Investing in Merchant Cash Advance full interview Chaim Ekstein with Charlie Lederman

charlie good morning i'm so happy that you're with us let me just make a quick introduction charlie um my relationship with charlie goes back probably uh over a year ago probably a year or 12 to 15 months something like that charlie is in florida together with his partner moisha finkelstein and i flew down to florida to meet them and we probably speak two or three times a week and i invested with vistapoint about a year ago and uh i probably spent tens of hours with charlie on the phone to make sure i understand every detail of it and make sure that i'm comfortable with what i'm doing and since i've introduced many investors to them as well and all i can say so far we're all happy and everything is working out exactly as we anticipated or better but i highly encourage anybody who sees this who watches this should understand that this is just to understand a concept it's not that i'm suggesting any investments with this it's just a concept you know if you choose to you want to participate with such a thing you're welcome to reach out to me i'll make sure i get you introduced to charlie but what's very very important is that anything that you get involved you're gonna set yourself involved then you should understand what you're doing and you should make sure that you understand what needs to happen for you to succeed as well as what needs to happen for you to god forbid fail not to succeed good morning charlie thank you for being with us i'm happy that you you made us you made it to this meeting today good morning it's a pleasure um so i think charlie before we start if you can just tell us briefly what we are doing i know it's called merchant cash advance i didn't even say that worth on the call yet but just explain let's say in two three minutes what is it that you get involved with how do you make money how do you make money for investors very very high view and then we'll go into some details sure uh merchant cash advance or mca as people generally uh shorten that that name uh is a area in the u.s economy uh that has sort of been uh forced uh because of some called bad regulation bad government however you want to phrase it started with the banking crisis of 2007 and created a situation where merchants uh that have certain characteristics cannot get funding from traditional sources they haven't been able to get funding from traditional sources for about 15 years now uh as with any industry there was opportunity seen by a couple of early pioneers uh it's now after 15 years i would say pretty well established both in terms of the regulations that have been promulgated and the issues that have gone through the courts and what we do is as a group uh a segment which is about equal somewhere between five and eight billion dollars nobody has exact numbers but we provide funding to merchants uh small to medium-sized merchants merchants that basically have less than anywhere from a half a million to a million dollars of revenues per month most of the merchants we deal with have less than a hundred thousand dollars in revenues per month and we provide them with short-term funding contracts that's not we'll talk about why but it's not called financing it's called funding contracts for purchasing accounts receivable and generally like i said i'll keep it short we're doing a contract uh where we're providing funding like i said it was short term so let's say a ten thousand dollar contract and funding might be repayable over 75 business days uh that ten thousand dollars over that 75 days the merchant's paying back fifteen thousand dollars for all intents and purposes so that the uh profit before the gross operating profit before expenses is is a fifty percent return uh on that individual contract but that's just the start of how you make money in mca that's only looking at one contract and not a portfolio but i'm sure we'll go into the details right okay thank you for that information it's very very general and first i want to talk about the opportunity and then we'll talk about the risk which is equally or even more important than the opportunity so if i understand correctly you say that your funding and will stick to the example of ten thousand dollars and the merchant repaying fifteen 000 and as we understand as as i understand it's usually not the first place where the merchant would want to access some capital and we'll talk in a minute about why the merchant is choosing to access capital with such a hefty uh premium to pay for it but if you say that they're paying 75 payments so if i do that correctly i put in you'll lend them ten thousand dollars and they're repaying fifteen thousand dollars if i do fifteen thousand dollars divided in 75 that means they're paying 200 a day is that 75 calendar days or is that business this it's 75 business days so it doesn't include uh weekends or any federal holidays okay so 75 days we always always assume on average there's 21.5 days a month so you can do the math on that basis that that's an average it runs anywhere from 20 to 23. so let's call it four months okay correct so if we have four months the the company or the merchant battled ten thousand dollars and they repay fifteen thousand dollars over four months okay yes um the audience that watches the this conversation are pretty much educated especially they usually watch this not as the first video but after many many videos and i'm assuming uh that you understand that when you pay for a four month loan it's usually equals to paying 150 percent a year because if you pay 50 for four months you have three times four months in a year so if you keep doing this over the year every four months again that that that's the same as paying 150 percent a year is that correct javi that's the uh on a very general basis absolutely correct so on a very very general basis that would be correct but i would want to have a conversation about if is that really correct because that's you know if if somebody would pay you fifteen thousand dollars after four months that might be correct so let's say january 1 they battle 10 000 uh april 31 they repay 15 000 may 1 they battle again and so on and so forth that would be correct but if i understand correctly in this case in this specific situation the merchant is not repaying it after four months but they repaying it every day a portion of it so i don't know whether you know what is the rate of return of such money do you know um uh you know i i've tried to calculate that and it is calculable but the numbers after a while at that kind of level from an investment perspective stop making sense in terms of uh people look at that and they say it can't be