Just because you can, doesn’t mean you should. That phrase, so engrained in my mind over years of teachable moments both public and personal, has been the lodestar by which my success has been achieved. Doing what’s right and just has always guided my actions and having the confidence of my convictions to follow through with honor and integrity is of paramount importance. Too many times have I seen this basic tenet violated in the quest for the almighty dollar. It is in this vein that the foundations of Veritas Private Holdings began to take shape last fall, as I was faced with the moral dilemma that my “boss” was inferring with his rationalizations for charging the fees and factor rates that were “industry standard”.
“You guys are just loan sharks!” was a common refrain I would hear from clients every day. It was something that had begun to resonate with me. I certainly had never intended to go into the space to be nothing more than a professional shylock or money changer in the temple; I wanted to learn the business and help my clients to turn their businesses around and/or help them to scale it prudently. How could that happen if the “value proposition” or the calculus of costs versus benefits, doing things for customers versus taking things away from them, was always skewed towards extracting the maximum amount possible from the client? Just because you can, doesn’t mean that you should.
I decided to dig a little deeper and explore how it was possible to charge the interest rates that most lenders in the space were, all the while avoiding criminal usury laws that were commonplace throughout the country. My search led me to the underpinning of how the MCA space currently operates, why language matters, and how being able to clearly see the handwriting on the wall is instructive of how one should conform their behavior. A recent decision out of U.S. District Court for the Southern District of New York, Colonial Funding Network, Inc. v. Epazz, Inc., (you can read a concise exegesis here https://debanked.com/2017/06/district-court-offers-guidance-on-merchant-cash-advances-in-precedent-setting-decision/) “is the first federal case to recognize that a contractual relationship establishing a bona fide merchant cash advance (MCA) does not create a loan. Beyond that, the decision offers helpful guidance on how to structure a legally enforceable MCA agreement.” (Dabertin, Mark T.) Here the court has provided some bright lines and clarity on how “funders” (not lenders – who loan money – the language is important!) who “advance” cash can virtually indemnify themselves against claims of usury that would ordinarily prevent this practice from taking place. As long as there is a “true-up” provision in the contract allowing for “an MCA funder to adjust the daily payment it receives from a merchant to more accurately reflect the percentage of receivables it is owed” (Stone, Todd https://debanked.com/2018/03/pearl-beta-funding-decision-a-boon-to-mcas-as-long-as-theyre-true-to-their-true-ups/) then the MCA funder is protected.
These decisions all reflect the fact that rules and regulations are beginning to take shape in an industry that many have considered the wild, wild west. I am of the mind that self-regulation and putting our best foot forward to provide a fiduciary-like consultancy to make sure the client will yield the highest dividends. It all comes back to taking care of people and putting our customers needs first. To do the opposite certainly doesn’t endear the client to the company, and it may very well lead to the “funders” ultimate demise. Lawmakers begin to take notice when too many feel they are being taken advantage of, and those playing fast and loose are at the greatest risk once the chickens come home to roost. Beyond that, doing what’s right will never go out of style. We do it not because we need to, but because it is indelible part of our being. Just because you can, doesn’t mean you should.
In part IV, we will be giving you a road map about the steps we will be taking to implement the benchmark for industry standards and ethics. We will guide you into franchising with uniformed underwriting guidelines to provide clarity on how you can be a part of the solution as opposed to advocating for the continuity of a lack of innovation; professionalism, education and industry knowledge.
If you are likeminded individual or entity, proud of what Wall Street ACTUALLY stands for and would like to be a part of a major disruption feel free to e-mail me at [email protected]