-Industry-Report

Merchant Cash Advance / Small Business Financing
Industry Report
January 2016
Disclaimer
This publication has been prepared by Bryant Park Capital LLC (―BPC‖) for informational purposes only. The information contained within the
publication has been obtained from sources that BPC believes to be reliable, but BPC does not represent or warrant that it is accurate or complete.
BPC is not responsible for, and makes no warranties whatsoever as to, the content contained within the publication or the content of any third-party
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relief as may be deemed proper by a court of competent jurisdiction for any disclosures of the publication.
Joel Magerman
Managing Partner & CEO
jmagerman@bryantparkcapital.com
484-586-8212
Bryant Park Capital
489 Fifth Avenue 161 Washington Street
16th Floor Suite 310
New York, NY 10017 Conshohocken, PA 19428
2
Table of Contents
I. Market Overview
II. Company Characteristics
III. Industry Players
IV. Industry Considerations
V. M&A and Capital Raising
VI. What’s next: 2016
Appendix A. Financing Considerations in ISO Participation
Appendix B. Sources
3
Section I
Market Overview
Market Overview
Industry Description
 The Merchant Cash Advance (―MCA‖) Industry evolved out of the challenges small businesses faced accessing capital to grow.
 An MCA is typically a short-term cash advance given to small and medium-sized businesses (―SMB‖) as a purchase of a fixed amount of
receivables due sometime in the future. There are several variations to the concept of an MCA, but many MCAs share several core
characteristics:
 Payments are either collected from a portion of an SMB’s bank account via Automated Clearing House (―ACH‖) or via a split payment
directed by credit card sales directly from its merchant processor on a daily, weekly, or monthly basis.
– Payments can either be a fixed percentage of a SMB’s sales or a fixed nominal amount, usually paid on a daily basis.
 From a regulatory perspective, typical MCAs are not considered to be loans, therefore they are not subject to the same laws that apply
to loans. However, this lack of regulation may change over time, and as the industry grows many of the larger market participants are
adding lending products to their portfolio of product offerings.
 Additionally, many market participants are adding loan products to the traditional MCA marketplace to expand their market
opportunity.
 These MCA providers developed a unique set of credit/underwriting criteria and collections and innovative term and payment collection
technology. They do not rely on traditional financial statements in the underwriting process and often social media, bank statements and NSF
management as by underwriting criteria.
 Approval turnaround times for getting an MCA range from a day to under a week from submitting an application to receiving the advance.
MCAs are faster, require less paperwork, are more readily accessible, and are approved more easily and frequently than traditional bank loans.
Industry average approval rates are approximately 46%.
 The typical SMB customer uses the cash advance for quick working capital purposes—from purchasing new equipment to covering
operational costs and more.
 Independent Sales Organizations (―ISOs‖) typically play a significant role in providing MCA providers with merchants looking for a short-
term advance. These ISOs often service the merchants for their credit card processing and are now able to offer an MCA as an add-on
product. However, the origination business for advances has become so lucrative that many ISOs focus almost exclusively on MCA
opportunities. Typically about 50% of MCA financings come from ISOs.
5
Market Overview
Overview of a Merchant Cash Advance
Daily ACHs to MCA
Merchant Broad Solicitation Pays Commission MCA

ISO Underwrites
prices and
funds; services
and collects
Request for Funding Funding Request Lead
Provides Funds to Merchant
6
Market Overview
ISOs
 Most MCA funders generate leads internally and through third party ISOs.
 It is estimated that 50% of total MCA originations were generated by ISOs and provided to MCA funders for one-time commissions.
 MCA providers are also building or buying in-house origination capabilities.
 In excess of 1,000 ISOs compete for leads to ―sell‖ to the MCAs.
 In an effort to promote strong potential transaction flow from ISOs, MCA funders are increasingly providing opportunities for ISOs to
―participate‖ (i.e. invest) in a percentage of the merchant funding transaction (loan or advance) originated (typically up to 50% of the advance
amount). The larger more successful ISOs also often provide the ability to ―White Label‖ the MCA under their name to appear as the
funding entity to the borrower.
 Over the past 6-12 months ISOs are seeing a growing opportunity to invest in these lucrative participation opportunities; however, most ISOs
face capital constraints that limit their capacity to invest.
Source Funding Leads from Merchants MCA