possible okay so so now we have to understand if it doesn't make sense meaning in other words if it's uh so good for the investor it has to be so bad for the merchants meaning you know money is finite there's nothing there's a usually somebody makes money but either by the loss of somebody or by the opportunity for somebody to involve you in the deal so on and so forth so why in the world if it comes out to hundreds of percentages a year why in the world would the merchant battle such money that's question number one and question number two is why would you want to be involved in such a transaction where the merchant can end up losing so much money for our benefit in other words i'm trying to understand the win-win situation here uh and understand if this is a win-loss situation or is it a win-win and how is it the win-win and when is it a win-win when is it not a win when uh you know how do you look at it and when do you stay away from it and when when do you get do you get involved et cetera et cetera um no it's a great question um the answer is uh and this is for your audience because i know this is going to a general audience besides just you know this conversation is that if if there is a concern uh that it's a win-lose situation then then your audience should be very careful who they deal with uh in in this in the merchant cash advance space uh they it's not a question that's generally asked i understand why the question is it's a question of ethics it's a question of compassion it's a question of uh just right and wrong in a lot of respects and there is a lot of of let me call it not caring uh within the industry that all that's really looked at is a is a chalkboard which says here's my wins without looking at like well how many people that i hurt you know along the way how many people did i have to step on along the way uh you and i have had so many conversations about this and i know your audience isn't privy to this but uh one of the things that you know i make sure in my own life because as we always talk about life is short is when i look in the mirror every morning when i'm ready to shave or clean up whatever it is i have to clean up i want to like the person i'm seeing in the mirror i want to think that that person did something good the prior day so right off the bat and i know there's a longer answer than you probably imply but people in addition to having to understand the product have to understand the person and you know in terms of what we're talking about uh so we we won't do that we won't if it's hurting the merchant we won't provide them the money it's part of our whole process of of discussing what it is we're doing with the merchant prior to them actually signing a contract and us providing them the money so let's just take that as a given we can delve into that a little bit deeper if you want to find but i just i just it was important for people to hear that the question is why and what is it that we're discussing with the merchant uh and why would they do this so the merchants we're talking to like i said are small to medium-sized merchants they're generally uh owners of a business where the business is basically their biggest financial resource i'm not talking i mean i'm talking about more than their houses more than um any portfolio they might have because the people we're dealing with their entire livelihood is based on their business so along the way uh in terms of putting their business together they've used all their family resources generally in terms of in terms of what little savings they may have uh as you know in the u.s i forget what the number is but you know less than 10 or 15 percent have an extra 400 in cash available for an emergency i mean that went through in terms of what the pandemic was all about these merchants are no different they they've used all their credit cards they've tapped out all their credit cards in terms of being able to put money into it they've not only their uh their their immediate family their extended family they've looked at so uh and and what they've done by doing all this is they've they've hurt their credit rating so that most of their credit ratings are 6.50 and below probably below 600. uh banks right now will not look at any even today this is 15 years later that you know if if your credits below let's say 680 or 700 where you know something in the 800s is like stellar uh so most people are in the uh let's say 700 and above range the merchants we're dealing with are basically below 680 in terms of what we're dealing with so the banks there's there's no recourse to the banks so from the merchant's perspective he still needs every business needs capital to grow at some point sometimes there's an emergency sometimes there's a new location sometimes there's opportunities that the merchant wants to take take advantage of and you need money to do that in terms of just it's just one of the givens in life and i know all the people you're going to be showing this to completely understand that we we then talk to them about the fact that they really only have two options at that point they can deal with the money that we provide them or they can bring on a partner if they're bringing on a partner the the easy thing to look at is what's the expense of bringing on a partner well for the immediate expense is you're giving up two things you're giving up share you know ownership in your company and you're giving up some control in terms of what you're talking about the thing longer term that you're giving up is an inability uh that if something happens where you and the partner don't agree on things you don't see eye to eye how do you get rid of the partner it's like a divorce nobody wants to go through uh the legal hassle of doing anything like that so we're back down to is who are we and what are we doing well for all intents and purposes we are a partner in the business for a very short period of time so when you say 75 days if that's the only contract we do with the merchant then we're a partner for that period for 75 days is it expensive well expense to me is all relative if you have to have the money to take care to take advantage of an opportunity and you're paying us 50 what's the return you're getting on the opportunity and then at the end of 75 days you we basically shake they don't want any more funding from us we shake hands we say we say thank you they did us a favor we did them a favor and we walk away we're a partner you know in the sense of being short-term and and and being able to not have any uh giving up of any control we're not you know we don't get involved in the business and there is there is no excess strategy other than saying goodbye you know in terms of and you