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Bank's loan sale doesn't end risk


Posted: Friday, January 2, 2015, 9:58 AM

Despite the retirement of founder Betsy Z. Cohen and a Dec. 31 deal to sell off one-quarter of the Cohen family-controlled loan and cash management company’s $1.1 billion in largely Philadelphia-area business and consumer loans, The Bancorp still has a ways to go before the Wilmington and Philadelphia-based company will have a positive new story for investors, writes analyst Frank Schiraldi in a report to clients at Sandler O’Neill + Partners this morning.

Schiraldi notes the company sold its $268 million “nonperforming/sub-performing” loan book, which had already been marked down by $54 million (plus another $4 milllion during the fourth quarter) to around $210 million, for $194 million in 10-year senior and subordinated notes at around 2.2%, plus $16 million in (probably) cash.

But “unfortunately, the sale does not result in a ‘clean break,'” Schiraldi writes. “We were disappointed” to see that Bancorp is still exposed to losses from the portfolio — because the buyer “is a newly-formed entity, Walnut Street, in which the bank owns a 49% stake.” Plus, most of the proceeds of the sale were paid for in Walnut Street debt, which is backed by those same lower-quality Bancorp loans and collateral (the Philadelphia-area properties whose owners used them to secure their loans from Bancorp).

“We would have thought that minimizing future exposure to this book would have been a priority,” but maybe Bancorp could find no other buyers, Schiraldi adds. Given the small bounce the stock enjoyed on Cohen’s departure announcement (after a sharp decline since last winter), Schiraldi expects shares may now drop again, at least in the short term. The analyst expects the bank will report a fourth-quarter loss, and will keep the stock rated “hold” at least until Bancorp gives investors “greater clarity” on how it will boost profits from its remaining business lines.


Micro-loan program launches Philadelphia initiative

Last updated: Wednesday, December 3, 2014, 1:08 AM
Posted: Tuesday, December 2, 2014, 6:16 PM

When Carl Lewis needed a refrigerated dessert display case for his 48th Street Grille in West Philadelphia, he applied for a $5,000 zero-interest loan from crowdfunding website

“I envisioned opening this restaurant. I applied to several banks for a loan, and they all turned me down,” said Lewis, whose Kiva Zip loan was underwritten by 185 lenders as far away as Sweden and Australia.

The money-raising initiative will now be available to more small-business owners and aspiring entrepreneurs with the launch of Kiva City Philadelphia on Tuesday. The program was announced jointly at Lewis’ restaurant by president Premal Shah, Mayor Nutter, and Alan Greenberger, director of the city Commerce Department.

Philadelphia is the 10th U.S. city to join the Kiva program, aimed at starting or expanding businesses that might not otherwise qualify for traditional lending.

The nonprofit Kiva has facilitated “micro loans” to small-business owners in 80 countries for a decade, with 1.2 million lenders funding $650 million in loans.

Borrowers are vetted and must be endorsed by a “trustee,” such as a community group, that’s been approved by the nonprofit. The entrepreneurs must find 15 friends or associates to underwrite them online before the Kiva loan proposal is listed publicly for crowdfunding.

The borrower can receive an initial Kiva Zip loan of up to $5,000 (pledges start at $5). In Philadelphia, loans will be matched dollar for dollar by PNC Bank, the Zisman Family Foundation, Nancy and Greg Wolcott, and Friends of Kiva City Philadelphia, the nonprofit said.

Grants to help the program get started will come from the Barra Foundation, the Philadelphia Foundation, the city Commerce Department, the Zisman Family Foundation, and the Mayor’s Fund for Philadelphia.

Lewis’ lifelong dream was to open his own restaurant, after working nearly four decades in the restaurant and hospitality industry for InterContinental Hotels and Marriott Corp., and as executive chef at Temple University Health Center.