ISO Pay ≈ 5%-10% commission
Invest in Percentage of Sourced Deal via

―Participation‖
= Merchant/Small Business
7
Market Overview
History of the MCA Industry
 The inception of the industry is disputed, but the general consensus is that the MCA industry started a little after the widespread popularity
of credit cards in the late 1990s.
 AdvanceMe (currently operates under the name of CAN Capital), which is widely considered to be the first MCA provider, was
founded in 1998 in Georgia.1
 Early MCAs resembled loans and included clauses requiring personal guarantees. As the industry evolved, industry players shifted away from
loan-like documentation and made MCAs predominately non-recourse and removed personal guarantee requirements.2
 The North American Merchant Advance Association (―NAMAA‖) was founded on April 15, 2008 with the goal of setting standards for the
MCA industry.3
 NAMAA rebranded itself as the Small Business Finance Association (―SBFA‖) on April 14, 2015 and currently has 17 members.
These members include many of the larger market participants.
 After the credit crisis of the late 2000s, SMBs experienced even more challenging borrowing requirements at banks due to increased
regulatory restrictions for lending to small businesses, including Dodd Frank and Basel III. This led to increased demand for MCAs which
has remained consistent through today and is expected to remain at high levels for the foreseeable future.4
 In recent years, many of the larger MCA providers have increasingly focused on differentiating themselves from traditional MCAs—lump
sum payments for a portion of future sales taken as a fixed percentage of daily sales—and the associated stigma and negative reputation.
They have added products like lines of credit, more traditional loan-like products, lengthened payback periods, and reduced rates to expand
the market opportunity. Many of the larger MCAs have taken advantage of the large amount of data they have collected over the years to
further segment their customer base and offer different products, reflecting lower rates and/or longer payback periods to qualified customers.
8
Market Overview
Size and Growth of Small Business Lending
 Excluding real estate, the total value of U.S.-small business loans under $1 million was $297.9 billion, as of June 2014, a decline of $28.8
billion from $326.7 billion in 2007.5
 Demand for small business loans from the U.S. Small Business Administration (―SBA‖) has spiked in 2015.6,7
 The SBA’s 7(a) small business lending program was suspended in July 2015 after the U.S. hit its loan volume cap of $18.75 billion.
– Approximately $1.7 billion of the loans issued by the 7(a) program were loans under $150 thousand.
 President Obama signed a measure in late July 2015 to raise the SBA’s 7(a) small business lending program loan volume cap to $23.5
billion, in order for the program would remain operational throughout the fiscal year.
9
Market Overview
Size and Growth of Small Business Lending (cont.)
 The modern-day, post-credit crisis banking environment has lead to continued growth in the MCA industry.8,9
 As of August 2015, traditional big banks offered a 22 percent approval rate of small business loans as compared with a 49 percent
approval rating by small banks. However, the number of small banks has decreased by approximately 28 percent between 2000 and
2014.
 Regulatory restrictions and costs of compliance with such restrictions for large financial institutions remain deterrents for traditional
banks to provide small dollar lending.
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Market Overview
Size and Growth of the MCA Industry
 The size of the MCA industry varies based on different sources and the definition of an MCA. While some sources strictly define MCAs as
the purchase of future receivables with payments taken as a fixed percentage of credit card sales at the point of sale, other sources define
MCAs more broadly to include unsecured small business loan-type instruments that require daily, weekly, or monthly funding.10,11, 12
 Converge Enterprise (a leading Cloud CRM company that has customized its CRM application to offer the world’s first CRM
developed exclusively for the business cash advance, business loan, and merchant processing industry) estimates that there are more
than 1,500 MCA funders, each with relationships with approximately three to 20 ISOs, and a combined annual lending volume of
over $10 billion as of September 2014.
 Sean Murray of deBanked estimates that the daily funding industry, which he defines as a combination of MCA providers and lenders
that require daily payments, is approximately $3-5 billion per year as of August 2014.
 Payment processors, such as PayPal, Square, and Intuit have also begun to expand into providing MCAs and working capital loans for the
SMBs with which they already do business.13,14,15
 PayPal provided over $500 million in SMB loans and advances to 40,000 SMBs between January 2014 and August 2015.
 Square has provided, on average, $1 million per day in advances to SMBs in 2015.
 In September 2015, OnDeck partnered with Intuit to launch QuickBooks Financing, a new $100 million small business lending fund
that offers a daily funding product.
 OnDeck (NYSE:ONDK) became the first standalone MCA funder to go public. OnDeck originated $1.7B of advances/loans in its last 12
months as of the end of Q3 2015 and has a market cap of $621.81M at of 1/5/2016.16, 17
 Additionally, at least five MCA funders have sold/received investments from private equity firms in the past 24 months.
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Market Overview
Bryant Park Capital Annual Funding Estimate for MCA/SMB Financing Industry
 Estimates for 2014 and 2015 take into account total dollars funded by respondents to the Bryant Park Capital/deBanked Small Business
Financing CEO Survey (the ―Survey‖); additional public data on fundings by companies not included in the survey; and an assumption for
the percentage of industry fundings that is not included in those figures.
 Projections for 2016 and 2017 represent a 20% annual growth rate, which is based on the lower end of projections by CEOs in the Survey.
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Section II
Company Characteristics
Typical Borrower Profile
 Typical borrower is a small merchant; common industries include:
Retail Services
Clothing Amusement and recreation
Food and grocery Auto repair and maintenance
Florists Cleaners
Furniture and appliances Dentists
Hardware and home improvement Restaurants and bars
Liquor stores Salons
 Has a diversified customer base
 Has some operating history, typically at least one year
 Has significant and consistent activity through a bank account
 Has meaningful amount of business processed with credit cards
 Owner has a personal credit history with a FICO score (although FICO score is not necessary a determining factor)
 Has a social media presence on Facebook, Yelp, and other sites showing a following
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Range of Types of Product Structures
 While there are a variety of different products offered in the MCA market, all products have common core characteristics, including:
 Short-term funding to SMBs
– Typically less than 12 months, although the duration of new products is expanding to 18-24 months for credit worthy
borrowers
 Daily, weekly, or monthly remittances to the MCA providers
 Unsecured and non-recourse
– Typically an advance as a factoring arrangement, i.e. buying the right to the proceeds of future receivables
 Less frequently a loan, but loans with daily repayments are becoming more common
 Underwriting process does not heavily weigh credit scores of applicants
 Differences in product structures mainly depend on payment structure:
 Payments are either collected from a fixed nominal portion or fixed percentage of a SMB’s credit card sales directly from its
processing terminal or directly from the SMB’s business bank account on a daily, weekly, or monthly basis until the fixed amount is
paid off.
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General Deal Process
 Origination
 MCA funders either originate advances from their ISO relationships or from internal or direct marketing methods.
– Approximately 50% of originations come from each method.
 MCA internal sales teams usually solicit existing customers for renewal advances.
 Underwriting
 Due diligence requirements include:
– Bank statements (3-6 months)
– Minimum monthly credit/debit card sales volume
– Minimum age of company
– Maximum rent-to-sales ratio
– Submission of a number of monthly processing and business bank data including overdraft statements
– May require use of certain POS terminals
– Social Media: Yelp, Facebook
– Site visits – usually outsourced to an third-party provider
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General Deal Process
 Financing
 MCA funders were initially funded by high yield hedge funds, then by lower yielding credit opportunities funds, and eventually by
banks (particularly for the larger, more established funders). Banks, having chosen largely to exit SMB lending due to regulatory and
cost issues, have found lending to MCA providers to be more efficient and more profitable. These banks have selectively entered the
space, providing warehouse facilities and more recently partnering with MCA funders (OnDeck & JP Morgan).
 Today, mature MCA providers typically obtain senior debt financing from institutional lenders at interest rates ranging from 3.5-7.0%
and advance rates ranging from 80-90% of the advanced amount. In addition, a number of these more mature organizations have
obtained mezzanine capital, bringing the total advance rate to approximately 90-95% of the advanced amount.
– Key determinants for advance rate and interest rate include:
 Operating history, particularly:

