[JSL23]

As all of you know, not all Applications are created equal. Some are simple, Merchant deposits $50k-$60k monthly, 2 or 3 deposits a week, $2500+ average balance, 600+ credit, no outstanding liens, etc. The only difficulty is choosing the right Lender to send it to. Then there are the interesting ones. April-$100,000 in deposits, 0 NSF, but then in May the Merchant only deposits once a week totaling $25,000. Low 500 FICO, couple of smaller liens, semi risky industry.....you get the picture. Oh, and the Merchant won't take less than $50,000. That one just might be a bit challenging!!

For instances such as the 2nd example, what do you all think about charging a Due Diligence Fee, FULLY REFUNDABLE at the time of funding? Maybe $1000-$2000. Time is money after all, and more likely than not, you will be spending quite a bit of it on this file. You would also refund if you were just unable to get an approval. I know that some larger Investors in other areas do charge these types of fees quite commonly, its almost par for the course I hear. On a side note, it may also make the Merchant a bit more emotionally invested in the process if he/she has some "skin in the game."

Again, this would only be for the more complex submissions.....Thoughts?

[ERS]

Well, first thing to consider is that you can run afoul of the law if you are charging an upfront fee if you cant guarantee funding. Every State has different laws however my understanding is that most prohibit it. Your best bet is to consult an Attorney before attempting to do so..

[Sean Cash]

As all of you know, not all Applications are created equal. Some are simple, Merchant deposits $50k-$60k monthly, 2 or 3 deposits a week, $2500+ average balance, 600+ credit, no outstanding liens, etc. The only difficulty is choosing the right Lender to send it to. Then there are the interesting ones. April-$100,000 in deposits, 0 NSF, but then in May the Merchant only deposits once a week totaling $25,000. Low 500 FICO, couple of smaller liens, semi risky industry.....you get the picture. Oh, and the Merchant won't take less than $50,000. That one just might be a bit challenging!!

For instances such as the 2nd example, what do you all think about charging a Due Diligence Fee, FULLY REFUNDABLE at the time of funding? Maybe $1000-$2000. Time is money after all, and more likely than not, you will be spending quite a bit of it on this file. You would also refund if you were just unable to get an approval. I know that some larger Investors in other areas do charge these types of fees quite commonly, its almost par for the course I hear. On a side note, it may also make the Merchant a bit more emotionally invested in the process if he/she has some "skin in the game."

Again, this would only be for the more complex submissions.....Thoughts?

this is pretty much illegal. I would stay away from charging any fee upfront prior to being funded.

[JSL23]

I'm not even saying I am planning on doing it. It has crossed my mind though and I was wondering if anyone has tried or what people's thoughts were. I thought about the legality of it and if it is used as a quasi retainer, it would be completely legal, no? And while you are not guaranteeing funding, you are guaranteeing wiring the money back in the event of Funding or if you are unable to secure an offer. I probably should have said, this is all agreed to in writing.

All in all, I don't think I'd ever do it, legal or not but the concept does, theoretically at least make some sense.

[funding pro]

thumbs_down_gladiator.gif

[JSL23]

thumbs_down_gladiator.gif

http://dailyfunder.com/attachment.ph...&thumb=1&stc=1

[Jared_Weitz]

this is pretty much illegal. I would stay away from charging any fee upfront prior to being funded.

Is it? I know big companies in the space who charge a $2,500 DD fee which is included in their LOI to the merchant.

[CASHCASH]

Legality issues aside, I think you would probably lose business this way. So many people out there are paranoid of being scammed, so the fact that most companies don't charge any sort of upfront fee is usually (in my experience) a comfort to them. I think this would be a really effective way of losing those more "complex" clients.

[JSL23]

Legality issues aside, I think you would probably lose business this way. So many people out there are paranoid of being scammed, so the fact that most companies don't charge any sort of upfront fee is usually (in my experience) a comfort to them. I think this would be a really effective way of losing those more "complex" clients.

Agreed. That is ultimately the reason I would not do it.

An ISO of mine who does Credit Repair and Tax Prep charged someone $4000 for a year worth of Credit Monitoring and funding services. Where they went REALLY WRONG was they promised $150,000 before an offer was on the table, along with a 3 year term. Ultimately we did get them $92,000 and the ISO gave the money back but as you can imagine they were not happy. This was different than a DD fee, but like you said any upfront fee does lead to the feeling they are being scammed. If I was ever to do this it would be after I received the file, very specifically worded and thoroughly explained.