When he learned that Kiva “was giving out these micro loans,” he applied. With his first $5,000, plus a $15,000 interest-free loan from the Hebrew Free Loan Society of Greater Philadelphia and a Small Business Administration loan from the Enterprise Center in West Philadelphia, Lewis then was able to get a bank loan.

Five weeks ago, he opened the 48th Street Grille near 48th and Spruce Streets, serving fresh Caribbean American fare.

Fourteen Philadelphia entrepreneurs have received Kiva loans thus far. Among them are Peter Merzbacher, founder of Philly Bread, a bakery in the Olney section, who received a $5,000 loan underwritten by 135 lenders. Arthur Verbrugghe, who started a custom-clothing workshop in Roxborough, Atelier Arthur L.L.C.. received a $3,000 loan from 86 lenders.

At, small-business owners can apply for micro loans “with zero percent interest, no fees, no mandatory credit check, and no collateral requirement,” he said.

“We call it social underwriting,” said Johnny Price, senior director of Kiva Zip, on hand for the announcement. “Normally, a bank will employ financial underwriting. They will look at your credit score, your collateral, and cash flows.”

Kiva looks at a borrower’s character, Price said. “We ask borrowers to recruit 15 people from their network to fund their loan in private before we post it publicly on the website. Since we rolled out that innovation, we’ve seen a significant improvement in our repayment rate: 90 percent in the United States right now.”

“It’s kind of how banking was done 100 years ago, where people vouch for people,” said president Shah. “When businesses pay back the loan, they can qualify for larger loans from the Internet community. It becomes almost a public credit score, where local banks can get off the sidelines and begin loaning to people like Carl.” 215-854-2831 […]

Fight to restrict payday loan businesses continues – WAFB 9 News …

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Payday loans (Source:WAFB)


Officials: All lanes open after 100 gallons of fuel spilled during vehicle fire

Officials: All lanes open after 100 gallons of fuel spilled during vehicle fire

Updated: Thursday, September 11 2014 5:37 PM EDT2014-09-11 21:37:12 GMT

All lanes are now open on I-10 East at the I-10/I-110 merge after a vehicle fire shut down the left and center lanes. The traffic backup has reached Grosse Tete on I-10 East and Chocktaw Drive on I-110 South.More >>All lanes are now open on I-10 East at the I-10/I-110 merge after a vehicle fire shut down the left and center lanes. The traffic backup has reached Grosse Tete on I-10 East and Chocktaw Drive on I-110 South.More >>

Tropical Depression #6 forms in the Atlantic, disturbance develops in Bahamas

Tropical Depression #6 forms in the Atlantic, disturbance develops in Bahamas

Updated: Thursday, September 11 2014 12:16 PM EDT2014-09-11 16:16:46 GMT

Tropical Depression #6 formed Thursday morning in the deep tropical Atlantic. First Alert Storm Team Meteorologist Steve Caparotta says T.D. #6 is likely to become Tropical Storm Edouard in the next day or so. More >>Tropical Depression #6 formed Thursday morning in the deep tropical Atlantic. First Alert Storm Team Meteorologist Steve Caparotta says T.D. #6 is likely to become Tropical Storm Edouard in the next day or so. More >>

Texas man arrested in Baton Rouge after picking up 15-year-old at bar

Texas man arrested in Baton Rouge after picking up 15-year-old at bar

Updated: Wednesday, September 10 2014 4:46 PM EDT2014-09-10 20:46:22 GMT

A 21-year-old man from East Texas has been arrested in Baton Rouge after being accused of inappropriate behavior with a 15-year-old girl.More >>A 21-year-old man from East Texas has been arrested in Baton Rouge after being accused of inappropriate behavior with a 15-year-old girl.More >>

Woman growing fingernails in follicles through skin desperate for help

Woman growing fingernails in follicles through skin desperate for help

Updated: Thursday, September 11 2014 5:21 AM EDT2014-09-11 09:21:40 GMT

(WMC) – A Mid-South woman with a mystery illness is desperate for help that can keep her alive. WMC Action News 5 shared the story of Shanyna Isom in a special report in 2012; she grows fingernails throughMore >>WMC Action News 5 shared the story of Shanyna Isom in a special report in 2012; she grows fingernails through the hair follicles in her skin. Two years later and the cost of a mystery illness continues to threaten her life.More >>