• Static pool data
• Default rates by industry, size, geography, years in business, FICO score, and other meaningful attributes
• Overall business results
• Operating, underwriting, servicing, and financial systems
 Seasonality of merchants
 Sponsor-backed
 The remaining portion of the advance is funded by junior debt or equity.
 Servicing
 MCA funders maintain contact with borrower and manage customer service & collections.
– Often offers renewal deals for good performing clients (most profitable & sought after business)
– For delinquent/defaulted transactions, the funder (or sometimes an outside third party servicer) is responsible for collections
17
Single Unit Analysis
 The following table shows the economics of a sample MCA transaction with an advance of $10,000 and a factor rate of 1.35x.
 Right to receive (―RTR‖) or payback is the amount owed/purchased by the MCA provider and is calculated as advance multiplied by
factor rate.
 Credit loss is calculated as a percent of principal, and this analysis assumes a loss rate of 6.5%.
 Sales commissions are paid upfront as a percent of principal advanced, and this analysis assumes a rate of 10.0%.
 Blended cost of capital is based on a combination of senior debt and more expensive junior debt. Since the advance and therefore the
lines of debt are paid down on a daily, weekly, or monthly basis, and advances are typically paid back over a period of nine months or
fewer, the weighted cost of capital per transaction ends up equating to far less than the annual rate. This analysis assumes a weighted
cost of capital of 10.0% annually.
 This analysis assumes a daily payback over a nine month period, which yields a net IRR of 47.9% after the aforementioned costs but
before G&A.
MCA Single Advance Analysis

Advance $10,000
Factor Rate 1.35x
Payback/RTR $13,500
Credit Loss (on Principal) ($650) 6.5%

Gross Amount Received (Post Loss) $12,850
Sales Commissions ($1,000) 10.0%

Cost of Capital (Weighted) ($269) 10.0%
Net Amount Received $11,581
Term (Months) 9.0