know thanks for thanks for doing what you did and what we say is if you have any opportunities you know in the future just give us a call you have a great track record you know our due diligence is is a lot less so if you look at it in the sense of being a short-term partner our expense compared to their other options are really very low not you know and so you can't look at the absolute dollars you have to look as in everything you're doing the way you did those graphs in the beginning with the different boxes you have to look at all of the boxes all at one time and so when you look at all of that and you say it's 50 and and we talk to them about how they should bake that into their operating expenses in other words we don't become and we become an expensive doing business the same way they have an insurance expense but ours is a definite finite time period in terms of what they're dealing with and then if they start with us and we start with this let's say let's say we represent 15 percent of their average daily deposits one of the things we talk about is if you if you're doing it right and using our money correctly by the end of the term of your contract the 15 should go down to 12 should go down to 10 if they're not building their business they shouldn't be taking our money and that's really you know that's part of the education that we provide in addition to providing the money okay uh i i think you explained it very well but i do want to elaborate a little bit on the part of the due diligence on the underwriting process if i'm going to take a partner i'm going to make sure first that the business is profitable and the business can provide profit for two partners instead of just one partner so and i understand in this specific situation it's not the same because it's a very short-term thing or potentially it's a very short-term thing so how much do you go into details with the merchants to understand how the fund that you're going to provide to them are going to help them solve their problems that because of that they they sort of sort of speak reach out to you for short-term partnership uh the the the underwriting uh and the due diligence that goes on it's two parts there's a quantitative aspect to that obviously and there's a qualitative aspect uh let me take the qualitative aspect first that's usually after the fact and that is uh we we we understand the industries that we're dealing with uh to the to the extent of uh you know we're looking at the um the 50 uh states within the united states uh we understand geographic areas we also understand specific industries so as an example trucking uh is is always an industry that's interested in this type of funding uh right now the truckers are having a heck of a time because diesel prices have gone from three dollars and fifty cents to over six dollars maybe seven dollars in some states uh and they're not able to get the their fuel adjustments put together in such a way uh that they can make that up so we're very careful right now with trucks like i said depending on time frame and whatnot you understand the qualitative aspects secondly before we fund the money there is an extensive interview that goes on it's called the funding call we want to know what their what their plans are for the money how they're using it we look at uh what their customer base is uh you know when i say extensive i mean it's it's about a 30-minute conversation so but but after a while you get uh educated as to how you can get to the points you need and pinpoint to the points you need very quickly uh from a quantitative standpoint uh we we basically look at their bank statements we are a pure cash flow underwriter uh we we do not discriminate it's funny we don't discriminate on geography or industry we only discriminated on the fact that they have money coming through the system uh that's our discrimination process uh certain industries uh you got to be careful with because you got to look at the number of deposits when they occur uh whether or not there is cash in the business uh whether the merchant keeps cash in the business or whether they're extracting it um many funders and it's once again i'll point out some differentiations between what we do and what some other funders do and i'm not saying it's right or wrong it's just what we do and what they do uh they're uh they look at uh businesses let's say a monthly business and say as a for instance it's okay for them to have uh you know up to five negative cash days in other words they didn't they didn't have enough money to cover their expenses for those days uh a month if we see five negative cash days we'll never go near them we'll never go near the merchant um we're 100 cash based whatever whatever offer we provide them and whatever their payback is we have to be 100 sure at least in the past uh and if it's the past three to five months depending on what what we want to look at that they were able to cover our payment in each day for each day of those three you know three four or five months that we're looking at so like i said it's it's not a question of industry it's understanding industries uh and different geographic areas uh but once again it's it's pure cash flow underwriting right let me let me uh elaborate let me try to elaborate on some of the things you pointed out i know you pointed out that you reviewed the bank statements etc some documents but you also mentioned the interview that you have uh i'm gonna have i'm gonna ask you two questions one question is how do you know that whatever information you get is the truth that's number one and then number two how many times did you find out after the fact that the company the merchant was just lying to you and they tried to to scam you uh there is no good answer and when i say like because if it was we'd be making we all be making a lot of money it's in terms of understanding when someone's lying to you and when someone's not lying to it's it's generally a feel uh part part of the nice thing about doing as much as of what we do and and how we do it uh is that indus industries um are not that different uh between themselves because of the economy and also within an industry you have an idea of where it is that what questions you need to ask like i used trucking before uh so you know one question you want to ask is like who are your customers uh how much is short haul versus long haul do you have fuel adjustments you know on your contracts if you if you're not doing what we do every day and what we've been doing every day for the well not 100 the way we're doing it now but we've been in this business now for about seven years so you know what questions they ask in particular industries can we divine whether