There are larger Investors who do this and it is not only accepted, but expected. I'm just not so sure the Owner of a "Mom & Pop shop" would understand. That could lead to opportunities lost and even the word to get out that you charge up front costs. Although I think the idea has merit and if you charge fees at the end once they are funded, there is nothing morally wrong with a DD/retained fee but the potential negatives outweigh the positives in practice.

[BB_Cooper]

Isn't this why funders have graduated fee schedules for larger deals? ISO's charging DD fees on top only seems like troubles for all-

Robert S Bloink
EVP of ISO Partnerships
Direct: 313-218-4663
Email: bb@cooperasset.com
Web: www.cooperasset.com

[Capital Stack]

I agree with Jared there is nothing illegal about it. Many other industries a DD applies why couldn't it here. But don't confuse this statement with whether I believe its a good idea.

Is it? I know big companies in the space who charge a $2,500 DD fee which is included in their LOI to the merchant.

[Chambo]

I'm not even saying I am planning on doing it. It has crossed my mind though and I was wondering if anyone has tried or what people's thoughts were. I thought about the legality of it and if it is used as a quasi retainer, it would be completely legal, no? And while you are not guaranteeing funding, you are guaranteeing wiring the money back in the event of Funding or if you are unable to secure an offer. I probably should have said, this is all agreed to in writing.

All in all, I don't think I'd ever do it, legal or not but the concept does, theoretically at least make some sense.

Well, have it UNCROSS your mind, because it is illegal

[Chambo]

Is it? I know big companies in the space who charge a $2,500 DD fee which is included in their LOI to the merchant.

There are also hundreds, if not thousands, of people selling cocaine....doesn't make it legal

[Sean Cash]

I agree with Jared there is nothing illegal about it. Many other industries a DD applies why couldn't it here. But don't confuse this statement with whether I believe its a good idea.

It is illegal. The FTC governs this. Many states have laws that overlap the federal law and they specifically mention small business.

https://www.google.com/url?sa=t&rct=...X-4EI1lDrOUaLA

[Capital Stack]

This article doesn't validate any point. If this particular broker had a success fee structure and did not succeed with the expected financing and had a refund clause as a such then he was obligated to do so. But this example of a rogue putz doesn't show anything. But would love to see anything from the FTC regarding governing DD fee's on non regulated products like equipment loans A/R financing commercials mortgages etc..

And again my statement is no way advocating this practice in MCA.

It is illegal. The FTC governs this. Many states have laws that overlap the federal law and they specifically mention small business.

https://www.google.com/url?sa=t&rct=...X-4EI1lDrOUaLA

[JSL23]

Well, have it UNCROSS your mind, because it is illegal

Wow, who pissed in your Frosted Flakes this morning Chambo?! I have clearly stated I am not going to do it, it is just an interesting thought. You should try having one sometime.

[cashguy]

Fela's this is just a discussion what this forum is meant for.

[JSL23]

http://www.businessfundingsecrets.co...iligence-fees/

http://www.tritoncapitaladvisory.com...ential-lender/

These are a couple of links, addressing the purpose of DD fees in commercial Lending. Legality is not even mentioned. If it is agreed upon and everything clearly explained in writing, I do not think it is illegal. The reason I'm choosing to not to do it is risking alienating some potential clients and potential negative word of mouth. I do get the reason why larger commercial Lenders and Commercial RE people do it though and was pondering doing the same. It is more suited for larger dollar amounts and deals that take months to come to fruition.

**It is also more interesting than another stacking discussion***

[Sean Cash]

http://www.businessfundingsecrets.co...iligence-fees/

**It is also more interesting than another stacking discussion***

lol, but wait I thought the name of this forum was dailystacker.com?

[Jared_Weitz]

http://www.businessfundingsecrets.co...iligence-fees/

http://www.tritoncapitaladvisory.com...ential-lender/

These are a couple of links, addressing the purpose of DD fees in commercial Lending. Legality is not even mentioned. If it is agreed upon and everything clearly explained in writing, I do not think it is illegal. The reason I'm choosing to not to do it is risking alienating some potential clients and potential negative word of mouth. I do get the reason why larger commercial Lenders and Commercial RE people do it though and was pondering doing the same. It is more suited for larger dollar amounts and deals that take months to come to fruition.

