[CO1]

Merchants that are stacking are getting more and more. The most I have seen at one time was 5 of them at once. And the guy was looking for another but instead we came up with a game plan that we bought everyone out and placed first but than by the midway the guy was up to 3 stacks again.

[Chambo]

It's a disaster waiting to implode

[CO1]

Yes; What i dont understand is. They are just digging up there own grave. I think after 2 that just greed now. And once they see green its hard for them to turn back.

[MCAVeteran]

and who are the culprits doing this? the broker AND.....

[CO1]

I think the Funders need to enforce the no stacking rule and so than the broker wouldnt be able to do anything but this industry is based on greed so who cares make that money!

[Finance1]

Stacking is here to stay until something big happens in court. We've had a few defaults because of stacking. Pearl has been our thorn.

IOU Central is in the stacking game. I just saw them approve a 12 month loan (@ 1.17) on top of a pretty large MCA. Their rule is the MCA must be seasoned 90 days and meet all other credit requirements.

The tough part is some merchants can afford a stack and some can't. There are some stackers out there that really care about ability to repay and then there are others that could care less. The funders that don't give a crap about the merchants are quite dangerous to the industry. But greed is a powerful motivator and there is plenty of opportunity.

Most stackers that put loans in place aren't really violating existing MCA contracts either. If they are fixed payment loans that aren't attached to receivables then there's no real enforceable violation of contract.

When a merchant asks for a renewal and the bank statements show a stack the safest thing to do is just string the merchant along as much as you can and recover as much (hopefully all) of the cash advance and part ways. Never even let on that you know about the stack. I tried it the other way and it didn't work well at all.

[Chambo]

"Most stackers that put loans in place aren't really violating existing MCA contracts either. If they are fixed payment loans that aren't attached to receivables then there's no real enforceable violation of contract."

Therein lies the problem. Aside from a couple companies that produce actual loans, ALL ACH deals are receivable deals, just disbursed in a fixed payment format.

[Sean Cash]

Most stackers that put loans in place aren't really violating existing MCA contracts either. If they are fixed payment loans that aren't attached to receivables then there's no real enforceable violation of contract.
all.

Why does everyone assume that a loan does not interfere with a purchase of future receivables? Most funders that buy receivables have contracts that state borrowing money, engaging in abnormal business transactions, or doing anything with any type of financial services company must be cleared with the funder first or it is an outright breach of contract.

A clear cut loan stacked on a clear cut purchase of future sales is a breach.

[Finance1]

Why does everyone assume that a loan does not interfere with a purchase of future receivables? Most funders that buy receivables have contracts that state borrowing money, engaging in abnormal business transactions, or doing anything with any type of financial services company must be cleared with the funder first or it is an outright breach of contract.

A clear cut loan stacked on a clear cut purchase of future sales is a breach.

But what can you really do about it? That's the crappy part. Our legal guys did the research and calling breach and taking it to court is a total lose-lose proposition on a performing advance. When a stack causes a default (it's happened to us twice) there is nothing left on the bone to really go after. You just write it off and move on. Filing a default judgment on a defunct business and broke owner isn't worth the legal expense unless it's a big balance. Even then, chances of recovery are pretty low.

We've been hoping that a big company like AdvanceMe or MCC goes after the stackers. It takes a good bit of resources to take another funder to court. Money wasted for smaller companies like mine.

There really aren't that many stackers that I know of. Pearl, Wide, IOU Central, TBB (they're very careful about affordability so I don't worry about them too much) and I'm sure there are some others as well. I just haven't run into any others.

Even though MCA contracts have provisions and restrictions about taking out additional financing it's pretty weak language in the real world. A court would take forever just figuring out what the heck we are doing let alone know who is right and wrong. It will come down to being legally able to prohibit a merchant from taking out financing and it would be case by case. It's unconventional. It would be like telling a merchant that they can't take out a bank line of credit even if they can qualify with a bank.

If I had to take a guess, there has been few if any court proceedings related to stacking. If there has been I"m sure they were expensive messes and not even worth the fight in the end.

[Sean Cash]

A lot of good info and points there Finance1. I have heard ISOs being put in ugly situations such as when their merchant goes out and applies with a stacking funder while they still have a balance. To defend themselves, the ISO brings the deal to the original funder for a renewal and it's denied. Now 2 things can happen. The ISO does nothing and lets his merchant stack with the competing funder, gets no commission out of it, and is screwed out of future renewals with the original funder because of the breach OR he does the stacking himself and brings the merchant to a stacking funder, thereby preserving the relationship, portfolio, and getting the commission.