someone's lying to us uh it all depends on how far outside the grid that i just mentioned that they're giving you answers to uh but even if they're all totally within the grid uh as there are situations where you find out that the merchant uh has uh has is just outright lying is basically scamming you the answer is we're we're good we're not that good um and you know the the the nice thing about it in terms of the way our contracts written is that the merchant uh whether they uh there are certain exceptions and we can talk about that but for all for all intents and purposes the merchant as part as part of sending our contract has a personal guarantee uh so that uh to the extent that we may have to take them to court to enforce our contract because they did try to scam us uh you know uh we'll go after their their homes i mean you know it's it's it's you know you put us in this situation it's not something i did or something you know vista did you know you did this and and we make that clear to them uh so uh you know if we have to uh we'll do whatever we can to get our money back and we're very very very good at getting our money back but can you tell can you tell me a number how many times in the past have you showed up that we're trying like doesn't have to be an exact number just a practice uh quite well let me just broaden it a little bit because the answer is you know uh it first off i i i think in all the years we've been talking about it if if it's less than a handful of people that actually we knew out of the gate we're just trying to scam us i mean i you know i i mean it happens don't don't think that that doesn't happen but you know but we've issued at this point i forget about how many contracts we've worked on without funding but but we've issued at this point i think uh we're just about just under 500 contracts in about two years uh that we've issued and like i said it's less than a handful um the key question that that sort of like enlarges that picture is what kind of there is a default rate i mean there's something where you you know you basically that there's there's a time that you're just not going to be able to get all your money back it's the nature of our business you can see who who we're dealing with uh our models that we've provided that i know kim that you provide uh specifically to anybody that that asks about uh our experience provide for a 10 default rate uh in terms of what we're talking about experience tells us uh that at that rate uh we'll be able to generate to a syndicate after all expenses uh somewhere between a 50 and 60 annual return that's that's sort of the numbers that you were talking about before we've been fortunate uh in some respects uh you know maybe lucky uh but our default rate is is well under 10 percent our default rates closer to three or four percent and maybe even a little bit lower than that um that's not to say that we don't have to what we call nursing contracts in other words work with merchants and at times have to lower their payments maybe hold off payments for a week or two depending on what's going on like for instance um like the omicron situation that it's pretty much over uh we had situations where you know people contracted you know covet uh the the omicron variety and and they couldn't work for two weeks so if there's no money coming in because it's not working you got to work with those people and if you work with those people and you know you're always going to be able to work with those people then uh the the answer is those are contracts we call nurse in other words the money doesn't come in the way the contract says it should come in and that's about eight percent of our contracts but you know the only difference there is you know the example we used before instead of collecting the money over 75 days maybe we're collecting it over 90 days you know a 50 return over 90 days versus 75 days is still an excellent return so that's that's sort of the way to look at that okay um yeah you answered the question very well but i just want to elaborate on one thing i think it's very understandable that even if somebody defaults usually it doesn't happen on day one so meaning uh yeah it bothers and it hurts that they defaulted but you still were able to get some money back and you probably didn't give up you you hired attorneys to keep going after them and uh and trying to do the best to get the rest of the balance back as well am i correct yeah that's a excellent question we're just just our experience uh through the entire process uh and this is this is this experience now goes it's pretty consistent over the past uh i don't know 24 months or so uh is that between what we collect on the contract before we have to give it to the collection firm the attorneys that you just mentioned where they go where we do go after them through the court system uh we're getting back somewhere around 80 cents on the dollar at this point now that's that's the basket as a whole in terms of what we're you know what we're talking about and it's also a basket based on the experience of collections through today because collections will continue every day going forward so the 80 is really a floor it's not a ceiling uh so you know to answer that question is we get a big piece of of what we're uh what we've funded back because of what we do and just in terms of the debits we do and also when we nurse or not and when we finally make that decision that you know where the merchant just is just we just feel he's not listening to us anymore or he's not going to pay us and without without a bigger hammer uh and then we have to give it over to the collection firm plus what the collection firm then does in terms of negotiations and or going through the court system where they have the judgment uh we're getting back about 80 cents on a dollar okay amazing um i want to shift gears now and talk about you mentioned about syndications and i think it's important to touch a little bit on it not for too long because i don't know i still want to cover and detail the risk part but um i just want you to elaborate a little bit on what you mentioned on syndication like let's say somebody invests with you a hundred thousand dollars how does that work you take the hundred thousand dollars and you put it into contracts and he is now the lender for these merchants or do you do it like a group as you mentioned some kind of syndication i want you to elaborate a little bit how that works and assume that many of the listeners are hearing the word syndication for the first time okay not a problem um once again this is an area uh that we're very different than other funders uh we've created a uh with our bank the ability uh to have uh the syndication