Parents make ‘bucket list’ for unborn, terminally ill son

Parents make ‘bucket list’ for unborn, terminally ill son

Updated: Thursday, September 11 2014 2:21 PM EDT2014-09-11 18:21:38 GMT

Dan and Jenna Haley, of Philadelphia, PA, found out in April that their child, Shane, had anencephaly – a birth defect that causes the baby to not have a fully formed brain and skull. Almost all children with it die shortly after birth.

More >>

Dan and Jenna Haley, of Philadelphia, PA, found out in April that their child, Shane, had anencephaly – a birth defect that causes the baby to not have a fully formed brain and skull. Almost all children with it die shortly after birth.


More than 950 payday loan businesses operate throughout Louisiana. Within Baton Rouge’s city limits, it seems like one is on every corner. It’s that frequency that has many city officials worried.

“It does have a negative impact on the economic vitality of an urban community,” said Baton Rouge councilwoman Tara Wicker.

The Metro Council considered a new ordinance that would set a minimum distance between lenders and restrict business hours. The measure, proposed by Councilwomen Ronnie Edwards and Donna Collins-Lewis follows failed attempts from state lawmakers to cap interest rates. The issue remains heated.

“They’re concentrated in poor communities. They cater to customers who can’t afford the sky-high fees and interest rates,” said Jan Moller, director of the Louisiana Budget Project.

“We are the only industry that has put an extended payment plan together for ourselves,” said Danny Ford with the Louisiana Payday Loan Association in defense of the industry.

The Council was also split during Wednesday’s meeting. The ordinance failed to gain a majority vote and was deferred for two weeks.

Copyright 2014 WAFB. All rights reserved.


A new year sees a new push for payday lending in Pa.: Monday …

Good Monday Morning, Fellow Seekers.
After being rebuffed in 2012, there’s a new movement afoot to legalize payday lending in Pennsylvania, a practice that critics say preys on the poor with the promise of quick cash upfront, but punitive interest rates on the back end.

Legislation that cleared the House in 2012 is now before the state Senate, amid a vigorous push by the industry to legalize such loans in Pennsylvania, where they are now illegal.

“We’ve seen nationally since 2005 that payday lenders have continued their push to bring back these loans,” Diane Standaert, senior legislative counsel at the Center for Responsible Lending, a nonprofit in Durham, N.C., that opposes payday loans, tells The Tribune-Review. “There have been a lot of efforts in the states, and they are continually rejected.”

Pennsylvania law (backed up by a state Supreme Court decision) caps interest rates at 24 percent. Critics say payday loans result in interest rates of up to 300 percent, trapping borrowers in an unending cycle of debt.

The bill approved by the House on a 102-80 vote in June 2012 gives lenders a carve-out from the state’s 24 percent annual percentage rate cap and allow payday lenders to charge a 12.5 percent financing fee and a $5 fee on payday loans.

It would also require lenders to get an annually renewable license from the state. The licenses would cost $3,000 for the business’ primary location and $1,000 for every other location.

The Pew Charitable Trusts took an in-depth look at payday lending in an October 2013 report. Here, in a handy graphic, is a summary of those reform efforts.

Research courtesy of

The rest of the day’s news starts now.

The Tribune-Review looks at the high bar to ballot access facing Libertarian Ken Krawchuk as he wages a long-shot bid for governor. Pennsylvania has among the strictest ballot access laws in the country. Throw in gerrymandering from redistricting and third-party candidates are all but foreclosed from holding statewide office.

State lawmakers are worried that small games of chance may be a losing bet for the state, The Post-Gazette reports.

