[brokerCompany]

ANyone else have funders trying to get commission clawbacks even with everything going on?
Had some deals fund right before the virus and funders trying to get commissions back. And yes I know it is in the ISO agreement but seriously.

[ryan $]

ANyone else have funders trying to get commission clawbacks even with everything going on?
Had some deals fund right before the virus and funders trying to get commissions back. And yes I know it is in the ISO agreement but seriously.

Why should they not?

[Moshe73]

If you have a relationship with funders and did suffer a clawback see if they will pay you upon completion provided the merchant returns to normal payments and satisfies their advance in full.

At the end of the day a funder is not a charity. They reserve the right to recoup/protect their investment.

[Michael I]

ANyone else have funders trying to get commission clawbacks even with everything going on?
Had some deals fund right before the virus and funders trying to get commissions back. And yes I know it is in the ISO agreement but seriously.

A ton .but I do have the promise that if they get their full money regardless if it takes double the amount of time I will get it back

[KanjorskiPartners]

The concept of claw backs just doesn't make sense. A lender's risk is a lender's risk. If they underwrite properly, their risk should stand alone as their risk and not their referral partner's risk. Its just doesn't make sense to ever claw back referral partner commission (ie- marketing cost for deal flow). We never claw back. Our risk as a lender is our risk.

A claw back of commissions from a referral partner is like Walmart returning an Xbox to Microsoft and asking for a refund when a customer returns an Xbox to Walmart. Its just plain stupid.

[Steven_O]

Don't confuse fair-ness, with busi-ness...

[JasonBishop]

The concept of claw backs just doesn't make sense. A lender's risk is a lender's risk. If they underwrite properly, their risk should stand alone as their risk and not their referral partner's risk. Its just doesn't make sense to ever claw back referral partner commission (ie- marketing cost for deal flow). We never claw back. Our risk as a lender is our risk.

A claw back of commissions from a referral partner is like Walmart returning an Xbox to Microsoft and asking for a refund when a customer returns an Xbox to Walmart. Its just plain stupid.

Stefan,

I think this policy exists for a myriad of reasons and is a business decision. The funding companies/lenders and the investors are absorbing that risk. If they did not have this provision or policy in place there would be many bad actors coaching their merchants or misrepresenting the terms. This policy or provision is there to help prevent brokers from acting unscrupulously. This is my common sense perspective of this anyway.

[fundingsmbs]

mixed feelings about these policies depending on the ISO Agreement language. I have seen some that go out to 60 days where they can claw you back. There are some that say 1 missed payment means clawback. The vestors used the broker to originate the business so they could try and make a return on their money. The broker used their own money to market and acquire that customer. If the clawback occured because of no fault of the broker, should a broker really be on the hook 60 days post funding, or, if 1 missed payment occurs? There was an era where clawbacks where not even in ISO agreements. funders who have to rely heavily on broker business accepted that risk. they could very well have spent their money on building a direct salesforce and on their own marketing but realized the broker channel are free leads until something funds.

[WestCoastFunding]

My personal opinion on it is this: clawbacks are meant to prevent bad actors from taking advantage. It makes sense, too. But if a merchant is missing payments because their Chinese restaurant is shutdown, the broker shouldn’t be responsible. Yes, the language in the ISO agreement states they can, so many will clawback because the funders are desperate for every dollar they can legally get their hands on. They may claim they’ll return commissions later if paid back on slow payments, but good luck with that. 75% of these funders are going to disappear and never come back — no matter what they may think/say now. Sure, there will be a place for MCAs after this, but I expect the fintech guys to step in and crush many of the bigger MCA players.

[mrmrg]

75% of these funders are going to disappear and never come back — no matter what they may think/say now. Sure, there will be a place for MCAs after this, but I expect the fintech guys to step in and crush many of the bigger MCA players.

This

[fundingsmbs]

^ if this is true than they are going to offload all of their deals to other funders to liquidate what they can.

[KanjorskiPartners]

Understood. Although, proper underwriting and sound lending should consider all of that within the lending environment.

[KanjorskiPartners]

I agree with the 75%. There will be a ton of unwinds and fire sales from the capital providers behind the MCA companies. Still, MCA advances are unsustainable by businesses with 8 to 15%-ish EBIDTA. It only works as a reverse Ponzi scheme. As long as new advances come in, the merchant can survive, when they can't, like COVID, total destruction. Unsustainable financing products. Equity investors get paid less than MCA companies when merhcants calculate the real APR.

[fundingsmbs]

"As a potential recession lurks, FinTechs, traditional banks and other financial institutions (FIs) are tightening the reins on loans to small businesses and households with shaky credit, The Wall Street Journal reported Saturday

Access to credit is being tightened as the coronavirus forces mass shutdowns nationwide and around the world. Tens of thousands of households are in dire financial straits, sending more people turning to unsecured personal loans and credit cards for a quick bailout.