done at a point where each syndicate is an entity unto themselves in other words uh somebody comes with a hundred thousand dollars that money is not commingled in anything in in our account that's not where a lot of funders the money just gets commingled in one funding account we've created a situation where every syndicate has their own bank account they can view that bank account they can track money going into that account and out of that account every day and and the the participation that goes on with us is completely transparent both in terms of the data that we provide the information that we provide but also uh if let's take that ten thousand dollar contract uh we will if we let's say we have 10 10 different accounts 10 different syndicates that are going into that contract they each have a 10 share of that each put up for all intents and purposes a thousand dollars for that 10 000 contract time you know it's a little bit more detailed than that but they each put up a thousand dollars that thousand dollars is their participation share they own it uh so once again regardless of what happens with vista uh the contracts that we have and this and the platform that we have basically says that each piece is owned by the individual syndicates so it's 100 transparent it's not a vista it's it's it's a vista facilitation that's what we do that's how we manage it but the shares of all the different contracts that we have are in the are in the individual syndicate so the money goes into a segregated account the money goes out of the segregated account but everything that happens through that account is also segregated strictly for that for that investor so there is no co-mingling of funds so i think that's the answer that yeah so let me elaborate a little bit on that and correct me if i'm right or you have anything to comment on that the way i understand it is let's say that i invest a hundred thousand dollars and let's say that i direct you i don't want more than five percent or five thousand dollars going into any specific account so let's say you lent to a certain merchant uh let's say i don't know fifty thousand dollars but you cannot put more than five thousand dollars of that of that of that funding from my money okay and then let's say after a month or two months whatever the length of time i see myself being part of 20 different accounts of 20 different uh 20 different loans now money starts coming in every month every day and as money comes in i'm getting to invest in even more accounts so i think the ideal scenario would be that after five six seven months i should be spread over in much more than 20 accounts and and i i think that's a pretty good diversification again going back to my introduction that i started with how you can diversify more and even if you take a bigger risk you can start having your risk decline more and more is by adding more and more and more diversification over time am i correct with that it's our goal uh one of the things that we do uh really really well i think once again we're a little bit different uh is is is risk mitigation that's really what you're talking about is taking something that is is is high risk which i think i think if you look at one contract an individual contract you'd say that's pretty high risk you're dealing with a small merchant the credit rating is pretty low in terms of what we're talking about so you're saying you know you know that that's that's it individual contracts are each individually high risk no question about it that's the way you should look at it that's why we have to i'm going back to what you said if you want a 50 return you need 50 risk i mean it's a lot higher risk than what you have in the bank the stuff you said in the beginning was absolutely on point it was totally correct now the the the difference though is is the word that you use and that's diversification if you have one contract it's got a certain level of risk if you have two contracts uh it's not double the risk it's less than double the risk it's just a fact of life if you have 20 contracts and each of those have you know five percent risk obviously you now have even less risk going into the portfolio our goal is twofold uh we're going to lower each each syndicates risk because in the beginning especially we don't in a lot of respects we don't care what the syndicate owner says uh the five percent is usually it's usually five to seven eight percent we won't allow any individual syndicate to go into a contract more than five six seven percent why because if that contract were to go bad and you don't know which contracts go bad and which contracts will pay uh you don't want too higher level of risk in an individual contract that can hurt the portfolio so in the beginning until we get to that magic number and i'm going to give you the magic number that we deal with all the time day in day out uh is that we're going to keep every syndicate in the beginning and it frustrates some syndicate owners because they're saying well it's taking you three four five weeks to deploy my money and we're saying yes but we're still going to make it the kind of money we're talking about trust us in this and then once we get up to a certain level that magic number then you won't be talking to us on the same basis you'll see what the returns look like and our number comparable to if we're doing a stock portfolio and you're doing a stock portfolio you would you would educate the people to basically say 20 to 25 stocks for us the number's 50. so once we get up to 50 contracts we be we feel like that portfolio is pretty well diversified we might be able to take on a little more risk but for us a little more risk is moving from five to eight percent to maybe ten percent on an individual contract it's not it's not a huge jump so the answer is uh the the the number of contracts and and time as you know it's it is a point when we provide information out it's clearly highlighted that that single number is clearly highlighted every month in terms of what you're dealing with actually every day but for the most part when we talk to the center against it's every month and 50 is that magic number once you get up to 50 we feel that portfolio is pretty well diversified and we haven't really focused and i'm going to say this really quickly is we if for all intents and purposes if we put money out to contracts today there's a little bit of a lag but let's just let's assume away the lag and that's that's due to the federal reserve but the money starts coming back immediately as soon as we get money coming back on those contracts it gets invested in new contracts so we can get up to 45 or 50 contracts easily within 30 days you've known that you've