Term (Weekdays) 180.0
Net IRR 47.9%

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Section III
Industry Players
Industry Players
Top Players in MCA Industry Top Companies
OnDeck
CAN Capital
Kabbage
Business Financial Services
Merchant Cash and Capital / BizFi
Merchants Capital Access
Rapid Advance
National Funding
Top Equity Investors Top Debt Providers
Angelo Gordon CapitalSource
Rockbridge Growth Equity Fortress Credit
Palladium Equity Partners Victory Park Capital
Pine Brook Partners Wells Fargo Capital Finance
Capital Z Partners Management, LLC Ares Management
Accel Partners Atalaya Capital Management
Flexpoint Ford Comvest Partners
Thomvest Ventures H.I.G. Whitehorse
20
Industry Players
Key Industry Players
Inception Products Repayment $ Funded Since
Company Name Year HQ Offered Loan Size Time to Fund Period Inception 2014 Revenue
Advance Funds Network 2007 Brooklyn, NY MCA, invoice & $5,000 - $10M $252M
PO factoring,
term loans
American Express Merchant 2011 New York, MCA, term loans $10,000 - $2M Immediately upon 6-24 months
Financing NY approval
American Finance Solutions 2006 Anaheim, CA MCA 12 hours $250M $5.9M

(Acquired by Rapid Capital
Funding)
AmeriMerchant* (Capify) 2002 New York, MCA, term loans $5,000 - $1M 2 days $500M+ $41.1M
NY
BFS (Business Financial 2002 Coral Springs, MCA, term $4,000 - $2M 5 - 10 days 9-18 months $1B+
Services)* FL loans, franchise
financing
CAN Capital 1998 New York, MCA, term loans $5,000 - $150,000 $5B+ $269.9M
NY
Capital for Merchants* 2005 Troy, MI MCA $2,000 - $500,000 3 days $220M
Credibly (formerly 2010 Troy, MI MCA, term loan $5,000 - $250,000 1 day 3-12 months $140M+ $14.6M
RetailCapital)*
Elevate Funding* 2015 Gainseville, MCA <$200,000 2-5 days

FL
* = member of the SBFA, formerly known as the NAMAA

21
All information gathered from publically available information
Industry Players
Key Industry Players (cont.)
Everest Business Funding 2013 Miami, FL MCA $5,000 - $500,000 1 day
Fora Financial* 2008 New York, MCA, term loans $5,000 - $250,000 1-3 days $350M $26.9M
NY
ForwardLine 2003 Woodland MCA, term loans $5,000 - $150,000 1 day 6-12 months $250M
Hills, CA
GRP Funding* 2007 Springfield, MCA, term loans $5,000 - $1M 1 day 4-24 months
MA
Happy Rock Merchant 2008 New York, MCA $2,500 - $300,000 5-10 days
Solutions* NY
Kabbage 2008 Atlanta, GA MCA, term loans $2,000 - $100,000 1 day 6 months $1B+ $40.1M
Merchant Advance Funding 2009 New York, MCA $10,000 - $125,000

LP* NY
Merchant Capital Source* 2005 Huntington MCA, term loans $5,000-$500,000 3-4 days 5-14 months
Beach, CA
Merchant Cash & Capital* 2005 New York, MCA $5,000 - $500,000 1 day 3 months- 10 $1.3B $27M
(now Bizfi) NY years

22
Industry Players
Merchants Capital Access* 2009 Melville, NY MCA, term loans < $250,000 3 - 5 days 3-24 months $1B
National Funding 1999 San Diego, CA MCA, term < $500,000 1 day $39M
loans, equipment
leasing
NextWave Funding* 2010 Miami, FL MCA, term loans $5,000 - $500,000 1-3 days $100M+
On Deck Capital 2006 New York, Term Loans $5,000 - $250,000 1 day 3-24 months $3B $158.1M
(NSE:ONDK) NY
PayPal Working Capital 2013 San Jose, CA MCA $1,000 - $85,000 Immediately upon $1B
approval
Pearl Capital 2006 New York, MCA, ISO

NY partnerships
Principis Capital* 2009 New York, MCA $4,000 - $150,000 2-7 Days $145M+
NY
Quick Bridge Funding 2011 Irvine, CA MCA $44.6M
Rapid Capital Funding 2007 Miami, FL MCA, term loans $5,000 - $500,000 5-7 days $400M+ $1M-$2.5M

23
Industry Players
RapidAdvance* 2005 Bethesda, MD MCA, term loan $5,000 - $500,000 3 - 10 days $750M+
Square Capital 2014 San Francisco, MCA, term loan $1,000 - $100,000 $225M
CA
Sterling Funding 2005 Tampa, FL MCA, term loan $5,000 - $250,000 2-7 days 3-12 months
Strategic Funding Source* 2006 New York, NY MCA, term loans $5,000 - $1M 6-10 months $700M
Swift Capital* 2007 Wilmington, MCA $5,000 - $300,000 1 hour - 3 days 3-12 months $450M $27.5M
DE
Yalber* 2007 Teaneck, NJ MCA < $500,000 2-3 days $500M
Yellowstone Capital (Fundry) 2009 New York, NY MCA >1 day $1.1B

