Off the top of his head, Brad Woy can’t recall the precise date on which he reported to the Federal Correctional Institution in Fort Worth to serve a 32-month sentence for securities fraud. “It was maybe March 23,” he says. “Or the 29th. Either way, it was the end of March in 2006.” His recollection is also fuzzy on the exact date he got out. “I think it was March 7, 2007, or something,” Woy says. “It’s hard to say. That was all so long ago.”
And, yet, one date from around the same time springs immediately to mind for Woy: October 31, 2007. On that day, after having served his 11 months in prison, plus three months in a halfway house in Hutchins, and another three of home confinement for his role in what the SEC and Justice Department said was a scheme that defrauded 720 investors out of $2.4 million, Woy started a new business. Called Express Working Capital, the company was founded with a $50,000 investment from several of Woy’s longtime friends, people who still trusted him. “The first guy I called grew up on the same street that I did in Irving,” says Woy, a 40-year-old with a wide frame and a scruffy beard. “He didn’t even blink. He just wrote me a check.”
Four years later, that faith is being repaid. Express Working Capital is a rapidly growing company in a booming industry known as merchant cash advances. Ever since the housing bust hobbled traditional lenders, businesses that either can’t get loans from banks, or that don’t want to accept banks’ strict collateral requirements, are turning to companies like Woy’s to get capital. In return for the money, business owners have to give merchant cash advancers a cut of all their credit card sales. A huge cut. Sometimes up to 25 percent or more. That’s a big enough bite to have drawn the scrutiny of regulators and prompted Inc. magazine to advise its readers not to use such services.
At first blush, then, it sounds like a stretch when Woy says his company does business in “a fair and equitable manner.” Look at it this way: he is an ex-con who, since his release from federal prison, has been giving large amounts of cash to small-business owners, then requiring those business owners to pay him back in a short period of time at what are, effectively, high interest rates. That sounds a whole lot like a loan shark.
So why would some of Dallas’ more celebrated restaurateurs do business with this guy? Julienning vegetables is hard to do with two broken thumbs.
Call Brad Woy an ex-con if you want, but Stephan Pyles has another name for him: “Godsend.”
“After the economy crashed a couple years ago, our bank withdrew our credit line,” says the chef-owner of the eponymous downtown restaurant. “We were using the credit line as working capital. But it was converted to a loan.”
That meant Pyles suddenly had a new liability on his books at a time when the recession had put his upscale restaurant’s revenues on the skids. “It was painful,” he says. “We tried to go to other banks, and everyone who was receptive before to giving us a line of credit was suddenly telling us, ‘Well, today is a different day.’ ”
Money is tight. Loans are hard to come by. That’s one reason some of the biggest names in Dallas restaurants have turned to Woy’s Express Working Capital. More than half of Woy’s customers—a client base spread over 38 states—are bars and restaurants. A couple dozen are local. You probably know a lot of them. The Cedars Social, owned by Brian Williams, is a client. So, too, is Mi Piaci in North Dallas. As is Robert Colombo’s La Reve Group, which owns Trece, Villa-O, and Sfuzzi.
Although restaurants have had a hard time finding traditional bank funding, they make a good fit for merchant cash advance firms. Because the one thing that even marginally successful restaurants have plenty of is credit card transactions. A big place might ring up hundreds of thousands of dollars of transactions in a month. This is where Woy’s company and the 50 or so others like it in the country—including the industry’s giant, Georgia-based AdvanceMe—come in. Merchant cash advancers don’t loan money to businesses in a traditional sense. If they did, their interest rates would be subject to the same usury laws that banks must abide. Instead they purchase, at a discount, future credit card receivables from merchants. Then, after switching the merchant to a new credit card processor, they take a percentage of daily receipts until the account is settled.
A typical transaction might work like this: Woy buys $130,000 worth of future credit card receivables for $100,000, which he pays the merchant in a lump sum. Depending on the merchant’s history of credit card sales, Woy takes 12 to 15 percent of the daily credit card transactions. Unlike a loan, this arrangement sets no maturity date and no fixed payment. If sales slump, the merchant pays less each month. If the working capital from Woy helps sales grow, the merchant pays more.
For the merchant, the cost of that capital is steep. If it takes, say, six months to pay off that $130,000, the effective annual rate of this “loan” is 60 percent. (Of course, if it takes two years to settle the account, that effective annual rate is only 15 percent.) The upside for the merchant is that he gets cash fast—Woy did his first deal with Pyles in one week—and he doesn’t have to personally guarantee the transactions. No second mortgages, no putting up cars as collateral.
That upside is exactly what drew Mi Piaci owners Sonia and Brian Black, along with their partner, Dean McSherry, to Express Working Capital. After a recent inspirational trip to Italy, the Blacks wanted to overhaul the restaurant. “We could have renovated a little at a time out of cash flow,” McSherry says. “But we decided to do it all at once with money from Brad.” Today, the renovation is done, and the loan—er, credit card receivables purchase—has already been paid back.
