[WhoisKingsley]

Hi All,

I've noticed an alarming high rate of Auto Sales, Construction/Contractors (Home Based), Transportation (Trucking, Limo, etc.)

There are good lenders that can accommodate these files but here is the issue-

The files are getting funded at such a high rate from the (and I hate to call them this) "Bottom Feeder" lenders to get the file into the MCA game in hopes to stack with other lenders to show "Hey, X lender funded them- why can't you?"

The file gets stacked - The business gets hurt - the broker wants someone to "consolidate" or "payoff" the "bottom feeder" lender.

*With that said*
Here is the TIP: STOP being GREEDY and hurting your MERCHANTS! 1 out of every 10 files can get some kind of help (as in consolidating or paying off all or some of their balances) and hardly anyone wants to payoff the "bottom feeders" or sketchy funding companies because your going to go back and do it all over again!

So, why not do it right the first time around? Think of the big picture before you find funding and tell them the TRUTH! You will gain more respect and referrals (and reputation) by being honest. You give everyone in this industry a bad name and then you wonder why you can't get new business and ask questions about your Sales and Marketing tactics. Nothing is working because your approach is wrong and you "promise" the unknown.

Think about it...

[socalgav]

thank you for saying that , it needed to be said

[JSL23]

Very true!! I am now making it a point to warn my merchants against taking second positions. In my first 6-8 months doing this I was very lucky when it came time to renew someone and not have any problems. Lately though(say the last 3 months) I have come across multiple Merchants who have taken money multiple times since I had funded them! I have managed to do a consolidation for some of them, but the others have had to wait.

I always at least mentioned that they will be called and solicited, but now I really drive the point home. Have I done some 2nd position deals myself? Sure, but only if a payoff is out of the question or does not make sense to for the Merchant.

I have mentioned in the past that consolidations are a good way to get our clients back on the right track, but what does everyone think would slow down the stacking by these bottom feeders? (and these boiler rooms whose whole platform is "We WILL fund 3rd, 4th and 5th position ARE Bottom Feeders) I don't think stacking can be completely stopped, but how can we slow it down? Longer terms and larger approvals? Sounds great, but not too many banks are willing.... Thoughts?

[WhoisKingsley]

Here's the real question- would you put your own money on the line?

I know people who "lend" there own money on selected files but want others to fund the rest then get upset if the UW doesn't give what they THINK the merchant should get. In turn- the pile on two contracts at once and fund within a few days from each other- there is your 2nd and 3rd. Come 2 months later- the broker swings back trying to get a payoff but it doesn't work!

I would like to see numbers on renewals now vs. a year ago vs. two years ago from a lending company. I'm sure there is a major decline.

[bdshaw]

I also agree with Kingsley but taking it a step further I would include giving other financing options to the clients. Most commercial trucking and construction companies would do better with either factoring or a long term loan product. The broker/ISO will not make a quick buck up front but probably considerably more over the long term. Some of the construction companies will also offer a form of PO finance to help the contractor with start up costs.

[WhoisKingsley]

I actually know some brokers who won't offer certain products because they don't get paid enough... So your long term - good rates are sometimes not good enough for the "Greed Squad".

There are lessons that need to be learned across the board. I work with ISOs all day and if I do work with merchants it's ongoing. I make enough in quality than I do quantity because you build yourself to the right way!

[JSL23]

Yes, if I had hundreds of millions in Venture Capital at my disposal, I would do longer terms/larger approvals on a case by case basis. I would probably offer a weekly ACH as well.

BD makes a good point about setting up a Factoring arraignment after an initial funding which i have done a couple of times and probably should do more often.

Another issue that leads to stacking is that some of the Lenders make it a bit too tempting. When they tell someone you will only get 50% of the original commission on the NET AMOUNT FUNDED on renewals ..hey, I cant blame anyone for stacking on them or taking it to another shop before renewal time. Personally, I just wouldnt work with a Lender that does that, but for those that do, I honestly cant blame them. Loyalty is a two way street. I can totally understand them giving 75-80% on the TOTAL Amount for renewals/Refis but half...no way. In a situation like that it isnt greed on the Brokers part, that is on the Lender.

[Andy]

I have mentioned in the past that consolidations are a good way to get our clients back on the right track, but what does everyone think would slow down the stacking by these bottom feeders? (and these boiler rooms whose whole platform is "We WILL fund 3rd, 4th and 5th position ARE Bottom Feeders) I don't think stacking can be completely stopped, but how can we slow it down? Longer terms and larger approvals? Sounds great, but not too many banks are willing.... Thoughts?

Longer terms and larger approvals will not stop stacking. I would actually say that in some cases they have led to more stacking. The nature of cash advance is short term financing. What I observed over the past years as terms got longer (when I first started in cash advance it was only 6-8 month terms) , is more and more merchants want additional funds before they are eligible. It sounds great to the merchant that they got a 12 month or 18 month advance, but then in 3 or 4 months they want more, but there balance is still too high. So instead of waiting to renew, they take a second position

[Andy]

And to get back on topic, great tip !
I cannot say how many times I ve seen merchants with balances with a "bottom feeder" that could have gotten a much better deal from a A or B paper lender. Unfortunately the business owner may not have known there was other options, or they worked with a terrible ISO who did not know there were better funders, and better options, available to the merchant.
ISO's know your funders! Just because its construction, transportation etc doesn't mean it has to go to a bottom feeder! Each funding company has a different restricted list, there are A and B paper funders that will do these and more industries

[J.Celifarco]

the longer approvals have absolutely increased stacking I think

[Chambo]

Here's the real question- would you put your own money on the line?

