I’ve always had a flair for all things historical and philosophical. Some of my fondest memories of college center around the emotions I experienced when I would arrive at a conclusion for a modernistic issue, based upon principles and precepts espoused thousands of years before. It always amused me to listen to the talking heads in the media pontificate about a democratic ideal or solution to a “twenty-first century” problem that had already been addressed and solved almost 2,400 years before in Plato’s Republic. Lately, surveying the current economic and political landscape, I can’t help but feel that same invigorating sense of clarity regarding where we, both as a country and civilization, are going. For instance, I see the natural progression of the business and private lending space, from MCA (merchant cash advance) to private equity to venture capital and I can’t help but to draw parallels with two of my favorite historical periods and the characters and classes of people who inhabited them; Ancient Rome and the Renaissance.
The former began with two distinct classes of people, the patrician (aristocratic, wealthy and privileged) and plebeian (common, free born Roman citizens). Patrician is a derivative of the Latin “patres” (which means fathers), and as is true to the word, the patrician class was tasked with setting up much of the architecture and legal framework of the society. Many of these patrician families also held distinctive relationships with those in the lower or plebian classes, serving as a Patronus (“patron”) and acting as a benefactor to their mutual benefit (a rising tide lifts all boats; here the patricians wisely recognized the prosperity that would be realized by forging highly complex social bonds with those born into lower stature in life). What is clear is that the patrician class did not look to exploit the vulnerability of the plebian class, as they could have due to the wealth and influence they wielded. Instead, they acted as a benevolent father, a watchful protector of their cliens (“client”), so much so, that as the empire progressed, many plebian families were able to achieve parity with the wealth and prestige of their patrician brethren.
Contrast this to the Renaissance and a specific literary character from one of my favorite Shakespearean works, Shylock from The Merchant of Venice. Shakespeare, no doubt, based the character on the type of usurious individuals who dominated the society during the period, many of whom certainly wouldn’t think twice about reaping the “pound of flesh” Shylock seeks to extract from Antonio once he defaults on the loan Shylock makes him. Such individuals sought to enrich themselves at the great expense of others, many of whom were possibly looking to either grow their business or get back on their feet. What is clear is that the motive and intent here is to leverage the need and desire of the individual receiving the loan to maximize the profit, irrespective of the consequence to both the individual and society. What do you think happens when so many, take so much, at such a high rate of interest? Is that sustainable? One could even go so far as to say it serves to sow the seeds of enmity against the lending class, so much so that a backlash or reckoning might not be far off. I seem to remember something like this happening a short time ago, but I just can’t put my finger on it…something around the year 2008?
This same philosophy has permeated the alternative lending space today, extending all the way to the highest levels of finance. With hedge funds and private equity extending loans to MCA companies and collecting their payments daily, just as the MCA companies are in turn requiring of their client business owners, where is the incentive for the MCA company to act as a patron rather than a Shylock? Does the hedge fund or private equity provider you’re considering also help you with your underwriting standards? Collections? Will they issue you a credit line that you only make payments on what you use? Or pay an Annual Percentage Rate on once a month, or even once every three months? How about mitigating your downside risk by 80% – only requiring you to participate at 20% of the advances you make to your clients? If you aren’t asking these questions of your lender you either haven’t done your due diligence or (as my Italian friends say) you’re content to be a jerk (cornuto content). With ARP Equity Group you’ll find the answer to all the above is a resounding, YES. Contact a senior portfolio manager today and experience the difference of working with a patrician rather than a Shylock.