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Section IV
Industry Considerations
U.S. Regulatory Landscape
 Dodd Frank18,19
 Increased bank regulation leads to increased compliance costs, forcing many community banks to scale back lending activities, with a
disproportionate reduction in small business lending.
– Community banks shed 12 percent of their share of the U.S. banking assets since the passage of Dodd Frank in 2Q 2010.
– The smallest community banks, with under $1 billion in assets, shed 19 percent of their share of U.S. banking assets in the
same time.
 Basel III (to be implemented by 2019)20
 The introduction of a leverage limit of three percent and a 30-day liquidity coverage ratio could potentially lead to reduced traditional
lending particularly affecting small business.
 Increased capital requirements, especially for Tier 1 capital (for which loans to many small businesses do not meet), may adversely
impact the cost of traditional lending.
 Operation Choke Point 21
 Regulators increased the responsibility/accountability for potentially fraudulent activities funded by banks and would hold the Board
of Directors and management directly liable for these activities.
– Moreover, Operation Choke Point identifies many legal, but potentially reputationally risky industries, including alternative
credit programs such as MCAs, ―recommending‖ that the larger banks not lend to these industries.
26
MCA Legal Historical Snapshot
 2007 AdvanceMe Patent Lawsuit 22
 AdvanceMe sued several MCAs, including but not limited to AmeriMerchant and RapidPay, over its patent on the concept of a MCA.
 The court ruled against AdvanceMe, citing that the idea of an MCA had been done before by companies such as Dining Ala Card. As
such, AdvanceMe’s patent was invalidated and prevented a potential legal monopoly.
 2011 Richard B. Clark v. AdvanceMe (California)23,24
 Merchant plaintiffs (Richard B. Clark et al.) sued AdvanceMe, arguing that the receivables required to pay down their cash advances
was exorbitant. Plaintiffs further argued that the receivables required were effectively interest payments, and in fact far exceeded an
implied effective annual interest rate of 100 percent. AdvanceMe had also required collateral in the form of personal guarantees and
personal property.
 The court ruled in favor of Richard B. Clark, citing that AdvanceMe’s MCAs were ―disguised loans,‖ and thus violated California’s
usury laws. AdvanceMe settled for $23.4 million and forfeited its right to pursue further repayments from plaintiffs. The case was not
alone; it was merely the hallmark case for a string of cases against the MCA business model.
 These lawsuits spurred many MCA providers to become licensed lenders in states where the court cases ruled against the MCA
providers. Moreover, many MCA providers enacted policy changes—such as the removal of collateral requirements—to further
distinguish MCAs from loans.
27
Challenges
Credit Market Challenges:
 MCA providers may be adversely affected by disruptions in the credit market.25
 MCA providers rely on debt facilities and other forms of borrowings to finance advances to customers. As the volume of advances
increases, MCA providers must find ways to expand current borrowing capacities. There is no guarantee of additional funding
sources.
– Interest rate spreads may also decline in the future as the market becomes more competitive, which will have a major impact
on profitability.
Underwriting Challenges:
 Historical default rates are not indicative of future performance. Any increase in future default rates will reduce profitability and attractiveness
to institutional lenders. Current default rates run between approximately 6-10% based on the quality of the merchants. However, default rates
got close to 20% during the great recession. At that time, it is estimated that close to 33% of MCA providers went out of business. At those
default rates, similar risks exist.
 Underwriting relies heavily on self-reported documents from customers—algorithms may not calculate all associated risks with providing a
MCA.
Competitive Market Challenges:

 Traditional banks, payment processors (PayPal, Square, etc.), and other related companies (Amazon) are starting to enter the MCA industry
with their own specialty finance lending groups, increasing competition and squeezing margins.26
 Regulatory uncertainty may shape the relatively new MCA market and brings about additional legal risks.
 Marketing efforts need to vigorously dispel general market stigma against MCAs thought to be usurious.
28
Stacking
 Stacking is the practice of providing a MCA to a SMB, knowing that the SMB is currently financed by one or more MCAs.
 The SBFA is anti-stacking, viewing it as a threat to the recovery of money advanced to SMBs and as a threat to the overall health of the
SMBs taking out advances.27
 Other MCA providers argue that SMBs with sufficient cash flow should have the right to take on as many MCAs as they feel comfortable
taking.
 Below are the results from the Bryant Park Capital/deBanked Small Business Financing CEO Survey regarding the sentiment on stacking:
29
Section V
M&A and Capital Raising

Key Transactions in the Small Business Lending Space
Amount
Date Target Investor(s) ($mm) Type
10/14/2015 Fora Financial Palladium Equity Partners N/A Equity
10/1/2015 Yellowstone Capital Finsight N/A Equity

