[SFC]

https://fortune.com/2022/03/23/is-a-...s-yield-curve/

With a recession possible around the corner...

Does anyone have good examples/advice of '08 or any other recessionary experience in MCA? More specifically what happens to merchant performance, demand for advances and the industry in general?

[MCA-VET]

firstly a recession can be looked at like a rubberband --- meaning a slight to moderate recession can increase the demand and be good/great for MCA but at some point just like a rubberband it can snap ...I think back in 07-09 it was not that the portfolios failed but many of the credit facilities pulled their lines which really complicated them from funding the good deals which would have been needed to maximize portfolio performance .....

[CHAJIR]

Totally true

[fundingsmbs]

if there is a hiccup in sales for a business, there is a hiccup in repayment whether it's a recession or regular times. Most deals today, unlike back in that era, are on fixed repayments weekly or daily, so, an influx of modifications and defaults would be outcome if things got really bad. Many companies strengthened their merchant contracts by going from an MCA to a true loan product with strong language of PGs and collection options. If you have an MCA contract, by design, your obligated to true up if sales go down, whereas, folks using web bank, fin wise, celtic etc, do not have to do this, but, it's in their best interest to work w/merchants to get back something.

[Jason Sterling]

Our portfolio performed very well through the 2008 recession and Covid due to the fact we exclusively fund credit card split deals. By taking a fixed daily percent of the credit card sales it allows the merchants payments to fluctuate based on their sales volume.
The ACH product kills merchants in downturns because that fixed payment keeps coming out no matter what.

*Also we never double dip our merchants on renewals. This is a huge advantage and one of the main reasons we have such high renewal rates.

[fundingsmbs]

^ true but vestors didn't like the ebb and flow uncertainty and merchants changing processors etc. You may be unique to the issues back than but everyone went to a fixed repayment model for vestors to see when they could get money back

[Jason Sterling]

^ true but vestors didn't like the ebb and flow uncertainty and merchants changing processors etc. You may be unique to the issues back than but everyone went to a fixed repayment model for vestors to see when they could get money back

Luckily we don't have investors or lines of credit so those issues don't affect us. We absolutely had some longer than expected turns and the occasional default but it never put us in a bad place.

[MCA-VET]

Our portfolio performed very well through the 2008 recession and Covid due to the fact we exclusively fund credit card split deals. By taking a fixed daily percent of the credit card sales it allows the merchants payments to fluctuate based on their sales volume.
The ACH product kills merchants in downturns because that fixed payment keeps coming out no matter what.

*Also we never double dip our merchants on renewals. This is a huge advantage and one of the main reasons we have such high renewal rates.

All funders then had credit card split model and many got slaughtered in 2008. (So your companies success would not be directly credited to CC splits).

[Fundkite Egor]

As @fundingsmbs mentioned,

credit card splits aren't the only option here, we reconcile every merchant we fund taking a holdback percentage of all revenue not just credit card sales.

So we're funding your usual 1st through 4th positions without fixed payments or any mention of lockboxes, processors, or credit card statements.

[Jason Sterling]

All funders then had credit card split model and many got slaughtered in 2008. (So your companies success would not be directly credited to CC splits).

I would argue many of the lenders were slaughtered due to very poor underwriting practices.

[MCA-VET]

I would argue many of the lenders were slaughtered due to very poor underwriting practices.

Restaurants and construction made up a big chunk of the portfolios and both came to a screeching halt.

[MCA-VET]

The R word is starting to show its face.....with first major bank to ....
https://www.cnn.com/2022/04/26/econo...ank/index.html

[MCA-VET]

Wells Fargo said it a earlier than Deutsche https://markets.businessinsider.com/...s-fargo-2022-3

The term has been buzzing for a while...however Fargo put it at 50% ....Deutsch bank is first to use the word MAJOR Recession" for our industry recession means banks tighten lending which usually forces merchants to seek out alternative options and MCA does fall into that category -- question is will the superA who fund over 12Month-18month cut back on funding -- time will tell ... how all this will playout.....

[MCA-VET]

Just 3 weeks before, Deutsche said "mild recession", so check back in 3 weeks to see what they change their minds to, since they obv dont know
https://www.cnn.com/2022/04/05/busin...omy/index.html

Market also took major hit today on recession fears..... https://www.yahoo.com/now/stocks-sin...184011387.html

[ryanh]

My take for a Recession would be:
- Defaults up
- Higher demand
- Less supply
- Funders hold a ton of leverage on pricing, brokers should do well.
- Brokers should expect to be have less upsell ability, maybe 6-8 max range.

Mid to high risk funders would probably thrive.

So those 18-24 month offers that are becoming more frequent will disappear. Back to the tried and true 5-8 month deals w BR’s in the 3’s.

A paper portfolios will get there lined pulled or at least risk from liquidity providers will be minimized.