A lawsuit by four community groups against the city of Pittsburgh and former Mayor Luke Ravenstahl, unsealed Wednesday, could reopen old feuds about how federal development funds are spent, The PG also reports.

Allentown’s school superintendentis looking for budget help from city business leaders, The Morning Call reports.

The financial outlook is bleak for three schools in the state System of Higher Education, The Tribune-Review also reports.

Bills in Pa. and NJ would open adoption records, The Inquirer reports.

Democratic gubernatorial candidate Katie McGinty has joined the air wars in earnest with two new ads. Here’s the clips:

Keystone Politics links to that Morning Call story looking at how much money Pa. left on the table by not legalizing a severance fee on gas drillers (hint: It’s more than what was raised by the impact fee).

What Goes On.
Auditor General Eugene DePasquale holds a 1 p.m. presser to discuss the plight of the Harrisburg schools. You’ll find him at Harrisburg City Hall.
Budget hearings continue this week in the House and Senate.
In the House (all meetings in Room 140 of the House):
10 a.m.: Department of Health/Department of Drug & Alcohol Programs
11 a.m.: Pennsylvania Liquor Control Board
2 p.m.: Judiciary
3:30 p.m.: Department of Agriculture
In the Senate (all meetings in Hearing Room 1 of the North Office Building):
9:30 a.m.: Department of Public Welfare
1 p.m.: Department of Community & Economic Development
3 p.m.: PHEAA

What Goes On (Nakedly Political Edition).
Rep. Mike O’Brien, D-Philadelphia, holds a 5 p.m. reception at McGrath’s Pub. Admission runs $250 to $1,000.
Philly Councilwoman Janine Blackwell holds a 5:30 p.m. reception at Ms. Tootsies RBL. Admission runs a flat $1,000.
State Rep. Eddie Day Pashinski, D-Luzerne, holds a 6 p.m. reception at Genetti’s in Wilkes-Barre. Admission runs $100 to $500.

Heavy Rotation.
Here’s a classic from The Smiths. It’s “This Charming Man,” caught live.

Monday’s Gratuitous Soccer Link.
The Guardian looks at why Wayne Rooney will never be beloved by the fans of Manchester United.

And now you’re up to date. See you all back here in a bit.


Friendly sales pitch can't hide payday loans' unfriendly rates …

Image stock_payday_loans-sm-300x187.jpg

The letter that recently arrived at homes throughout California and other states features a picture of Sylvester Stallone in “Rocky II” training for another shot at greatness.

“As you’re making your financial comeback,” it says, “we want you to know Rise is here to help.”

Specifically, the company is offering a pre-approved loan of $2,600, “which can be deposited into your account as soon as tomorrow.”

“Everyone wants to get ahead financially,” the letter says. “That’s what we’re all about. Rise is about getting you the money you need so you can make progress tomorrow.”

But don’t cue the gonna-fly-now music too quickly.

The fine print of the letter reveals that the annual percentage rate on that $2,600 loan is 174.54%, and that you’ll be required to make 36 biweekly payments of $193.16 each.

In other words, that $2,600 can cost you almost $7,000 in principal and interest.

Welcome to the new-and-not-so-improved world of payday lending, which has adopted more sophisticated sales pitches and branding to lure unwary consumers into loans that can trap them in endless cycles of debt.

Lenders are trying to shed the stigma of typical payday loans, which often are sold in stores in low-income neighborhoods and target people who may lack the financial savvy to understand the hefty interest and fees involved.

Instead, they’re operating online, which has the added advantage of evading strict state laws.

California, for example, limits payday loans to $300 and permits the lender to charge an annual percentage rate of up to 460% for a two-week loan.

“We’re seeing more and more lenders turning to the Internet,” said Joe Ridout, consumer services manager for the advocacy group Consumer Action. “They claim they’re trying to help people, but all they’re doing is making people’s problems worse.”

Rise is offered by a Texas company called Think Finance, which until 2010 was known as ThinkCash and offered loans under the name PayDay One.