Bigger lenders — JPMorgan Chase, Bank of America, Capital One and Santander — are pouring over various borrowing rules and making revisions, informed sources told the WSJ. New loan requirements are being put into place, such as boosting income verification, lowering available credit on new cards and going after consumers with higher credit limits.

American Express has already started reeling in credit offers to smaller firms, according to the sources. Square and On Deck Capital are among the FinTechs planning to follow suit in the coming days.

Emails advertising personal and small business loans have dropped off, according to the market research firm Competiscan, the WSJ reported. It has been over a week since new email campaigns were sent by AmEx, Bank of America and JPMorgan.

Online small business loan broker Fundera has seen about a half-dozen lenders that use the service stop offering credit to potential new customers, said Fundera CEO Jared Hecht.

“Lenders have zero ideas how to assess risk in this environment,” Hecht told the WSJ. “There is no model that can predict today if I lend $1, will I get paid back?”

In the wake of the coronavirus, numerous FIs have indicated a willingness to help their own customers with loans and credit cards, such as deferring due dates or even upping spending limits.

But lenders are hesitant to extend credit to new people who might pose risks. Between pandemic-related job losses and the possibility of a recession looming, banks are worried the default rate on unsecured loans could skyrocket.

“Even people who applied [for credit] in the last two weeks are more vulnerable [now] than when they applied,” said Brian Riley, director of credit advisory services at Mercator Advisory Group.

In response to the coronavirus pandemic, five federal financial regulatory agencies — the Federal Reserve’s Board of Governors, Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., National Credit Union Administration and Office of the Comptroller of the Currency — have asked lenders to extend loans to individuals and small businesses."


the bold highlighted sentence really says it all

[WestCoastFunding]

“Lenders have zero ideas how to assess risk in this environment,” Hecht told the WSJ. “There is no model that can predict today if I lend $1, will I get paid back?”


This leaves one tool: SBA 7(a). The govt needs to dramatically change the banks’ capital requirements so that they can lend much more, quantitative easing on a massive scale, and 95% coverage of the 7(a) enhancement to eliminate nearly all the risk for the lender.

[ryan $]

The concept of claw backs just doesn't make sense. A lender's risk is a lender's risk. If they underwrite properly, their risk should stand alone as their risk and not their referral partner's risk. Its just doesn't make sense to ever claw back referral partner commission (ie- marketing cost for deal flow). We never claw back. Our risk as a lender is our risk.

A claw back of commissions from a referral partner is like Walmart returning an Xbox to Microsoft and asking for a refund when a customer returns an Xbox to Walmart. Its just plain stupid.

If a Car Salesmen sells a Car and said car is returned within the window.....Obv he isn't paid Commission.

Clawbacks are essential.

You mean to tell me your contract doesnt have a rescind period? If customer returns money you still pay full commish to broker? - All it would take is a scumbag savvy broker to bankrupt you

[KanjorskiPartners]

No we pay referral commission at closing. Our risk is our risk. Our credit agreements cover that and there is a minimum Amortization. We thoroughly underwrite deals also so its not apples-to-apples comparison.

[WestCoastFunding]

Understood. Although, proper underwriting and sound lending should consider all of that within the lending environment.

Here’s how underwriting has been done: “Oh, you received $100,000 over 16 months from OnDeck last month? Ok, I’ll give you 50,000 over 8 month on this 2nd position.”

[fundingsmbs]

do underwriters get their salaries reduced? what clawback occurs to the one extending the credit? brokers are not in the business of UW. unless its an egregious act by broker, its somewhat flawed. 30 days is acceptable if a merchant defaults but a cure period should be granted to broker to try and rectify first. anything past 30 days I think is not warranted. as one colleague said, if you cant sit at the big boys table and be willing to lose, don't be a lender.

[KanjorskiPartners]

EXCACTLY. Not one bit of underwriting. Simply "top line cash flow review" I like to call it.

[KanjorskiPartners]

If a lender can't pickup on a fraudulent borrower ahead of time or they fail to underwrite properly, that is on the lender, not the person or company that referred the deal. Brokers and ISOs and referral partners are MARKETERS and RELATIONSHIP MANAGERS, not lenders.

[SFC]

If a lender can't pickup on a fraudulent borrower ahead of time or they fail to underwrite properly, that is on the lender, not the person or company that referred the deal. Brokers and ISOs and referral partners are MARKETERS and RELATIONSHIP MANAGERS, not lenders.

You have clearly NEVER underwritten any type of file before.

Besides that, how do you account for brokers coaching merchants?

[fundingsmbs]

if you think your brokers are coaching merchants why would you work with brokers? again, go build a direct sales team if you can't handle the risks of brokers. the truth is, this was attempted and didn't work to well as direct reps are revolving doors who are here today gone within 90 days and you have to pay benefits, wages, etc and becomes a burden. this is why the broker model has stayed alive.

[J.Celifarco]

clawbacks arent going anywhere so this whole conversation is pointless