Now Woy is exploring multiple deals with McSherry, who is CEO of Dallas-based Preferred Restaurant Management Group, a company that provides back-office functions to hundreds of restaurants nationwide and is partners with some of them. Back in the late ’90s, when Woy was, himself, briefly a partner in a restaurant—Lakewood’s now-defunct La Dolce Vita—McSherry and Woy played tennis every Saturday. As the years went on, they lost touch. But after Woy’s prison term, they reconnected when Woy approached McSherry about getting Express Working Capital in front of his restaurant clients. Before any deals were struck, though, Woy told McSherry about his legal trouble.
“I still remember the day he told me about it,” McSherry says. “He was very up front and told me he didn’t want that to be a problem for any of my clients. I really admire him for that. Today, if there’s going to be a deeper deal than just lending cash to my clients, he’ll also tell them directly.”
Here’s what Woy tells them: five years after graduating from SMU in 1992, he had parlayed a stint overseeing two online fantasy stock trading games that he’d run with his father, a charismatic former sports agent named Bucky, into a job as a consultant with an upstart online retailer called SmartMart, which was run by a man named Timothy McMurray. Just months later, McMurray left the company—and left Woy as the CEO and owner. Truthfully, it was only barely a going concern. But Woy saw potential. “I attempted to take the company public,” Woy says. “We were in negotiations with another company that wanted to buy SmartMart. But the internet bubble started to break, and the deal fell apart.” Some 720 investors who had pumped $2.4 million into SmartMart were left with nothing.
From the SEC’s perspective, Woy and McMurray had committed fraud by misrepresenting SmartMart’s potential and by misusing the cash collected. In 2002, Woy settled with the SEC, agreeing to relinquish his entire monetary gain from his time at SmartMart—$25,000. “That was it,” he says. “That was all I made. There was no benefit to me. I never bought a house or anything like that with any of the money.”
Still, one year later, while Woy was working as a strategy consultant with Accenture, the Justice Department obtained an indictment against him and McMurray—partly, Woy thinks, because McMurray had a past. McMurray had been convicted in a 1993 check-kiting scheme. “I was truthfully at a bad place, at a bad time, with a bad character,” Woy says. He fought the case for two years before accepting a plea deal for a 32-month prison term and $814,000 in civil and criminal penalties. (McMurray got 30 months and a bigger fine than Woy’s). “That was a really tough decision,” Woy says. “If I went to trial and was found guilty, I was looking at 5 to 10 years of being away. I was married at that time. We had a baby on the way. And it came down to a life decision. What did I want to risk? So I pled guilty. It was a great lesson for me. It taught me you have to be very, very cautious with whomever you do business with. And you need to be very transparent about how you do business.”
With that lesson learned and with a new business in mind, Woy turned to people he’d known his whole life. His neighborhood buddy. A fraternity brother he’d hired at one of his earliest jobs (a subprime auto financing company called the Brower Group). Longtime friend and indie record mogul John Kirtland, who runs Kirtland Records. His dad, Bucky. His brother, Jordan. With that group and investments from a few others, he stacked up the money he needed to advance to other businesses. He also got a substantial line of credit from Texas Capital Bank, a line that most of his restaurant clients can no longer access.
Woy’s business is risky. He has almost no recourse if a merchant goes out of business and defaults on a cash advance. To minimize the risk, Woy works only with established companies, ones that process at least $25,000 in credit card transactions per month. And he generally does deals in the $75,000-to-$100,000 range.
Also, to minimize that risk, Woy takes what he considers an ethical stand. He never does a deal that requires a merchant to use more than 12 percent of total cash flow to pay him back. Anything more than that, and the merchant would likely struggle to make payments. Ethical? Maybe. But it also makes good business sense. “We’ll never get rich on one client or one deal,” Woy says. “So we need to make every deal fair for all the parties involved. I never want to extend money to a business that they can’t pay us back.”
More than 85 percent of Express Working Capital’s clients come back for a second advance, once they’ve paid off their first. McSherry is among them. He took Woy’s cash and used it to buy Wynnwood, a catering company, and did the Mi Piaci deal, and now he’s using Woy’s money to help Santa Fe chef Eric di Stefano open a restaurant in Preston Center, with a second location to follow. “We could have done just one restaurant,” McSherry says. “But with Brad’s money, we realized we could do two.”
Pyles is also a repeat customer. He’s now leveraging Woy’s cash to fund a potential new project in Dallas. The reason Pyles is coming back: because Woy has taken the time to understand the way the chef does business and has structured unique deals for him. In other words, Pyles isn’t afraid that Brad Woy is going to break his thumbs. “Brad doesn’t feel like my banker,” Pyles says. “He feels like family.”
Write to firstname.lastname@example.org.