(Fundry)
9/25/2015 BFS Capital None N/A IPO

announcment
8/16/2015 Entrust Merchant Solutions Business Financial Services N/A M&A
7/24/2015 Kabbage BlueRun; Thomvest Ventures; UPS; Santander $120.0 Equity
7/23/2015 Dealstruck Community Investment Management LLC $10.0 Equity
7/15/2015 Strategic Funding Source CapitalSource $90.0 Debt
7/9/2015 Pearl Capital, LLC Capital Z Partners Management, LLC $60.0 M&A
6/30/2015 The Business Backer, LLC Enova International, Inc. (NYSE:ENVA) $26.8 M&A
6/26/2015 Snap Advances Undisclosed $28.0 Equity
31
Key Transactions in the Small Business Lending Space (cont.)
Amount
6/16/2015 Credibly (formerly Retail AloStar Bank of Commerce, WebBank, Capital Source N/A Debt
Capital)
6/5/2015 Reliant Services Group, Merchants Capital Access, LLC N/A M&A
LLC
5/12/2015 Square Capital Victory Park Capital N/A Debt
4/17/2015 Plan B Growth World Business Lenders, LLC N/A Equity
4/14/2015 Business Bounce Lendio N/A M&A
4/9/2015 ApplePie Capital QED Investors, Signia Ventures Partners, Freestyle $6.0 Equity
Capital
4/9/2015 Funding Circle DST Global, Baillie Gifford, Sands Capital and $150.0 Equity
Temasek
4/8/2015 Dealstruck Undisclosed $8.0 Equity
4/2/2015 CAN Capital, Inc. Wells Fargo; AloStar; Amalgamated; Barclays; $650.0 Debt
CapitalSource; Fifth Third; 1st Tennessee; J.P. Morgan;
Morgan Stanley; Regions Bank; SunTrust; UBS
3/24/2015 Lendio North Hill Ventures, Blumberg Capital, Napier Park, $20.0 Equity
Runa Capital
32
Amount
1/21/2015 BlueVine Lightspeed Venture Partners, 83North, Silicon Valley $19.0 Equity
Bank, Correlation Ventures
12/17/2014 OnDeck N/A $200.0 IPO
12/3/2014 MarketInvoice Northzone Ventures $8.0 Equity
11/20/2014 FastPay Oak HC/FT $15.0 Equity
11/14/2014 Finexkap GLI Finance $8.0 Equity
10/28/2014 Spotcap Access Industries, Holtzbrinck Ventures $17.0 Equity
10/20/2014 CreditSuppliers G8 Capital $13.0 Equity
10/8/2014 American Finance Rapid Capital Funding N/A M&A

Solutions LLC
9/26/2014 The Credit Junction GLI Finance $2.0 Equity
9/12/2014 Geldvoorelkaar TrustBuddy $14.0 M&A
33
Amount
9/12/2014 MarketInvoice Paul Foster, co-founder Indeed.com $8.0 Equity
9/3/2014 Strategic Funding Source Pine Brook Partners $110.0 Equity
8/26/2014 Business Financial Wells Fargo Capital Finance $125.0 Debt

Services
8/26/2014 LeapPay Funding Circle N/A M&A
8/23/2014 Swift Capital Fortress Credit $50.0 Debt
8/21/2014 BlueVine N/A $2.0 Equity
8/20/2014 Credibly (formerly Retail Flexpoint Ford N/A Equity

Capital)
8/1/2014 Principis Capital BMO Harris N/A Debt
7/31/2014 National Funding CapitalSource $50.0 Debt
7/16/2014 ApplePie Capital Freestyle Capital, Signia Venture Partners, QED $4.0 Equity
Investors
34
Amount
7/16/2014 Funding Circle Accel Partners, Index Ventures, Ribbit Capital, Union $65.0 Equity
Square Ventures
6/16/2014 Quick Bridge Southern California Bank $35.0 Debt
5/20/2014 American Finance CapFin Partners N/A Equity

Solutions
5/7/2014 1st Merchant Funding BankUnited; GF-Merchant N/A Debt
5/5/2014 Kabbage UPS, TCW, SoftBank Capital, Thomvest Ventures, $50.0 Equity
Mohr Davidow, Lumia Capital
5/5/2014 QuarterSpot, Inc Aequitas Capital Management N/A Equity
4/24/2014 Business Financial Wells Fargo Capital Finance $82.0 Debt

Services
4/9/2014 Kabbage Guggenheim Securities; SV Angel $270.0 Debt
3/26/2014 BlueVine Lightspeed Venture Partners, Greylock Partners, $4.0 Equity

Correlation Ventures, Kreos Capital, Kima Ventures
3/17/2014 Merchant Cash and Comvest Group $75.0 Debt

