[helpinghand]

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...

[helpinghand]

BTW, LG Funding lawsuit makes it clear that Reconciliation is 1/3 factors courts use to determine if there is a "transfer of risk" which is the essence of whether a deal is a loan or not. But the term itself seems to confuse a lot of funders... what gives?

[Olderguy]

When I worked for a direct lender, 6 missed or reduced payments was considered a default. Wasn't any reconcilation.

[mca2150]

The truth is that it's just much more convenient for funders to treat MCAs as if reconciliation doesn't exist. Many funders want the originally calculated payments to run the entire term, and any adjustment to that becomes a hassle and not worth their time. There is also a benefit to merchant ignorance when dealing with MCAs, and a merchant who is even aware of reconciliation can cause issues and drag out the "term". The chances of actual negative consequences from ignoring the reconciliation clause are very small and not worth considering for all but the largest funders.

[JoeCon123]

I funded a deal in October for 90k with a pretty well known lender ( i should say the name because of how it was handled but i wont bc its not my style). 3 weeks into it the merchant had an issue where his revenue was down. He went through his contract and saw a section in regards to reconciliation that basically said if he shows them his revenue is down they have to lower his payments. So they did. But they took a claw back from me. The merchant never missed a payment and until this day is still paying them weekly. They say they'll pay me when he's PIF ( it was a year term, so on lowered payments it could take 2 years) or when he goes back on regular payments and makes 4 payments in a row. I thought i was fcked over in that situation but whatever.

[DailyCloser]

Well also, lets remember, that same contract that has a "specified percentage" likely has a NO STACKING policy..

So if the problem here is "Why wont other funders provide a 2nd position+ because the merchant took advantage of the reconolition policy" then I think you should also consider all other aspects of the contracts as well.

End of the day, a modification is a modification. If they reduce payments because sales are low, why should another funder believe they can afford an additonal payment?

[benkhay]

Well also, lets remember, that same contract that has a "specified percentage" likely has a NO STACKING policy..

So if the problem here is "Why wont other funders provide a 2nd position+ because the merchant took advantage of the reconolition policy" then I think you should also consider all other aspects of the contracts as well.

End of the day, a modification is a modification. If they reduce payments because sales are low, why should another funder believe they can afford an additonal payment?

100%%%!!

[helpinghand]

The landmark lawsuits are crystal clear (see LG Funding).

And merchants really can't game the system because a) they only allowed to invoke every 30 days... and b) with access to banks, plaid, A/R requests, etc, funders can see real revenue.

If revenue declines, and they didn't anticipate that, and the merchant reconciles down, isn't that part of the game? That's the whole point of an advance right...

I think this is important because ISOs have to be clear about what they're selling.

[helpinghand]

Yes great point. Should have clarified it was a refinancing, not a stack.

Well also, lets remember, that same contract that has a "specified percentage" likely has a NO STACKING policy..

So if the problem here is "Why wont other funders provide a 2nd position+ because the merchant took advantage of the reconolition policy" then I think you should also consider all other aspects of the contracts as well.

End of the day, a modification is a modification. If they reduce payments because sales are low, why should another funder believe they can afford an additonal payment?

[mistamca]

When I worked for a direct lender, 6 missed or reduced payments was considered a default. Wasn't any reconcilation.

Well ya, you worked for a lender. Why would there be a reconciliation? Remit % doesnt exist in loans

[Yankeeman07]

Well also, lets remember, that same contract that has a "specified percentage" likely has a NO STACKING policy..

So if the problem here is "Why wont other funders provide a 2nd position+ because the merchant took advantage of the reconolition policy" then I think you should also consider all other aspects of the contracts as well.

End of the day, a modification is a modification. If they reduce payments because sales are low, why should another funder believe they can afford an additonal payment?

They cannot, but, Bokers and Funders continue to push 2, 3rd, up to 9 positions, which is insane.

[harvey]

you cant force a lender to refinance / give merchant additional funding

you just sound like a pissed off iso who cant monetize a deal anymore- and rather claim that its the funders fault

[MCAColllector]

MCA attorney, here.

Funders should absolutely be abiding by their reconciliation provisions. If they’re not doing that in practice, they are setting themselves up to be unsuccessful in their claim that their agreements are not loans subject to usury laws.

That said, if a merchant is on reduced payments because they took advantage of the reconciliation provision with a funder already, that tells any subsequent funders that this merchant may be over leveraged (or headed there).

Taking advantage of the reconciliation provision says that they have had a downturn in business. Who is to say that there won’t be another one? I think a funder that refuses to fund someone that has had to reduce payments on a current advance, is doing the prudent thing. There are so many allegations in this industry that funders do not care about the financial health of these businesses. The fact that they would turn down funding a business that had to reduce payments is probably in that merchant’s best interest at the end of the day.

Just my two cents, as someone who only sees the downside of these deals lol

[Inquisitive]

Agree with MCAcollector here. It is the merchants right to request reconciliation and by the sounds of it the funder understood fully what it means being that they actually reconciled. However you cannot force a funder to put more money into a deal that they believe will not be successful long term. It has nothing to do with not understanding how reconciliation works or what it is. It sucks you weren’t able to refi the guy with them but for the lower risk guys 1000% they shouldn’t fund this guy again.

[abfunders]

This is exactly why tl credit cards splits and the FundKite "ACH split" are the only true ways to treat reconciliation correctly. For good or bad, independent of more or less dollars, same weekly or daily % withholding.

[NotALoan]

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...

Why are you trying to get the merchant refinanced through a different funder? Why isn't the original funder refinancing them?

FYI this doesn't sound like a refinance, this sounds like you're trying to get one funder to pay off another funder who the merchant already lowered payments on...

[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.