seen that you've seen all the syndicates that that you know you work with personally and your own syndicate so that that magic number of 50 happens uh relatively quickly in in the in the relationship between between vista and and and i have seen what i can say that what i've seen after about a year i've seen to be in about 100 contracts which makes me feel very comfortable i mean too many things have to go really really bad for me to lose money on this i mean not no guarantee but things could could always happen but yeah i feel that my risk is very diversified and very declined and i can say by knowing knowing investors and knowing other merchant cash advance companies the transparency that we see with vista is unbelievable it's like i have i i've speak i've spoken to people who are invested with other cash advanced companies and um they look at what you know what what information i have on what we're doing they're jealous and you know usually they want to come over but they're jealous and they don't have that you know i i you know as we discussed many times before but i think it's now a good a good segue to go into the risk part of it um i have seen people making a lot of money with cash advance and i've also seen people lose money and for me the biggest reason that i even started working with you guys was because of trans the transparencies but i i want to elaborate a little bit on what is the risk and what is the risk in the beginning and how do we mitigate the risk and how do we reduce it even more over time we touched on many of these things already but i think it's good to to to uh have the framework around the risk once more sure not a problem um the the the risk that's involved as i said uh individual contracts each have a fairly equal and even level of risk i mean there's nothing you can do about the fact that the of of the of the uh in the the characteristics of the uh market that we're in for individual merchants uh the idea though is that you never look at uh individual individual contracts if you looked at individual contracts you would never do you would never get into the mca business it's not the way mca works mca works because of the fact that you're getting money back every day on every contract uh that you're dealing with and because of that you can add uh additional contracts as you get money so it's not like in the example we gave the ten thousand and fifteen thousand you don't have to wait for the end of the 75 days before you're going into a second or third or fourth contract every day you're going into another contract in terms of what it is i mean not that no you're not doing that at 10 000 when you're getting back 200 a day but the fact is you've got other assets to deploy it's the concept of what we're talking about in terms of how we're doing that uh that's the first thing in terms of looking at diversification is is that you got to you have to make sure you're getting in as many contracts as possible and on a consistent basis in other words you know if depending on what's going on with the economy depending on um uh what might be going on in a particular industry you don't want to chase dollars so to the extent that you're not chasing dollars just just to make the investments is is is is a key underwriting criteria that you're always looking at so i i use the example of trucking right now trucking is a little bit difficult to do and until fuel prices go down or the trucker has the ability to adjust his contracts you want to basically just shy away from that a little bit in terms of what we're talking about so that's that's part of the underwriting that's part of the risk mitigation in terms of they look at it but the reality is we're always uh looking at diversifying the portfolio increasing the portfolio making sure that not a when i say portfolio portfolio and syndicate are synonymous in terms of what we're looking at because every cindy we look at the portfolios for every one of our sin that gets in terms of what they're looking at is that we won't put it we won't put a syndicate owner especially in the beginning into any more than five percent on the contract so on a ten thousand dollar contract most of that syndicate would invest in that contract in the beginning is five hundred dollars longer term probably the answer is going to be a thousand but once again everything's relative to the contract size in terms of what we're dealing with um there's other factors in terms of that that we look at in terms of of going getting over the you know the risk mitigation but from a general level in terms of what we're talking about increasing those contract the number of contracts in the portfolio to 50 is critical for us uh people as part of this recording may get a little confused because i just said 50 after 30 days and you said 100 after after a year those things are are both true and the reason for it is you're not going to get much more than 100 to 120 at the rate that we're doing things and controlling because they're all short-term contracts so contracts are dropping off all the time because they either refi or they renew or they don't renew when they end in terms of you know what we're looking at so both our numbers are correct and i want to make sure people understand that that there was complete consistency with that so over time when a mature portfolio will have somewhere between 100 120 contracts will be running at all different terms uh and no single contract because of the way we put the contracts into the portfolio will have a we'll have a any kind of major dramatic effect if it does happen to go bad and that then once again that's for two reasons one it's such a small percentage of each each contract's a small percentage of the total and two we've done a really good job of collecting money before we say that contract where to go back so a big piece of the money's already back into the portfolio so all of those things tend to lower the risk and give us the consistency of the returns that we're talking about right so it's very important when somebody uh is looking into the idea of investing in such a concept as merchant cash advance they should understand that in the beginning they have a little bit more risk than overtime so you know as i'm sure everybody understands don't put all your eggs in one basket especially when it comes to merchant cash advance you should not put in too much of your assets at the beginning let it start with something and let it go and start let it start picking up steam and then from there uh your risk over time uh declines a lot um and i think it's also important that uh um i i think i should also ask you how knowing the risks involved how did you perform during coverts that's really