Ken Rees, chief executive of Think Finance, told me that his company is focusing on “next-generation financial products” that are friendlier to consumers.

“We started out as a payday lender,” he said. “But as we evolved, we realized that we could come up with products that are different, that can help people get out of debt.”

To its credit, Think Finance does make a modest effort to inform borrowers of the potential pitfalls of short-term loans.

For example, at the very bottom of the fine print on the back of its recent letter for Rise, the company says that “this is an expensive form of credit” and “this service is not intended to provide a solution for longer-term credit or other financial needs.”

“Customers with credit difficulties should seek credit counseling,” it says.

That message, however, is considerably less prominent than the cheerful, here-to-help sentiment on the front of the letter.

The “Rocky II” tie-in is part of a marketing campaign launched in October. It features that lovable lug running through the streets of Philadelphia as he prepares for his big return to the ring.

“We’re trying to communicate the idea of a financial comeback,” Rees said. “Rocky had challenges, but he came back.”

One of the ways Rise loans can help, he said, is by gradually lowering the interest rate as the loan is repaid. That 174% annual percentage rate can drop to as low as 36% over time.

“I’m not saying we’re offering access to credit at rock-bottom rates,” Rees said. “We’re just trying to offer a better option.”

And that’s laudable. But let’s be honest: For someone living paycheck to paycheck, a 36% interest rate isn’t exactly a sweetheart deal. It’s better than 174%, but it’s still enough to drain you of any extra cash.

For a truly better payday-loan option, the U.S. Postal Service might have the answer.

The agency’s Office of the Inspector General estimated in a recent report that about 68 million Americans have no checking or savings account and must turn to payday lenders when they face a cash crunch.

Such households spent a total of roughly $89 billion in 2012 on interest and fees for short-term loans, it said. That’s an average of $2,412 a household, or about 10% of the average poverty-line family’s annual income.

The inspector general’s office made an intriguing proposal: Have post offices partner with banks to offer basic financial services, such as check cashing and short-term loans, for a fraction of the cost that payday lenders charge.

The average U.S. payday loan of $375 costs consumers an average of $520 in interest alone over the life of the loan, the report said. A Postal Service loan for the same amount could cost just $48 in interest.

“If even one-tenth of the 12 million Americans who take out a payday loan each year got this hypothetical postal loan instead, they could collectively save more than half a billion dollars a year in fees and interest,” the report estimated.

This is a very good idea, and it should be explored by regulators and lawmakers. Many other countries have similar systems.

Moreover, the Postal Service already provides money orders and international money transfers. It’s not much of a stretch to expand such financial offerings to include other services.

As for companies like Think Finance and its Rise loans, your best bet may be to keep your distance.

Consumer Action’s Ridout said people facing money troubles would do better to explore a paycheck advance from their employer or even a cash advance on a credit card. Some credit unions also offer short-term loans.

“You’d still have to pay interest on these loans, but nowhere close to what you’d pay for a payday loan,” Ridout said. “A payday loan is the absolute worst alternative, short of going to the mob.”

And don’t forget: Rocky ends up broke and brain damaged by the end of the fifth “Rocky” movie. That’s not the kind of help anyone needs.


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Pa. budget-related bill hung up over payday loans | …

HARRISBURG — A budget-related bill is hung up in the Pennsylvania Legislature after the Senate on Wednesday stripped out a provision inserted by the House that suggested that House and Senate Republican leaders support the legalization of high-interest “payday” loans in Pennsylvania.

As a result, the bill, which otherwise guides how hundreds of millions of dollars in public money is to be spent, headed back to the House. There Republican leaders will determine how time-sensitive the bill is before recalling rank-and-file members to Harrisburg to vote on it, a spokesman said.

Senate Majority Leader Dominic Pileggi, R-Delaware, told reporters that the statement on payday lending was not true and had not been agreed to by Senate Republicans.

“I think words are important … and that language was inaccurate and should not be in” the bill, Pileggi said.