Capital
35
Amount
3/6/2014 OnDeck Institutional Venture Partners; RRE Ventures; $77.0 Equity
Sapphire Ventures; Industry Ventures; First Round
Capital; Tiger Global Management; Google Ventures
2/24/2014 ApplePie Capital Camp One Ventures, Fifth Era $2.0 Equity
2/5/2014 Fundera Industry Ventures, Khosla Ventures, First Round $3.0 Equity
Capital, Lerer Ventures, SV Angel
1/20/2014 Dealstruck Undisclosed $1.0 Equity
1/8/2014 CAN Capital, Inc. Accel Partners, QED Investors, Ribbit Capital, $33.0 Equity
Meritech Capital Partners
10/23/2013 Funding Circle Accel Partners, Index Ventures, Union Square $37.0 Equity
Ventures
9/20/2013 Snap Advances Undisclosed N/A Debt
9/16/2013 OnDeck Deutsche Bank; KeyBank; Square 1 $130.0 Debt
9/16/2013 RapidAdvance Rockbridge Growth Equity N/A M&A
9/3/2013 Behalf Inc. (formerly Sequoia Capital, Spark Capital $10.0 Equity
Zazma Inc.)
36
Amount
8/28/2013 Lendio Tribeca Venture Partners, Runa Capital, Highway 12 $5.0 Equity
Ventures
8/27/2013 RapidAdvance Falcon Investment Advisors N/A Equity
7/23/2013 C2FO Mithril, Union Square Advisors, Summerhill Venture $18.0 Equity
Partners, OpenAir Equity Partners
7/11/2013 Fora Financial Undisclosed $5.0 Debt
6/24/2013 The Receivables Prism VentureWorks, Bain Capital Partners, Redpoint $10.0 Equity
Exchange Ventures, StarVest Partners
5/1/2013 OnDeck Industry Ventures; Google Ventures; Peter Thiel $17.0 Equity
4/3/2013 Kabbage Thomvest Ventures, Victory Park $75.0 Debt
3/28/2013 Fundation Angel Street; Garrison; LeoGroup; Solel Investment $2.7 Equity
2/13/2013 OnDeck Institutional Venture Partners; RRE; First Run; $42.0 Equity
Sapphire Ventures
1/27/2013 The Receivables Bain Capital Ventures, Redpoint Ventures, Prism $17.0 Equity
Exchange Ventureworks
37
Amount
1/27/2013 The Receivables Bain Capital Ventures, Redpoint Ventures, Prism $17.0 Equity
Exchange Ventureworks
12/20/2012 iwoca Beyond Digital $3.0 Equity
10/23/2012 Behalf Inc. (formerly Sequoia Capital N/A Equity

Zazma Inc.)
9/18/2012 Kabbage Thomvest Ventures, Bluerun Ventures, UPS, SV Angel $30.0 Equity
9/5/2012 C2FO Union Square Ventures $9.0 Equity
8/25/2012 P2Binvestor Undisclosed $0.2 Equity
6/25/2012 FastPay Wells Fargo Capital Finance, SF Capital Group $25.0 Equity
3/27/2012 Funding Circle Index Ventures, Union Square Ventures $16.0 Equity
2/7/2012 CAN Capital, Inc. Accel Partners $30.0 Equity
38
Section VI
What’s Next in 2016

 The majority of industry players anticipate a significant annual growth rate of over 25% and expect the landscape to continue to evolve at a
rapid pace.
 As more institutional capital comes into the market, the competition among industry participants will increase.
 Key expectations for 2016:
 Increase in companies trying to access institutional equity and debt
 Many players will look for a change of control investment
 Funders
 Qualified ISOs
 Increased interest in more institutional capital
 Senior lenders – borrowers expect lower costs and higher advance rates
 Junior lenders – borrowers expect higher total debt coverage
 Forward flows and securitizations for players of the right size and creditworthiness
 Expansion of product offering
 Longer durations, lower rates, and larger advance amounts for more creditworthy borrowers
 New products: revolving instruments, lines of credit, more loan products, etc.
 Regulators consider scrutiny of asset class
40
 Expect to see the beginning of consolidations. Key justifications will be:
 Margin expansion, origination competition, and access to capital
 Leveraging technology platforms and systems
 2016 should be an exciting year for the MCA/SMB financing industry
41
Appendix
Appendix A – Financing Considerations in ISO Participations
Example: $50,000 Advance

Traditional Example
MCA MCA
Advance/Loan Underwrites 5-15% Equity
Bank Lends 70-85% of
Junior 5%-15% MCA Services
Originated By Prices and Funded Amount at
Debt or of
3%-7% Interest Rate and Collects
ISO Funds HNWs Funded
Borrower Amount
ISO Participation
MCA
Advance/Loan Underwrites ISO MCA Services,
MCA
Originated By Prices and Participation Collects and
Funds
ISO Funds Funds Pays ISO
50%
Borrower 50%
$25,000 $25,000
43
Appendix B – Sources
1. BloombergBusinessweek, Jan 2009 http://www.businessweek.com/smallbiz/content/jan2009/sb2009018_234392.htm