an interesting question i'm sorry about the sun i can't do anything about the sunshine i'm trying to find a position where the sun's not on my face so um it's just this time it's more important for us to get the the information we can now then take away no i get it with the best you can on there yeah that's why i keep on moving but i can't find a place that doesn't look you know anyway i apologize um anyway i want to pull down the shades but wait a minute i know i can't there's one like i said i've got one part of the window that there's no shade on it's like the very top i know it it's all but sorry about that you know because if i move it might think people think i'm doing something very strange um how oh that's better um how we did during covet we were unbelievably fortunate during coven um we there's there's reasons why uh and it's when we first we we decided to uh to to move away from doing brokering which is what our entry was into merchant cash advance into doing funding which is what we're doing 100 now uh we needed some structures built january of 2020 is when we went 100 to [Music] funding and moved away from brokering and as we all know the world sort of shut down in february starting february of 2020 uh when information about what was coming out of china and kova sort of hit the news and and hit all of us the the reason for it basically i think was our is the way we underwrote and and the way we uh made decisions about what accounts we wanted so uh the example we gave was the ten thousand and fifteen thousand that down the line is pretty much what it is we're doing now uh if we see something less than a one it's it's it's one four nine nine versus one five but for all intents and purposes it's one five uh is is when there's a certain situation uh where even though the factors lower you're actually doing better than the one one five so it may look like a 1.2 or 1.45 or something like that but if you analyze the contract you'll see that we're actually making way well more than the 1.5 but so we we said that's the only contracts we want we don't want to see any contracts that are less than one five and at the time the merchant cash advance was very competitive and and the type of businesses that everybody wanted uh were ash rich businesses in other words with a lot of credit card sales and a lot of cash so that would be like restaurants bars nail salons you know things of that any kind of retail establishment doing a lot of walk-in trade uh the the industry was driving for a lot of reasons the rating factors down from one five to one three one three two and we said no we there's still industries out there that are they'll give us the one five so we stayed away from those industries by choice uh and then we decided we were going to do uh basically two broad industries one's construction one's trucking uh and and it's industries that people just try to shy away from uh and we put our money into those now when we say we put our money we still diversified our portfolios the way we discussed already uh but from an industry standpoint maybe we had less diversification going spread across different types of industries than we normally would uh so what happens covet hits uh and everybody is shutting and they got to stay at home uh and so what do they do all of a sudden everybody's ordering off of amazon everybody's looking at their house and deciding they don't like what they see so it was amazing what happened and also at the same time governments lowered the interest rates uh borrowing rates down to like zero or negative so that banks could offer home equity loans at three percent and less all of those things combine to what i'm going to talk about so covet hits and who gets hurt they shut down restaurants bars nail salons all those businesses shuttered their doors for a long time period anybody that was involved in merchant cash advance for those types of businesses had a lot of trouble should they have lost all their money no but they had a lot of trouble what our businesses did you know they knew amazon needed the truckers to deliver the product everybody's looking around their house and basically saying i don't like the way that bathroom looks or i don't like the way the construction looks you couldn't you you couldn't get enough truckers on the road during that time period and it still continues today and you couldn't get a contractor booked in the united states through all 50 states for at least three to four months so everybody that was competing for the for that choice business prior to covet was was working very hard to make sure they didn't lose a lot of money during covet and we were just sitting there basically saying our merchants are doing better than they have ever done in their life so we went through a period of covid uh once again just from decisions we made like i said sometimes it's luck sometimes a little bit of work in terms of what you're thinking about but we didn't have a single default and all our portfolios that we were managing basically did somewhere between 110 and 120 returns for that period uh there's always opportunities let me ask you for a second what would you did you ever think what would have happened to the portfolio without that decision because you know this could be as you said pure luck what would have happened if you would have stayed with restaurants etc well it would have done 60 uh the portfolios were diversified in in the same way we're diversifying all the portfolios uh what i said was the differences uh between the model and what we do with an experienced base is all based on how you do with the default rate that's that's the key in what we do so so if you go from a percent which is what we model down to in this case zero uh portfolio should do the the range between sixteen and like i said a hundred and ten or hundred and twenty percent right maybe you would have had to wait a little bit longer you know you would have had to work with the merchants but it wouldn't be the end of the you know it be what we're doing today right so what brings me to my next question and uh it's getting late so i want to wrap it up but i have two more questions to discuss one is what is in it for you what is it for you know you partner with the merchants and we partner with you so how do we partner with you like all these returns we're talking about hundreds of percentages and then with both down to 60 to 80 to 100 percent so how does it work as far as the the we've built our investors and then i want to talk also about the the charging interest challenge that jewish people can have so let's first talk about the hardest question for last but um so anyway so the the answer to what what's in it for us is two two things