**It is also more interesting than another stacking discussion***

Many of the larger lenders do it to help debt numbers, increase profitability, or to help subsidize commissions paid out. The larger guys in the industry we are in who do it have low low rates. Others are doing it and have been for a while and calling it other things lol. Platform fee, ACH monitoring fee, etc...... Yes those fees get charged when the loan or advance closes but nevertheless the extra fees are there. Think about this for a second. Merchant A applies to an MCA guy and gets 100k on a 12 month 1.39 and pays 2.5% platform fee and nets 97,500. OR Merchant A goes to Lender A and gets 100k on a 12 month 1.13 and pays $2,500 upfront (refundable if denied). what's better for them? Again, I don't think it's good to do a DD fee or it isn't I'm just explaining what I see out there. I do know companies who have been around since the 1930's who are doing it successfully and have a huge book of clean business. I could also see how it hurts the merchant and ISO upfront possibly.

[Sean Cash]

Many of the larger lenders do it to help debt numbers, increase profitability, or to help subsidize commissions paid out. The larger guys in the industry we are in who do it have low low rates. Others are doing it and have been for a while and calling it other things lol. Platform fee, ACH monitoring fee, etc...... Yes those fees get charged when the loan or advance closes but nevertheless the extra fees are there. Think about this for a second. Merchant A applies to an MCA guy and gets 100k on a 12 month 1.39 and pays 2.5% platform fee and nets 97,500. OR Merchant A goes to Lender A and gets 100k on a 12 month 1.13 and pays $2,500 upfront (refundable if denied). what's better for them? Again, I don't think it's good to do a DD fee or it isn't I'm just explaining what I see out there. I do know companies who have been around since the 1930's who are doing it successfully and have a huge book of clean business. I could also see how it hurts the merchant and ISO upfront possibly.

Jared, I think we're talking about something else. We're talking about writing a check to a broker or funder with the hope that they'll try to get you approved for a loan.

[DirectMedia_Scott]

I think I can actually add some insight. As previously stated, the laws vary state by state. Certain states have very very strict policies. Others are rather lax. If you look back to the hay day of the for profit debt consolidation industry, charging upfront fees is what ultimately lead to its upheaval. Once legislation came to have no upfront fees, the amount of companies in that space went from 200+ to about 5 in the course of 2 months. The same is starting to happen in the student loan consolidation space.

If you are going to charge up front fees, you are likely going to be putting your self in a legal grey area. Though these fees will help lower your overall cost per acquisition, the proposition of a state legislator coming after you would likely enough of a deterrent given the businesses and industries this practice has crippled in the past.

[Capital Stack]

You know its a funny thing how this industry is evolving in the few years Ive been fortunate to see. First I saw conventional guys say the starter program was the bane of the industry only to see all the conventional players roll out their own starter. Then it was the origination fee's the brokers are charging which now a few years in are starting to become adopted like other industries. Today you even have MCA lenders (loan product) that have addendum to their merchant agreements for the brokers origination to be deducted from funding proceeds and paid direct to broker. Again like other industry's that are more mature.

And now the dailystacker discussion is the present hot topic. Who knows where this business is headed. Stacking might be a norm several years from now like starters.

We the MCA people need to act with the industry , merchant, and the whole in mind. Your always going to have some idiot ass......that will do really unscrupulous things in emerging business they'll end up getting weed out.

lol, but wait I thought the name of this forum was dailystacker.com?

[nwarshaw]

Seems like there are two types of fees being talked about here.

Pre Funding/Application Fee and Post Funding/service, closing, boarding, management fee.

The part that is illegal seems to be the pre funding fees, but even the SBA has a form that allows you to charge the borrower up to 2% direct for a consulting fee, on top of the fee the bank will give you for the referral. The document is signed by the borrow and part of the closing doc, and then it is up to you to collect that consulting fee direct.

The biggest issue is that a pre funding fee is/was associated with bad actors making promises of funding that may not actually come to fruition.
You could charge a post funding fee as long as the proper disclosure happens up front and is documented properly.

* I am no lawyer, my 2 cents, consult a lawyer before charging any fees*

[Jared_Weitz]

Jared, I think we're talking about something else. We're talking about writing a check to a broker or funder with the hope that they'll try to get you approved for a loan.

Yup, I'm talking about writing a check to a lender only for the approval of a loan.