The fiscal year began Monday, and the House and Senate both recessed until Sept. 23.

The 57-page bill emerged publicly Monday evening, just before the Republican-controlled House approved it over Democratic opposition.

The House GOP spokesman, Steve Miskin, said he could not explain why the payday lending provision was in the bill or who inserted it. The Philadelphia Inquirer reported that a lobbyist for one payday lending company organized a golf-outing fundraiser in February for House Speaker Sam Smith, R-Jefferson, in Pebble Beach, Calif.

Many consumer groups oppose payday lending, and Pennsylvania has some of the nation’s strongest laws against payday lending, despite repeated efforts by financial services companies to loosen state laws and do business here.

The bill also directs $45 million to Philadelphia schools as part of a rescue package for the district, and delay of passage holds up $235 million in aid to higher education institutions, Gov. Tom Corbett’s office said.

Corbett, who has promised voters on-time budgets, signed the general appropriations bill in a $28.4 billion budget package on Sunday night. But the general appropriations bill just is one piece in a legislative package that authorizes the state’s spending.

In a statement Wednesday, Corbett asked legislative leaders “to resolve their differences and act responsibly” to send the bill to his desk for approval as soon as possible. His budget secretary, Charles Zogby, said failure to promptly pass the bill “could have significant implications on commonwealth spending and revenues.”


You're the Boss Blog: The Price of Bad Bookkeeping

Searching for Capital

A broker assesses the small-business lending market.

I recently had to place a small-business owner in a 27-percent annual-percentage rate cash-advance loan. The sad thing about his situation is that he might well have been eligible for a six-percent bank loan. What stood in his way was that he was six months behind in his bookkeeping, and it would take weeks for him to get his books in order.

Unfortunately, he needed the money right away. And there isn’t a reasonably priced lender out there who will lend to anyone with such outdated financials. It’s easy to look at this situation and think that this owner got what he deserved. But the reality is that it’s easy to slip on keeping up the books. I am guilty of it sometimes, too. When I get lazy, I keep an eye on the bank statement to make sure cash is coming out, and I save the bookkeeping for later.

I was reflecting on this recently, as I watched my 12-year-old son play basketball. While I confess to not understanding much about the game, I love the intensity and I love watching how he has grown and changed as a player over the years. And I see similarities between being a basketball player and an entrepreneur.

Perhaps most striking is how quickly you have to flip between playing offense and playing defense. At any moment, everything can change. In basketball, you wouldn’t try to get on the court if your shoes were untied. And in business, you really can’t play the game unless you have a core understanding of your financials and cash flow. Unfortunately, many small-business owners are so focused on their trade that they don’t give sufficient time or attention to their books.

And then the unexpected happens. Suddenly, you are playing defense, and you need those financial statements. If you are unprepared, it’s as bad as being on the basketball court with untied shoes. Every day, at my loan brokerage, we get phone calls from business owners who are dealing with something new and want to look to a loan for help. The state of their financial statements will often dictate what options are available and what rate they will have to pay.

It’s easy to pin the blame for the lack of access to credit on unreasonable bankers. And while I believe the banks share responsibility for the chaos of the last few years, some of that responsibility falls on the shoulders of entrepreneurs as well. Would you lend your own money to a business that had no real sense of where it stood financially? I certainly would not.

The issue of outdated bookkeeping is particularly important at this time of year, when we see many clients who are in the process of compiling their receipts and bank statements for the previous year so their accountants can prepare their tax returns. I recently met with an accountant, Andrew Berg, whose practice is small-business focused and who demands accountability from his clients.

“We require all clients to either have a good internal set of books or allow us to spend the time to get them clean,” Mr. Berg said. “We would not be willing to continue a relationship where the books aren’t progressing toward being clean. The only way to know for sure how the business is doing, and properly advise the client, is to have clean records with accurate information.”

