[FlexibleCapitalSolutions]

There seems to be a lot of confusion among "MCA" funders about Reconciliation. Currently working a file where a the client is looking to refi an MCA. Per the normal terms of that merchant agreement - the merchant requested Reconciliation to better reflect the agreed upon % remittance. Their sales went down, and because the remittance is a fixed %, they wanted to adjust their payments downward. It's basically a variable ACH deal that works just like the old CC split deals - the absolute $ amount paid varies, because it's a fixed % tied to sales (which of course, vary).

The deal was hard denied by three "MCA" funders because they said they "do not fund merchants who change their payment", as if that's a bad thing (btw, the merchant never missed a payment...)

Seems like funders are either stubborn, have garbage Counsel, or just refuse to adjust their UW...

On one end, MCA Funders should unequivocally abide by the reconciliation clauses. On the other end, a funder has the right to deny funding for any reason, including the fact that the payments were lowered, even if it does not constitute an event of default. This stance is justified for a couple of reasons. Firstly, if the merchant decides to invoke the reconciliation provisions, they are likely experiencing difficulties in maintaining payments as it is. Therefore, why would a funder want to support a deal that is already facing issues? Secondly, which aligns with the first point, if the payments were reduced in accordance with revenue fluctuations, it indicates that the business is on a downward trend, which is also not attractive. Funders are under no obligation to provide additional funding, regardless of the assertions made by the lawsuits you are citing.

Also, in my opinion, funders should take note that you are teaching merchants to contest funder decisions by citing lawsuits, which you may deem justified, but could deter partnerships due to the potential for headaches. The conclusions you appear to be reaching, and if communicated to merchants, are likely to result in problematic merchants. There are ways to inform merchants of their rights without referencing such contentious instances. But that's just my opinion.