I know people who "lend" there own money on selected files but want others to fund the rest then get upset if the UW doesn't give what they THINK the merchant should get. In turn- the pile on two contracts at once and fund within a few days from each other- there is your 2nd and 3rd. Come 2 months later- the broker swings back trying to get a payoff but it doesn't work!

I would like to see numbers on renewals now vs. a year ago vs. two years ago from a lending company. I'm sure there is a major decline.

Renewals? You think these cats are looking that far ahead? They are ONLY thinking of how much they can make RIGHT NOW

[JSL23]

the longer approvals have absolutely increased stacking I think

Okay, I can see your point on that- what if more Lenders were willing to do add-ons for a Merchant in good standing after 3-4 months on a 12 month term? I'm sure most Merchants would prefer that over paying a 2nd Lender a high daily ACH.

[J.Celifarco]

Okay, I can see your point on that- what if more Lenders were willing to do add-ons for a Merchant in good standing after 3-4 months on a 12 month term? I'm sure most Merchants would prefer that over paying a 2nd Lender a high daily ACH.

that would definitely reduce stacking, but it would take the banks who have the first positions to be more proactive in this..

Renewals? You think these cats are looking that far ahead? They are ONLY thinking of how much they can make RIGHT NOW

100% correct with this. They are looking to make a quick dollar.. I have seen people stack on deals that qualify for a refi just because it is less work and faster and easier

[Chambo]

Okay, I can see your point on that- what if more Lenders were willing to do add-ons for a Merchant in good standing after 3-4 months on a 12 month term? I'm sure most Merchants would prefer that over paying a 2nd Lender a high daily ACH.

Though this makes sense, this also cuts right into their bottom line of most of these funders. The double fee charge is highly coveted & not likely to be easily released by these funds (not to mention, all these small stackers/participators)

[WhoisKingsley]

Longer terms ABSOLUTELY does not stop stacking. EVERY "consolidation" that I have seen has a really good first at a lower rate for almost a year or more.
If paid more than 50%, most do not have a problem paying off IF that is the only balance (obvious).

What lenders DO NOT want to do is pay off a 2nd, 3rd, and beyond leaving the 1st and an open door to stack again - with the same lenders who just got paid

Renewals are getting funny. Some lenders have their own departments and some don't. With UCC filings and the mass amount of brokers buying them and attacking them, what is the actual amount of merchants that you will renew?

Also, I understand that everyone wants new ways to find new businesses that have never had a Capital Advance etc. BUT as soon as you get them, unless you are branding, marketing, and approaching differently while keeping contact and offering more of what they need (besides money) - what makes you think that someone else won't swoop in?

[JSL23]

Longer terms ABSOLUTELY does not stop stacking. EVERY "consolidation" that I have seen has a really good first at a lower rate for almost a year or more.
If paid more than 50%, most do not have a problem paying off IF that is the only balance (obvious).

What lenders DO NOT want to do is pay off a 2nd, 3rd, and beyond leaving the 1st and an open door to stack again - with the same lenders who just got paid

Renewals are getting funny. Some lenders have their own departments and some don't. With UCC filings and the mass amount of brokers buying them and attacking them, what is the actual amount of merchants that you will renew?

Also, I understand that everyone wants new ways to find new businesses that have never had a Capital Advance etc. BUT as soon as you get them, unless you are branding, marketing, and approaching differently while keeping contact and offering more of what they need (besides money) - what makes you think that someone else won't swoop in?

Someone will always try to swoop in, so yes, there is bound to be turnover. That is why it is good to have additional funding options at your disposal and moving forward I probably will be more active in that area.

I hear what you guys are saying about longer terms and agree 100% about them stacking MORE; when I first mentioned longer terms as a preventive measure I was thinking more like 7 months instead of 5 for the B paper types who aren't terrible but not good enough to qualify for a 12+ month term. That daily gets so high its almost as if they have to borrow from Peter to pay Paul.

One of the most common reason Merchants take additional funding is to "bridge the gap" from what they received to what they actually wanted(I know because that is the line I used a year ago when I started and was power dialing UCC Leads everyday). I realize every Lender would be closed in months if they started approving Merchants for 50% of their yearly gross or something nuts like that, but what about a slight increase across the board OR more of an industry wide willingness to do add-ons after a certain time frame. I know the banks prefer a Refi(and I guess most Brokers do as well) so maybe it could be limited to one add-on per Funding Round. Example: Someone was funded $40,000 @ a 1.36 10 month term. They feel the itch after 4 months. How much would giving them an extra $10,000 at a 1.38 and adding 2 months hurt? You can do a renewal or refi in 7-11 months instead of 6-9 and the $10k in between would give your client a little something in between rounds without them having to take a 2nd.

I would imagine any Lender willing to do this would be a little more strict about stacking(automatic $2500 fine, NAAMA blacklist, etc.) and the "bottom feeders" wouldn't really be able to compete. I apologize for the tangent, but just to put a bottom line on it, wouldn't these shady shops decrease if they were phased out by the strength of what we could offer? Just my $0.02...

[JayBallentine]

Regarding UCCs. As you know we own UCCJunkie.com. It's a "hobby" for us now but who knows. That being said there has been a precipitous year over year decline in the number of filings since 2009.

Companies like OnDeck file under CSC. Filings under CSC have remained mostly steady in the big 5 states over that time period.

This is slightly confounding because the industry is growing as it relates to first positions, while also stacking second positions - yet a decline in filings.

I know a big time sports team owner turned an industry boss into one of his employees via an acquisition recently, and rumors suggest that company only files in case of default.

Does that explain things?