[staten]

I agree with Jeremy! 24 months = funding company out of business soon!

Almost as ridiculous as rapid's new program of having merchant's net only 40%. Contrary to popular opinion on this board-smart PE is avoiding this sector. Customer acquisition costs are far too prohibitive (case in point is rapid's willingness to take on this crazy risk in order to acquire customers-did they not learn anything from the last time they almost went under?). Race to bottom-mca underwriting teams have no business and/or brain power to underwrite deals >$200k and longer than 6 months. Great time to be a broker and a fully secured lender to MCA -but the equity will blow up.

[jbrown]

Almost as ridiculous as rapid's new program of having merchant's net only 40%. Contrary to popular opinion on this board-smart PE is avoiding this sector. Customer acquisition costs are far too prohibitive (case in point is rapid's willingness to take on this crazy risk in order to acquire customers-did they not learn anything from the last time they almost went under?). Race to bottom-mca underwriting teams have no business and/or brain power to underwrite deals >$200k and longer than 6 months. Great time to be a broker and a fully secured lender to MCA -but the equity will blow up.

Accel Partners, Google Ventures, Peter Thiel and the like are certainly "smart-PE." Not sure I understand your point Noob. What side of the business are you on, funder or ISO? What exactly are you advocating for?

[staten]

Accel Partners, Google Ventures, Peter Thiel and the like are certainly "smart-PE." Not sure I understand your point Noob. What side of the business are you on, funder or ISO? What exactly are you advocating for?

Peter Thiel lost 80% of his fortune shorting the market-so i will beg to differ. Regardless-I'm not advocating anything-just stating the obvious that the economics of the business model simply do not work with the cost of acquisition. I am very interested in why you think it is prudent from a risk perspective for a merchant to net only 40% from a new financing.

[MCAVeteran]

SeanBash- We would have to have Nigel Morris address your concern for 24 months. They are going to more traditional financing so these 6 month turns are not going to be the norm for certain businesses needing financing..

http://www.capitalaccessnetwork.com/...of-capital-acc

[Sean Cash]

If you're going to do 2 year deals, do monthly payments and there must absolutely be a PG. If the business fails, the owner needs to be fully liable. The loan should be reported to the credit bureaus every month. Even still, I wouldn't do a 2 year deal. A friend of mine works for a large bank and it's their internal policy to decline 100% of all retail and restaurant loan applications they get, no exceptions. It's not because the loans are too small, but because the default rate for brick and mortar businesses is so high. I asked if they would do a 50 location restaurant chain with each location having been in business for 10 years, the owner having a million in the bank, no debt, and 800 credit. He said ABSOLUTELY NOT.

Lending Club does personal loans for 3-5 years. What do you think about that?

[jbrown]

If you're going to do 2 year deals, do monthly payments and there must absolutely be a PG. If the business fails, the owner needs to be fully liable. The loan should be reported to the credit bureaus every month. Even still, I wouldn't do a 2 year deal. A friend of mine works for a large bank and it's their internal policy to decline 100% of all retail and restaurant loan applications they get, no exceptions. It's not because the loans are too small, but because the default rate for brick and mortar businesses is so high. I asked if they would do a 50 location restaurant chain with each location having been in business for 10 years, the owner having a million in the bank, no debt, and 800 credit. He said ABSOLUTELY NOT.

Lending Club does personal loans for 3-5 years. What do you think about that?

I like this thread. Some very good thoughts here. The problem with a PG is that without collateral, it doesn't mean a lot. We all know what it means to chase a PG on a small business owner who has closed their business. I can sell anyone lots of that paper at pennies on the dollar if anyone is interested.

[Sean Cash]

I should also mention that another friend of mine underwrites credit card applications (I thought computers do the approving but apparently this bank does them all manually). They won't approve credit cards for small business owners and I don't mean credit cards in the business's name, but in the owner's name. I asked how that could be and he said because people that own a business are far more likely to default on debt than a typical consumer. These wasn't his opinion, but rather the banks position. I can't finger the name of the bank here but they are big.

The consensus I hear in the banking world is that small business owners default much too often for anyone to get comfortable with.

[jbrown]

Peter Thiel lost 80% of his fortune shorting the market-so i will beg to differ. Regardless-I'm not advocating anything-just stating the obvious that the economics of the business model simply do not work with the cost of acquisition. I am very interested in why you think it is prudent from a risk perspective for a merchant to net only 40% from a new financing.

I wasn't aware of that about Thiel, but he clearly is brilliant and is a co-founder of PayPal and the first outside investor in Facebook, so he can spot a trend. Not to debate the point however.

Your point is fair about the risk perspective of a merchant netting only 40% on a new financing. It is a 3 month test and we are calculating that the previous payment history shows good character and will offset the risk of potential desperation and the willingness to pay "fee on fee." It is also better for the merchant in our opinion than the merchant who stacks and impacts their cash flow severely with multiple daily ACH's. Ask me at the end of the year if we are still doing it

[Capital Stack]

this is a great discussion.

[staten]

I wasn't aware of that about Thiel, but he clearly is brilliant and is a co-founder of PayPal and the first outside investor in Facebook, so he can spot a trend. Not to debate the point however.

Your point is fair about the risk perspective of a merchant netting only 40% on a new financing. It is a 3 month test and we are calculating that the previous payment history shows good character and will offset the risk of potential desperation and the willingness to pay "fee on fee." It is also better for the merchant in our opinion than the merchant who stacks and impacts their cash flow severely with multiple daily ACH's. Ask me at the end of the year if we are still doing it

Well-I do wish you the best of luck. But take a step back and realize that you are actually now reduced to comparing merchants you would like in your portfolio to merchants who stack with ach's. This is what the high acquisition costs have done to the standards of funders. Hopefully I am wrong and merchants who net 40% after a refi (probably closer to 30-35% with fees) will have a default rate less than 10%. But I am not a fan of those odds.