The right thing to do may be to tell the merchant "you're not allowed to stack so wait until you're eligible for a renewal" but that doesn't work very often especially when the stacking funder is whispering in the merchant's ear saying "it doesn't matter. get funded today. it doesn't matter. get funded today. stack stack STACK STACK!!!"

[HeatherF]

I agree with you Sean, of course though we are a funder so we do not see the same type of opportunities that other ISO's see from the new trend in the industry. I know that it all goes down to the wording of the contract between the funder and the merchant to indicate the merchant is in breach. I think sometimes analogies always help people to understand a concept at a deeper level.... So here is mine on stacking.

You would not take a car(collateral) to a dealership and say i want to trade my car in but not pay off the car loan on it, instead i would like to keep two separate loan companies while you keep my car and i take the new one home. So now the car owner has the new car at home and as long as he pays that car loan his vehicle is not at risk for repo... but the vehicle he no longer has possession of he could care less because if he defaults on that car loan they no longer have anything to go after and even if they went and took from the car dealership... he still has a car to drive.

[Finance1]

A lot of good info and points there Finance1. I have heard ISOs being put in ugly situations such as when their merchant goes out and applies with a stacking funder while they still have a balance. To defend themselves, the ISO brings the deal to the original funder for a renewal and it's denied. Now 2 things can happen. The ISO does nothing and lets his merchant stack with the competing funder, gets no commission out of it, and is screwed out of future renewals with the original funder because of the breach OR he does the stacking himself and brings the merchant to a stacking funder, thereby preserving the relationship, portfolio, and getting the commission.

The right thing to do may be to tell the merchant "you're not allowed to stack so wait until you're eligible for a renewal" but that doesn't work very often especially when the stacking funder is whispering in the merchant's ear saying "it doesn't matter. get funded today. it doesn't matter. get funded today. stack stack STACK STACK!!!"

Merchants really aren't the problem or the solution. We can tell them whatever we want until we are blue in the face. The bottom line is they need money and they are going to get it if its available. Every time I deny a renewal because it's too early I will hit the merchant up once a month for a new bank statement saying they "might" be eligible. Good way to keep an eye out for stacking early in the game. If I see a stack I don't even say anything. It's time to string along and get paid back in full or as much as possible. There are plenty of deals out there to not try to hold onto one that is willing to stack.

I can't stress enough how conventional thinking or conventional analogies do not apply in this industry. High risk / high returns come with many pitfalls. Courts and black and white is something that should be avoided. The last thing any of us should root for is court cases and defined practices. The next step would be regulation. Is that where any of us want to go? The current admin in the white house has made it point blank clear that they will regulate any industry related to lending with high returns if they feel it's necessary. And if we ever get scrutinized the merchants will be the ones who get the benefit of the doubt. No my company or anyone else.

What's happened to the mortgage, insurance, and banking world since 08 is horrifying from a free market viewpoint. I've been in lending/finance since 99. I started with residential mortgage, went to commercial underwriting and asset sales and then went back to mortgage. I had a great shop. We were a corr banker and a broker. We specialized in A paper and not all the crazy crap. Didn't matter in the end though. I got pushed right out of business. Costs from regulation soared at the same time that margins were trimmed. Just brutal.

My main concern of stacking really isn't from a few extra defaults on our books. It's more about the increasing prevalence and the disregard for affordability. Jam up enough merchants with bad business practices and the voice will eventually be loud enough to attract some attention. Right now the MCA space is completely off the radar from a regulatory standpoint. Hardly anybody knows what it is let alone how it works. It needs to stay that way. We need to police ourselves because if we don't we're going to have a bunch of morons deciding what's best for us.

I think the irony is that the industry did an awesome job policing itself after the AdvanceMe and Rewards Network lawsuits. Rapid's problems in 09 tried to get some attention but quickly went away. The CA ambulance chasing seems to have quieted down from what I can tell. So now we have an industry with mostly favorable press, competition rewarding low risk merchants, and competition in the sales space that keep commissions fair and fee raping at a minimum. The MCA/Loan space as a whole has moved away from scrutiny and is becoming "accepted". But now we have to deal with bottom feeding stackers. I would feel a lot better if they just went away on their own. Doesn't look like that's going to happen. Greed is too powerful of a motivator.

[CO1]

every great empire has its fall

[Finance1]

^^

let's achieve great empire status first before it falls. We're still in the shadows with a crack in the door slowly growing letting the light in.

