[jdlaw]

I'm currently experimenting with a Flat Fee @Buy Rate MCA program. Basically for Advances under $50K, we offer buy rate + a flat success fee (ach'd after funding) that's tiered
to the amount funded. Just like back in the mortgage days, homeowners cared less about fees than about rates. Merchant gets a better deal (or par at lower funding amounts)
and discounts as funding amount goes up. Right now only applies to my in-house deals, my outside reps deals are done traditional MCA due to pay outs on commission agreemetns.

[MCNetwork]

Buy rates vary pretty widely from funder to funder. Why do you think your buy rate + flat fee will be lower than my buy rate + 10 points?

[fundingsmbs]

eh, experienced brokers already tested selling deals at par pricing and just charging the merchant a PSF. In the end, it's just a different way to spin it, but, the cost of capital whether it's in rates or junk fees, it's all the same unless your flat fee is going to be low on payouts, which in turn, would cause a loss in submissions from brokers.

[abfunders]

Only the broker knows if there's 10-12 points built into an offer. The merchant doesn't have access to buy rates so he doesn't know what the wholesale/retail numbers are. The broker's job is to present the funding amount, the payback amount and the daily payment and just sell the deal. If there is a competing offer on the table, then you start lowering rates by playing good cop (you) and bad cop (your underwriter) until you're in position to win the deal. But you don't start your sales presentation by lopping off a bunch of points just because you feel uncomfortable or feel like you'll be undercut by someone else out there. There's no room for fear and self-limiting beliefs in this profession. These psychological hang ups will prevent you from being an effective salesperson and maximizing your commissions.

That's EXACTLY my point Archie. The job is not to "sell" the loan as is. The job is to make the client feel comfortable with the terms and the relationship. If you're "selling" the client telling them that you're on "their side," it's plain not true.

The "sales" job comes when you know that this actually is a decent option for the client that you have, they don't want to take it, and it's good. I think it's okay to rely on underwriters' experience that your client won't default.

[jdlaw]

Again, we're experimenting with the idea. Mostly it's a matter of perception. You offer the merchant funding at say 1.30 +10, gives the merchant a factor rate of 1.4,
I offer same with a 5-7% of funded amount (with fees built in on top of what he wants netted out) at 1.30.

Not that dissimilar from mortgage days when homeowners would prefer a loan with discount points and a lower rate vs 0 discount points at higher rate.
They focus on rate, not cost of funds (and they got GFE's and HUD-1's)

[fundingsmbs]

and on renewals, do you discount the flat fee or keep it the same?

[jdlaw]

and on renewals, do you discount the flat fee or keep it the same?

If renewed with the same funder or they are still and A/B tier merchant, yes or maybe even a discount.
Again, this is only for in-house originated deals vis marketing and fronters.

[jotucker1983]

Guys I think this is an excellent discussion , mind if I chime in?

Only the broker knows if there's 10-12 points built into an offer. The merchant doesn't have access to buy rates so he doesn't know what the wholesale/retail numbers are.

The only issue with this Archie is that we are now dealing with an open marketplace on the internet where many companies are properly quoting merchants based on their Paper Grade. Now if the merchant does absolutely no shopping whatsoever and only talks to you, well, you could get away with (for example) pricing A Paper as if it's C Paper, so you can make 10 - 15 points on it. But if that merchant shops this around, if he's A Paper he's going to see A Paper offers out there and ask you to either become more competitive or just mark you off the list altogether.

I think it's a good recommendation (especially with today's competitive market) to "assume" a merchant might shop and to price within his Paper Grade. So if you pre-qual him and he's clearly A Paper, he has no business getting an offer for a 6 month 1.25 - 1.30. He should be priced anywhere from 1.12 to 1.18.

I agree with some of this. We have lost deals when the sub broker insisted on highest commission possible and not what's best for the customer. It is usually always, max max max on funding size and commissions. The direct sales side of the business doesn't have this pressure. They can undercut brokers all day long with lower rates and retention is better.

Great point! This is also why a lot of the A and B Funders/Lenders are doing away or minimizing their external Broker Model in some capacity. They realize that properly pricing a merchant based on their Paper Grade leads not to just winning the initial deal, but offers a higher probability of a renewal stream of additional deals for the next 12 to 60 months.

Funders/Lenders with in-house agents are able to operate like this in a profitable manner, however, the external Broker shops (in which most of them are poorly ran) need to get 10 points on nearly every deal to even attempt to survive.

[Karen37a]

Again, we're experimenting with the idea. Mostly it's a matter of perception. You offer the merchant funding at say 1.30 +10, gives the merchant a factor rate of 1.4,
I offer same with a 5-7% of funded amount (with fees built in on top of what he wants netted out) at 1.30.

