[HannahBernstein]

Hello everyone, I am new to posting on the forum but have been following this forum for some time. As I build my portfolio, these complicated questions arise: What are the real differences between renewals vs. add-ons? As an ISO which option should I offer aka which option makes me more money? How do I explain the difference to the merchant, money wise, or do I even have to explain?

-Hannah B.

[Chambo]

Hello everyone, I am new to posting on the forum but have been following this forum for some time. As I build my portfolio, these complicated questions arise: What are the real differences between renewals vs. add-ons? As an ISO which option should I offer aka which option makes me more money? How do I explain the difference to the merchant, money wise, or do I even have to explain?

-Hannah B.

The quick answer? Add-Ons are better for merchant, Refi's are better for fund and rep

[Finance1]

Here's the math.

Original funding of $10k w/ $12k payback:

Refi Renewal:

When a merchant gets down to a $5k balance, they renew back to $10k w/ $12k payback. Cost of $5k was 1.40 or $2k. Comp is varied based on funder. Some pay on new money only, some pay on full balance, some pay a reduced amount from the original. Some don't pay at all. LOL

Add on:

Merchant pays down to $5k and get's a 5k add on @ the original rate so the cost of the 5k is 1.20 or $1,000.

Refi renewals basically punish a good paying merchant with double the cost. Add ons are a much better deal.

While add ons may pay less comp, they can be very useful in protecting your book. Especially if you properly explain it to a merchant. Even if the competition is offering a better rate on refinancing an existing balance, the cost is almost always less in an add on scenario.

Ethically, add ons are always the way to go IMO.

[wesley poole]

I have a contract for a commercial job and my partner has a business with good banking balance what does he have to have to get 10,000

[wesley poole]

251-301-4785 call me

[MCNetwork]

I really don't know any funders that do add-ons. I only see add-ons done for good clients that are not yet eligible for renewal. Pretty much every funder steers merchants to do renewals and my merchants don't really seem to care. They just care about how much money they will net and whether they can afford the monthly payments.

[Jared_Weitz]

I really don't know any funders that do add-ons. I only see add-ons done for good clients that are not yet eligible for renewal. Pretty much every funder steers merchants to do renewals and my merchants don't really seem to care. They just care about how much money they will net and whether they can afford the monthly payments.

there are actually a few good funders out there still offering the option of either or. Of course a funder will qualify a merchant faster if they take the renewal but I do know some sensible funders still offering it. Some funders like an ODC for instance can't offer a re-up as they do not have the margins to do so.

[Finance1]

there are actually a few good funders out there still offering the option of either or. Of course a funder will qualify a merchant faster if they take the renewal but I do know some sensible funders still offering it. Some funders like an ODC for instance can't offer a re-up as they do not have the margins to do so.

Isn't an add on the same margin as the original deal though? I suppose OD needs to jack up returns on the existing book to keep defaults in line. They are thin compared to most.

[GRP Funding]

Isn't an add on the same margin as the original deal though? I suppose OD needs to jack up returns on the existing book to keep defaults in line. They are thin compared to most.

Not unless you increase the daily payment or holdback percentage. If you do an "add-on" for the merchant without increasing something, you're basically putting money on the street and paying commission on a deal you won't collect a penny on until the first balance is paid.

[Finance1]

Not unless you increase the daily payment or holdback percentage. If you do an "add-on" for the merchant without increasing something, you're basically putting money on the street and paying commission on a deal you won't collect a penny on until the first balance is paid.

Not sure I agree. Same time vs money. When doing an add on you are only re-lending money that has already been repaid. Capital exposure is the same as or decreases from the original deal unless you are re-upping for a larger amount. Doing add ons keeps turning the same money at the same return over the same period of time.

I can see the concern for funders when commission is involved though. That does add an additional layer of risk on the margins.

[GRP Funding]

Not sure I agree. Same time vs money. When doing an add on you are only re-lending money that has already been repaid. Capital exposure is the same as or decreases from the original deal unless you are re-upping for a larger amount. Doing add ons keeps turning the same money at the same return over the same period of time.

I can see the concern for funders when commission is involved though. That does add an additional layer of risk on the margins.

New deal, add-on, refinance - you're ALWAYS lending money that has already been repaid by someone. Add-ons just delay repayment of the additional funds. Unless the payment increases.

[Finance1]

New deal, add-on, refinance - you're ALWAYS lending money that has already been repaid by someone. Add-ons just delay repayment of the additional funds. Unless the payment increases.

I guess we'll just have to agree to disagree. Add ons and refi's have the same duration. Refi's just double the cost of the second round.

Maybe I'm missing something but doing a 6 month add on 3 months into the original deal pays at the same speed and doing a 6 month refi 3 months into the original deal. The only difference is the margins.

[GRP Funding]

I guess we'll just have to agree to disagree. Add ons and refi's have the same duration. Refi's just double the cost of the second round.

Maybe I'm missing something but doing a 6 month add on 3 months into the original deal pays at the same speed and doing a 6 month refi 3 months into the original deal. The only difference is the margins.

I agree that the duration is the same - but the add-on doesn't start to be repaid until the original balance is paid in full. So it's like giving someone a 6 month deal and only collecting in months 4-6. You're missing the opportunity to "turn" those funds into another deal. And another deal. And another deal. You lose more than just the economics on that one re-up. With that said, we're not against top ups. We do renewals here both ways. All depends on the customer's performance, balance, payment, amount requested, etc.

[MCNetwork]

I agree with GRP. A refi consummates the original deal and starts a fresh new deal. An add on still has a remaining balance that is at risk of default. .

[GRP Funding]

I agree with GRP. A refi consummates the original deal and starts a fresh new deal. An add on still has a remaining balance that is at risk of default. .

On a refi, the balance gets rolled into the new deal. The original deal might get marked as paid off in your system, but the merchant still has the money. The balance still has a risk of default until it's collected. The "factor on factor" should help cover that added layer of risk. The factor should also cover those funds being extended or started over.

[HannahBernstein]

Thanks Finance1, this is very helpful. The math for the Add on explanation makes perfect sense, however I am still confused on how you went from a 1.2 factor rate to a 1.4 factor rate.

Also, I don’t understand why company B would buy a refi deal from me, when they would only make money for the 5K? My understanding, from your example, is that Company B would pay back the 5K that is still owned by merchant to Company A and set up a brand new deal with the merchant. Based on my math, why would company B purchase this risky deal when they barely make 1K (5K at 1.2 factor rate)?

[HannahBernstein]

On a refi, the balance gets rolled into the new deal. The original deal might get marked as paid off in your system, but the merchant still has the money. The balance still has a risk of default until it's collected. The "factor on factor" should help cover that added layer of risk. The factor should also cover those funds being extended or started over.

What is factor on factor? Does that mean that the funder charges the merchant same factor twice on the new deal?

[GRP Funding]

What is factor on factor? Does that mean that the funder charges the merchant same factor twice on the new deal?

If the merchant has a $5k balance and refinances - the funding company would write a new $10k deal and use $5k to pay off the existing balance. The merchant would pocket the other $5k.

On your other question before that - If Company B was giving the merchant $20k and the merchant had a $10k balance with Company A - the merchant would end up getting $10k and Company A would get $10k. So Company B would still write it as a $20k deal and would get paid as so.