[CO1]

We have been in the makings since the beginning of time of the great AdvanceMe; to OnDeck to CapTap! We shall have been seen, heard, understood, and from that point our Capital will grow to new lengths were we shall have IRS, Capital Hill, Obama on sean caseys website yet again!

[isaacdstern]

Stacking and grasshoppers are practically main stream and accepted these days...what funders need to look out for I when an iso sends you a deal an once you fund it he sends it immediately to another shop to get it funded!

[CO1]

This is where ucc filings were helpful but since everyones blood in this industry is green a lot of amature funders dont realize and they stack as well and some do and dont really care and take a faith of leap and some just dont care because they are backed by banks, hedge funds, etc. So it doesnt matter its a write off so iso+funders+merchants= failer with luck.

[FactorExchange]

Stacking is not main stream nor is it acceptable to any lender who is being stacked upon. We invest in a very large number of advances with the lions share of the large lenders in the industry. At the risk of being overly blunt, stacking lenders quite frankly do not have the talent or a solid enough ISO program to bring in high quality new business. Greed.... plain and simple.

[Finance1]

Stacking is not main stream nor is it acceptable to any lender who is being stacked upon. We invest in a very large number of advances with the lions share of the large lenders in the industry. At the risk of being overly blunt, stacking lenders quite frankly do not have the talent or a solid enough ISO program to bring in high quality new business. Greed.... plain and simple.

I don't think it's related to talent or offerings. It's simply identification of opportunity within the space and motivation to profit from it. Is it bottom feeding? IMO it is but it's out there and not going away anytime soon. Merchants want or need more capital before they are renewable with the primary funder so the need is being met and profited on.

[FactorExchange]

I agree with you to a certain extent Finance1. The issue is that they are not moving the business to their portfolio properly. If a lender wants the business that badly, they should pay the original lender off completely through a refi. As the Factor Exchange is growing and our submission base expands the nature of the model is highly conducive to very deep lender communication. When we receive a file that can be categorized as a merchant attempting to stack (less than 30% paid ect.) we automatically reach out to the original lender with a series of warnings to do our best to block this kind of behavior. Often times a simple phone call can stop a stack in its tracks while maintaining a positive relationship with the merchant. In my opinion it is our responsibility as lenders to stop this kind of behavior through intelligence and good process vs. the saber rattling most us display when stacked upon.

[Chambo]

I agree with you to a certain extent Finance1. The issue is that they are not moving the business to their portfolio properly. If a lender wants the business that badly, they should pay the original lender off completely through a refi. As the Factor Exchange is growing and our submission base expands the nature of the model is highly conducive to very deep lender communication. When we receive a file that can be categorized as a merchant attempting to stack (less than 30% paid ect.) we automatically reach out to the original lender with a series of warnings to do our best to block this kind of behavior. Often times a simple phone call can stop a stack in its tracks while maintaining a positive relationship with the merchant. In my opinion it is our responsibility as lenders to stop this kind of behavior through intelligence and good process vs. the saber rattling most us display when stacked upon.

The only thing that is going to stop this practice is a big whopping lawsuit....a la California and AMI

[Finance1]

The only thing that is going to stop this practice is a big whopping lawsuit....a la California and AMI

That or fast hitting recession

[FactorExchange]

Unfortunately Chambo, the stacking lenders use the good old "unencumbered receivable" defense.

[Chambo]

Tortious Interference vs Unemcumbered Receivable.......let the battle begin

[Finance1]

Tortious Interference vs Unemcumbered Receivable.......let the battle begin

LOL

I think the battle will remain on the sidelines until somebody loses a chunk of change big enough to motivate the first punch.

We've had a couple defaults when a stack was involved. Hard to definitively say that the stack caused the default or the business was failing anyway. Just the fact that a client took out a stack @ 1.40 w/ 80 payments says a lot in itself. We weren't going to renew the MCA anyway. It was paying slow and the biz banks looked awfully weak. Stacks may just speed up the inevitable.

For those that do pay off, we won't renew the account if the biz owner stacked us anyway. The business being in bad shape and taking out a stack kind of go hand in hand.

IOU central needs to be watched. I just saw them fund a decent sized $60k fixed daily 12 month ACH on top of an AMI $150k advance. They seem to think that loans on top of advances don't infringe on any contracts. They even have an underwriting rule that if an MCA is in place it needs to have 90 day seasoning before they will fund a loan.