Not that dissimilar from mortgage days when homeowners would prefer a loan with discount points and a lower rate vs 0 discount points at higher rate.
They focus on rate, not cost of funds (and they got GFE's and HUD-1's)

We are moving the rates and fees around to a certain extent already...thats what the person who is placing the deals does

I already " pre sell" the merchant on what i believe they will fit into( with a range and no guarantees)...then find my funders who construct the option the way that i need it to get it done.

I know the algorithms and metrics ...so it usually works..if not I either beg ( half joking) or call back to say this isnt going to work out and this is why

The deals can blow up when something additional is found in the back end underwriting that I didn't see, so I try to get it all done on the front...not just shop out files ( which is a recipe for backdooring and stacking)

Most brokers sign on with 10 funders and shotgun it out

[MCNetwork]

The only issue with this Archie is that we are now dealing with an open marketplace on the internet where many companies are properly quoting merchants based on their Paper Grade. Now if the merchant does absolutely no shopping whatsoever and only talks to you, well, you could get away with (for example) pricing A Paper as if it's C Paper, so you can make 10 - 15 points on it. But if that merchant shops this around, if he's A Paper he's going to see A Paper offers out there and ask you to either become more competitive or just mark you off the list altogether.

John, most merchants don't have the faintest clue where to begin shopping around. Most don't know who On Deck Capital is. The first quote they receive may well be from Yellowstone and they'll think that's the factor rate they're entitled to. They won't know where else to turn to because there are 750 other companies that pop up when you do a Google search for "business loan" and 90% of them are brokers. It's a minefield out there and merchants don't want their private information circulating in cyberspace. It's our job to help them navigate through the process, come up with a variety of funding options, tie them up with a nice red ribbon and present them.

[Karen37a]

John, most merchants don't have the faintest clue where to begin shopping around. Most don't know who On Deck Capital is. The first quote they receive may well be from Yellowstone and they'll think that's the factor rate they're entitled to. They won't know where else to turn to because there are 750 other companies that pop up when you do a Google search for "business loan" and 90% of them are brokers. It's our job to help them navigate through the process.

yep...we are the quote machine( broker)...not some internet thing...control the merchant

[fundingsmbs]

I remember I heard that merchants who are priced above 1.40, have a higher tendency to default. That was about 2 years ago I heard that. That took into consideration only 1 position as well, not multiple positions all priced in the 1.40s. If this data is correct, than the buy rate model makes no sense if it surpasses that pricing cap risk. I am curious if the schedule A's will remain intact as the larger players gobble up the first position space and put pressure on the other first position funders to think through how they let brokers price deals.

For seconds, low credit, high risk, above doesnt really apply as they aren't competing for lowest rates. But the default aspect may play out as well.

If you look at a co like CAN, they have a retention program that pays 5bp. Can brokers live off 5 pts in this space? Or will brokers just steer to high risk, low credit and seconds as a necessary revenue model

[Karen37a]

I remember I heard that merchants who are priced above 1.40, have a higher tendency to default. That was about 2 years ago I heard that. That took into consideration only 1 position as well, not multiple positions all priced in the 1.40s. If this data is correct, than the buy rate model makes no sense if it surpasses that pricing cap risk. I am curious if the schedule A's will remain intact as the larger players gobble up the first position space and put pressure on the other first position funders to think through how they let brokers price deals.

For seconds, low credit, high risk, above doesnt really apply as they aren't competing for lowest rates. But the default aspect may play out as well.

If you look at a co like CAN, they have a retention program that pays 5bp. Can brokers live off 5 pts in this space? Or will brokers just steer to high risk, low credit and seconds as a necessary revenue model

A paper will be gobbled out...and we wont get 5 points... some will become a syndicator/ funder

Especially if regulation is handed down

[Mark24cap]

A paper will be gobbled out...and we wont get 5 points... some will become a syndicator/ funder

Especially if regulation is handed down

How soon do you see regulation coming - if at all?

[Karen37a]

How soon do you see regulation coming - if at all?

I have no clue

No matter what most brokers wil spin out and keep funding...just regulated

[abfunders]

John, most merchants don't have the faintest clue where to begin shopping around. Most don't know who On Deck Capital is. The first quote they receive may well be from Yellowstone and they'll think that's the factor rate they're entitled to. They won't know where else to turn to because there are 750 other companies that pop up when you do a Google search for "business loan" and 90% of them are brokers. It's our job to help them navigate through the process.

Archie's right about the many different options.
The problem is when you run into someone with an Amex or Paypal or Square (or up and coming Shopify) offer.... those things will be impossible to beat. Unless you "sell" them or "navigate" them to a different lender/offer that's worse off for them (they don't need more than 12 months, but you offer them 1.38 on less money (and "ignore" the fact that the PayPal deal is a 1.35 for more money - and then just focus on the payback "amount" is less), that's not called working for the client - that's called salesmanship.