that's in it for us the fact is we have our own personal money invested in every contract like i said we started in january of 2020 we really didn't go out and get outside let's call it family money outside the family of the partners uh until february of 2021. so to the extent that we can get other syndicators involved helps us in terms of being able to diversify and lower the risk of our own portfolios in terms of what we're talking about because we we're sitting there shoulder to shoulder with every syndicator that that's the first point the second point is is we charge management fees it's it's it's you know we're not we're not embarrassed about the fees that we charge we charge fees based on every dollar that we collect if we don't collect anything we don't we don't get any any fees the returns that we're talking about are all after the fees are paid so this is so basically what we're talking about is money that's going right back into this indicator's pocket it's not you don't have to make any calculations we provide you all that information so that every month you can see exactly what you expect back from the merchants what our fees are and what you're going to get back in your pocket so it's once again 100 transparency right in terms of what we've done is and i keep on saying this um and and i haven't had a chance to review when we first did it i knew we were the only one and i believe we're still the only one uh we have a header risk it built right into our contract uh in terms of uh and it's been reviewed by probably every syndicate uh that's come on board with us and at this point we're probably just under 50 syndicates that we're dealing with so it's been reviewed at least 50 times and i'm assuming it's it's at most 50 rabbis unless everybody's going to the same rabbi somewhere between 1 and 50 in terms of people that have looked at it we built it in because we knew the the syndicates and the people that we were dealing with and they were concerned about that we we you know if if someone is obviously jewish we won't loan them we won't like i use loan it's the wrong word i apologize we won't fund the money uh you know it'd be you know because of the uh considerations of of the people that we're working with including us in terms of you know what we're dealing with a lot of times you can't ask a lot of times people won't say uh in terms of what it is you don't know what their situation happens to be but in this situation where we did fund somebody that was jewish and you know the for the the section of the contract i had to risk it takes over and for all in terms of and and for all uh what it does it basically just takes the the personal guarantee away and it the the arbitration becomes a based in as opposed to a secular uh you know a secular prison to the extent that we can stay away from jewish merchants we do our best but we're not 100 on that right that makes a lot of sense and i'm just mentioned before we wrap it up if anybody has any questions you can post it in the chat um so i just want to mention i what i've seen with other merchants is they go into a 50 50 relationship meaning they split the profits with the investors and the problem i always had with that is number one the transparency i didn't even know you know everything i had to i had to believe them everything they were saying how much the profit was and how much fees was and how much management fees and how much underwriting fees and this fee and that fee and all kind of hidden uh numbers that there was no way to keep track on it um i liked very much the idea that i saw by you that it goes based on a management fee and it's not there's no in the profits beyond the management fee whatever the management fee is it is and it's very transparent i can just attest to that i keep getting my uh different type of statements every morning which always makes me question when charlie is sleeping and he always calms me down that it's not as hard as it seems on my side but i think you're working on a system that everything everybody should have their own login to be able to log in and see everything by themselves right can you talk about that uh hopefully my plan is to go live the first week in april so we're getting closer and closer uh basically right now we're pushing all the information out to all the syndicates as you said uh there will be no pushing once the system goes live there'll be a little bit of a test period but all the sydney gets said but when it's working uh anytime you want to go in and the syndicates will be able to pull all their information so the idea of logging in online you'll log in you'll have that complete access to every report actually there's gonna be more reports than you're getting now uh but the reports you're getting now will be at a minimum and then as we add reports they'll just be made available so if one syndicate owner says i'd like to see it this way as you well know how we're totally we work with all of us into it we've changed reports you know anytime we think it's an improvement we change the change and then it's available to everybody so the like i said uh hopefully the first week in april i'm really pushing okay looking forward i'm excited for that listen charlie it was really really a pleasure to speak to you about this opportunity today my main goal is uh i was speaking about leverage part and what we're teaching to our students we were speaking about leverage and people when they think about leverage they understand the concept in real estate how you can leverage and real estate you can invest money take out money invest it again take it out again invest it again this way you reduce the risk more and more and more and people were constantly asking me are there any other strategies to leverage meaning velocitize it use the money again and again besides real estate and my point was there is but it's not always the same system as you invest money you take it out in form of a loan it's you invest money and you have a big enough return yes also bigger risk but if you do it in a risk controlled manner you you you mitigate the risk you do it in a way that the risk keeps reducing itself while the opportunity is not reducing but keeps going up you can theoretically do the same thing keep your money in motion keep the money use the using the money again and again and again and again without involving financial institutions but in order to do that you need a little bit out-of-the-box thinking you cannot do the traditional way as everybody else is doing so again charlie thank you so much for being with me today and uh i hope you can hear from some of our students very soon it was my pleasure thank you so much have a great wonderful day you too you