A year ago, I hired a service to do a monthly reconciliation of my QuickBooks Online account. It’s not perfect, but I knew it would at least provide a check against my own chaotic, entrepreneurial mind.

How do you manage your books? How do you ensure that they are reasonably up to date and in-order? Have you paid a price when they were not?

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.


What You Need to Know About Merchant Cash Advances


Ami Kassar.Joe Maguire: “I haven’t lost my shirt yet.”

Searching for Capital

A broker assesses the small-business lending market.

Every morning, before I start my day, I stop for a cup of coffee and a bagel near my office. I have to choose between the local Dunkin’ Donuts franchise and Maguire’s, a boutique sandwich shop. Invariably, I pick the sandwich shop. I know the owner, Joe Maguire, and I like to support him. Also, his coffee is great.

Mr. Maguire has owned the shop for almost a year. He knows his customers by name. I often see him at the back of the store loading products onto the shelves after a trip to Costco or helping with a breakfast run.

“How are you doing, Joe?” I ask.

“Hanging tough, Ami,” he replies with a smile. “I’ve almost survived Year 1, and I haven’t lost my shirt yet!”

As I walk to work, I feel good about my choice as a consumer, but I don’t feel great about how our banking system is treating Mr. Maguire and millions of other small-business owners like him. The life of a small retailer is tough these days, and there are few signs that it’s getting easier.

What, for example, are Mr. Maguire’s options if he wants to get a loan to increase or expand his business? What happens if the radiator goes out and needs to be replaced, or if the oven blows up in the back of the kitchen? What happens if there is a bad winter and sales slow unexpectedly?

Mr. Maguire probably cannot turn to a bank. He has two strikes against him: he hasn’t been in business for at least two years, and, unless he is one of the lucky few with equity in their houses, he has no collateral for a loan. The bankers aren’t interested in the coffee urns or the coolers holding Snapple.

If Mr. Maguire is lucky and gets good advice, he may find one of the few banks that still offer unsecured Small Business Administration Express loans up to $50,000. The good news is that if you can get one of these loans, the rates are reasonable. The flip side is that Express can still take a few weeks and lots of paperwork, and Mr. Maguire may not have time to wait.

In this situation, he may well turn to one of the merchant cash advance lenders that are having a field day in today’s economy and that will promise Mr. Maguire unsecured money in just a few days. The lender will review Mr. Maguire’s recent merchant processing statements, bank statements or both, and then make what is often a tempting offer. In Mr. Maguire’s case, the offer might be an immediate $20,000 in exchange for $25,000 of future receipts.

It sounds tempting because the owners figure they can get $20,000 immediately, and it costs only $5,000. Think about it, though. The $5,000 is 25 percent of the amount they’re borrowing, and it’s actually even worse than that. Considering that most of these loans have to be paid back within six months, the actual interest rate may be more than 50 percent. That is a lot for any small-business owner to swallow. The lenders can get away with the high rates because they are careful not to call these transactions loans. They say they are buying a piece of a company’s future revenue.

If you are in the market, here are some things to consider:

Insist on seeing all of the fees upfront, and make sure you understand every one of them.

Make sure you understand the terms. Some of these loans involve a daily fixed amount taken from your account; others take a percentage of your credit card sales every day. A lender, for example, might demand 10 percent of your daily credit card receipts until you have paid back the agreed-upon amount. Don’t focus on the 10 percent figure — that is not the rate you are paying. I had to explain to one client that his effective interest rate was more than 90 percent.

Insist that the cash-advance company provide at least a projected annual percentage rate, or A.P.R., for your loan. This makes it much easier to compare the advance with other options. In addition to an S.B.A. Express loan, there may be business credit cards or equipment leases available to you at better rates.

Shop around. The cash-advance business is competitive. Make sure you’re getting the best possible rate.

The sad reality of today’s credit markets is that many small businesses have no choice but to consider these types of loans. In our work at MultiFunding, we often find that there is no better option. Still, whenever I am forced to put a client into one of these high-rate loans, I think about Mr. Maguire and the struggle he is facing to build his business, as well as his crew of four employees who count on him. Yes, the merchant cash advance lenders and the hedge funds that back many of them are filling a need in today’s market. But there has to be a better way.