[Emoney]

Guys I think this is an excellent discussion , mind if I chime in?



The only issue with this Archie is that we are now dealing with an open marketplace on the internet where many companies are properly quoting merchants based on their Paper Grade. Now if the merchant does absolutely no shopping whatsoever and only talks to you, well, you could get away with (for example) pricing A Paper as if it's C Paper, so you can make 10 - 15 points on it. But if that merchant shops this around, if he's A Paper he's going to see A Paper offers out there and ask you to either become more competitive or just mark you off the list altogether.

I think it's a good recommendation (especially with today's competitive market) to "assume" a merchant might shop and to price within his Paper Grade. So if you pre-qual him and he's clearly A Paper, he has no business getting an offer for a 6 month 1.25 - 1.30. He should be priced anywhere from 1.12 to 1.18.



Great point! This is also why a lot of the A and B Funders/Lenders are doing away or minimizing their external Broker Model in some capacity. They realize that properly pricing a merchant based on their Paper Grade leads not to just winning the initial deal, but offers a higher probability of a renewal stream of additional deals for the next 12 to 60 months.

Funders/Lenders with in-house agents are able to operate like this in a profitable manner, however, the external Broker shops (in which most of them are poorly ran) need to get 10 points on nearly every deal to even attempt to survive.

Didn't you leave the business? Just wondering....

[Karen37a]

Archie's right about the many different options.
The problem is when you run into someone with an Amex or Paypal or Square (or up and coming Shopify) offer.... those things will be impossible to beat. Unless you "sell" them or "navigate" them to a different lender/offer that's worse off for them (they don't need more than 12 months, but you offer them 1.38 on less money (and "ignore" the fact that the PayPal deal is a 1.35 for more money - and then just focus on the payback "amount" is less), that's not called working for the client - that's called salesmanship.

I would just tell the person...take that deal its the best thing for you ( if the numbers are correct at the final close) If not come back...if the dollar amount is negligible they will choose to work with a broker over automation all day, every day... if not you can possibly get the merchant back...if not....something called next

[MCNetwork]

You're right Micah. I can't compete with AMEX or Paypal on a rate basis. But if a merchant really needs $150K but AMEX is only offering $20,000 and I have a cash advance offer for $100,000, then I'll have the inside track. It's all about the situation.

[Karen37a]

You're right Micah. I can't compete with AMEX or Paypal on a rate basis. But if a merchant really needs $150K but AMEX is only offering $20,000 and I have a cash advance offer for $100,000, then I'll have the inside track. It's all about the situation.

yep

and thats why some "loans" never default...and the merchant pulls out to never need them anymore and salvation

"A Rolling Loan never gathers any loss"

Not some of our first rodeos

[abfunders]

You're right Micah. I can't compete with AMEX or Paypal on a rate basis. But if a merchant really needs $150K but AMEX is only offering $20,000 and I have a cash advance offer for $100,000, then I'll have the inside track. It's all about the situation.

Yes Archie, now that's very true. I have a $75,000 offer for a merchant as we speak, and he only wants $40,000. Amex is offering him more than $40,000, also. Amex wins.

So therefore, I turn to Lines of Credit to give him options that won't give him the full $40,000 now, but it's a LOC and no prepayment penalty, that's also a leg up and another relationship. Because I'm not working for him, and I'm not looking out for his best interest, I can maneuver easier.

[Michael I]

John, most merchants don't have the faintest clue where to begin shopping around. Most don't know who On Deck Capital is. The first quote they receive may well be from Yellowstone and they'll think that's the factor rate they're entitled to. They won't know where else to turn to because there are 750 other companies that pop up when you do a Google search for "business loan" and 90% of them are brokers. It's a minefield out there and merchants don't want their private information circulating in cyberspace. It's our job to help them navigate through the process, come up with a variety of funding options, tie them up with a nice red ribbon and present them.

archie according to him on deck is a bad lender as i did a deal this week where they gave him 40% of gross.

[Karen37a]

archie according to him on deck is a bad lender as i did a deal this week where they gave him 40% of gross.

lol

[Karen37a]

this is the bottom line. There are merchants who create a business ...in one year or two they might be looking for a cash advance ( never had a cash advance before) ...find them and call them and close them

or find the ones who fit into whatever your parameters are. No excuses ...you just have to do it

no excuse mentality... that is what it takes to make it in sales, especially 1099


Here is a book by Brian Tracy No Excuses The power of self-discipline

https://www.amazon.com/No-Excuses-Se.../dp/1593156324

[WestCoastFunding]

How soon do you see regulation coming - if at all?

On the federal level, 0% chance of regulation over next 1-3 years.

At the end of the day, it’s going to be quite hard to regulate something that is a business-to-Business transaction.