2. Daily Funder, Jan 2014 http://dailyfunder.com/magazine/january-2014-issue-1/15/
3. SBFA website http://www.sbfassociation.org/
4. HBS, State of Small Business Lending, Jul 2014
5. SBA Small Business Lending in the US 2013
6. Scotsman Guide, “Funding restored for SBA 7(a) loan program” Jul 2015
7. Coleman Report, Jul 2015
8. Biz2Credit
9. Statistics on Depository Institutions, Federal Deposit Insurance Corporation
10. PRWeb, Sep 2014, http://www.prweb.com/releases/convergeenterprise/news/prweb12140296.htm
11. deBanked, Are We in a $300 Billion Market? Aug 2014 http://debanked.com/2014/08/are-we-in-a-300-billion-market/
12. The Green Sheet, Apr 2014
13. Fortune, “Square Capital is advancing $1 million per day to small businesses,” Aug 2015, http://fortune.com/2015/08/05/square-capital-is-advancing-1-million-per-day-to-small-businesses/
14. http://www.nilsonreport.com/publication_chart_and_graphs_archive.php?1=1&year=2014
15. Intuit Investor Relations, Intuit and Ondeck to Launch $100M Small Businesses Lending Fund, Sep. 2015
16. OnDeck Company Presentation, Nov. 2015
17. Yahoo Finance
18. FDIC Community Banking Study
19. Harvard Kennedy School, Feb 2015
20. KPMG, 2012
21. DailyFunder, Aug 2014 http://dailyfunder.com/magazine/julyaugust-2014-issue-4/8/
22. merchantcashadvanceblog, Aug 2007, http://merchantcashadvanceblog.blogspot.com/2007/08/advanceme-patent-looking-for-dining-ala.html
23. Gov.UScourts, Jul 2009
24. Justia, May 2011
25. OnDeck S1, Nov 2014
26. Forbes, Nov 2013, http://www.forbes.com/sites/drewhendricks/2013/11/12/is-amazons-new-small-business-lending-service-the-right-choice-for-your-business/2/
27. deBanked, Apr 2015, http://debanked.com/2015/04/stacking-is-it-tortious-interference/
44

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Merchant Cash Advance / Small Business Financing

II. Company Characteristics

III. Industry Players

IV. Industry Considerations

V. M&A and Capital Raising

VI. What’s next: 2016

Appendix A. Financing Considerations in ISO Participation

Daily ACHs to MCA

Merchant Broad Solicitation Pays Commission MCA

Provides Funds to Merchant

 In excess of 1,000 ISOs compete for leads to ―sell‖ to the MCAs.

Source Funding Leads from Merchants MCA

Invest in Percentage of Sourced Deal via

 Has a diversified customer base

 Has some operating history, typically at least one year

 Has significant and consistent activity through a bank account

 Has meaningful amount of business processed with credit cards

 Short-term funding to SMBs

 Daily, weekly, or monthly remittances to the MCA providers

 Unsecured and non-recourse

 Underwriting process does not heavily weigh credit scores of applicants

 Differences in product structures mainly depend on payment structure:

– Approximately 50% of originations come from each method.

 Due diligence requirements include:

– Bank statements (3-6 months)

– Minimum monthly credit/debit card sales volume

– Minimum age of company

– Maximum rent-to-sales ratio

– May require use of certain POS terminals

– Social Media: Yelp, Facebook

– Site visits – usually outsourced to an third-party provider

– Key determinants for advance rate and interest rate include:

 Operating history, particularly:

MCA Single Advance Analysis

Credit Loss (on Principal) ($650) 6.5%

Sales Commissions ($1,000) 10.0%

Term (Months) 9.0

Net IRR 47.9%

American Finance Solutions 2006 Anaheim, CA MCA 12 hours $250M $5.9M

Elevate Funding* 2015 Gainseville, MCA <$200,000 2-5 days

* = member of the SBFA, formerly known as the NAMAA

Merchant Advance Funding 2009 New York, MCA $10,000 - $125,000

* = member of the SBFA, formerly known as the NAMAA

Pearl Capital 2006 New York, MCA, ISO

Quick Bridge Funding 2011 Irvine, CA MCA $44.6M

* = member of the SBFA, formerly known as the NAMAA

Yalber* 2007 Teaneck, NJ MCA < $500,000 2-3 days $500M

* = member of the SBFA, formerly known as the NAMAA

 Basel III (to be implemented by 2019)20

 Operation Choke Point 21

 2011 Richard B. Clark v. AdvanceMe (California)23,24

Competitive Market Challenges:

M&A and Capital Raising

10/1/2015 Yellowstone Capital Finsight N/A Equity

9/25/2015 BFS Capital None N/A IPO

8/16/2015 Entrust Merchant Solutions Business Financial Services N/A M&A

7/24/2015 Kabbage BlueRun; Thomvest Ventures; UPS; Santander $120.0 Equity

7/23/2015 Dealstruck Community Investment Management LLC $10.0 Equity

7/15/2015 Strategic Funding Source CapitalSource $90.0 Debt

6/26/2015 Snap Advances Undisclosed $28.0 Equity