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.


Phila. mob trial told how cash flowed upward

Deep in debt and unable to pay, Michael F. Orlando Jr. had a proposal. He asked his South Philadelphia loan shark if he might earn credit – and good will – by working as a street collector.

But the alleged shark, Damion Canalichio, nixed the idea. Orlando’s loan wasn’t his to forgive, Canalichio said. It belonged to “Stevie and Joey,” shorthand that Orlando took to mean reputed mob boss Joseph Ligambi and a lieutenant, Steve Mazzone.

“It’s Uncle Joe’s money?” Orlando asked in the 2002 conversation, recorded by the FBI.

“Yeah,” Canalichio said.

Federal prosecutors on Friday played that tape – and a handful of others – in a bid to persuade jurors that even the smaller loans were part of a larger organized gambling, extortion and loan-shark racket controlled by Ligambi and his associates, and that the money flowed up.

The testimony came on the second day of Orlando’s coming out as a government cooperator at the trial of Ligambi, Canalichio and five others. It was also his first day of cross-examination, and the lawyers pounced.

Under questioning from Ligambi’s lawyer, Orlando conceded that he was never beaten over his mounting debt, and that he never saw Canalichio or others on trial beat someone else who owed them money. He also agreed that tough talk and name-dropping is routine in South Philly, the false currency that people trade to get things done.

The lawyer, Edwin Jacobs Jr., suggested that Orlando deliberately inserted Ligambi’s name into the conversation that day, when Canalichio could have been referring to someone else named Joey.

“You were a cooperating witness for the government, and you knew darn well what they were trying to do was get something on tape that implicated Joe Ligambi,” Jacobs asserted.

Orlando denied it.

“I was not instructed to use his name, Uncle Joe,” he said “That’s not true.”

Often looking toward the defendants, Orlando, 45, has portrayed himself as tortured over the decision to cooperate.

Canalichio, he said, was “a dear friend.” Reputed underboss Joseph “Mousie” Massimino had his utmost respect, “treated me very well” and may have intervened to keep one particularly aggressive loan shark off his back.

But Orlando told jurors he felt like he had no choice after learning in 2001 that his half-brother had been wearing a wire and gathering evidence against mobsters, including when he paid off some of Orlando’s debts.

The defense lawyers have argued the case is built on fabrications from criminals trying to save themselves.

At the time he began cooperating, Orlando owed thousands of dollars to several sharks, loaned at 30 percent interest that compounded weekly.

“One of the reasons you had debt was because you’re a complete gambling degenerate, isn’t that right?” said Canalichio’s lawyer, Maggie Gross, delivering a point Orlando didn’t contest.

Jacobs noted that Orlando had admitted staging a fake auto accident, running a credit scam, selling drugs, and robbing a drug dealer – but that none of the proceeds went to the defendants who prosecutors contend controlled South Philadelphia crime.

He parsed the plea agreement, one that Orlando signed with prosecutors after being charged in the credit scheme almost a decade ago. He faced up to 16 months in prison under federal sentencing guidelines, but ended up getting probation.

“The bottom line is that for the bank fraud, drug dealing, the robbery, bogus auto accidents . . . The total time you did in jail is what, zero? Not a day in jail?” Jacobs asked.

“I put my life at risk just wearing a wire,” Orlando said. “I put my life at risk here today testifying. That’s enough to do. For the rest of my life I have to look over my shoulder.”

“But not one day in jail, right?” Jacobs shot back.

“Not one day in jail,” Orlando conceded, “but maybe a bullet in my head someday.”

Orlando has spent nearly a decade in the witness-protection program. He said he is married with children and a steady job in another state.

“Can you ever come back to Philadelphia?” Assistant U.S. Attorney John Han asked.

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