[upperlinecap]

Was hoping someone could enlighten me as to why funding providers enforce the "50%" rule when funding a new advance that is going to pay off a balance...

I keep running across merchants that were sold a 6-month advance at a 1.40 and now realize they overpaid and could qualify for an A or B paper lender. They don't really want/need more money but just want to pay off their remaining balance and have a lower daily payment.

For example, I have a merchant that received $60k at a 1.39 on approx 6-month deal. They are paying around $650 per day. Their balance is down to around $45k.

They would like to pay off the $45k with a new $45k advance but at a lower more reasonable rate--say 1.25 on a 6 month so daily payment could go down to approx $426 per day. However, funding providers all seem to say that they would have to qualify for 2x their balance, or $90,000 in this example. Why is this the case? Why does a funder insist on this? In many cases, the merchant can easily qualify for the $45k but not the $90k so is DQ'ed...why wouldn't the funder not want to do the deal at $45k and get a new reliable merchant on their paper?

Are there any funding providers out there that do NOT enforce this rule and allow 75% to 100% of proceeds to go towards payoff?

[GRP Funding]

I can't speak for everyone, but we've seen merchants perform better when they pocket a higher percentage of the funding.

[CreditGuy]

Requiring 50% cash out provides some protection against being the lender of last resort.

[blKC]

We don't require the merchant to net 50% on the funded amount. We look at each deal on a case by case basis to determine if it makes sense for the merchant and for us.

brandon@kalamatacapital.com

[L_LOTT_ARF]

We do not have a 50% paid rule. We'll put the merchant on a longer term, lower (weekly) payment loan program, and sometimes that means doing 100% refinances. If we're still able to meet the merchant's cash needs we'll do the deal.

[Jared_Weitz]

Was hoping someone could enlighten me as to why funding providers enforce the "50%" rule when funding a new advance that is going to pay off a balance...

I keep running across merchants that were sold a 6-month advance at a 1.40 and now realize they overpaid and could qualify for an A or B paper lender. They don't really want/need more money but just want to pay off their remaining balance and have a lower daily payment.

For example, I have a merchant that received $60k at a 1.39 on approx 6-month deal. They are paying around $650 per day. Their balance is down to around $45k.

They would like to pay off the $45k with a new $45k advance but at a lower more reasonable rate--say 1.25 on a 6 month so daily payment could go down to approx $426 per day. However, funding providers all seem to say that they would have to qualify for 2x their balance, or $90,000 in this example. Why is this the case? Why does a funder insist on this? In many cases, the merchant can easily qualify for the $45k but not the $90k so is DQ'ed...why wouldn't the funder not want to do the deal at $45k and get a new reliable merchant on their paper?

Are there any funding providers out there that do NOT enforce this rule and allow 75% to 100% of proceeds to go towards payoff?

Most require that rule for the deal to make sense. As an example, let's say you funded 100k to payback 138k. the merchant nets 30k only, how would they make 138k with 30k? It's a little tough so that's why most require them to net at least half.

[JSL23]

Payroll can do it if you're looking for someone to JUST pay off i believe. They've done it for clients of mine that were stacked.

[upperlinecap]

Who is Payroll?

[Chambo]

Was hoping someone could enlighten me as to why funding providers enforce the "50%" rule when funding a new advance that is going to pay off a balance...

I keep running across merchants that were sold a 6-month advance at a 1.40 and now realize they overpaid and could qualify for an A or B paper lender. They don't really want/need more money but just want to pay off their remaining balance and have a lower daily payment.

For example, I have a merchant that received $60k at a 1.39 on approx 6-month deal. They are paying around $650 per day. Their balance is down to around $45k.

They would like to pay off the $45k with a new $45k advance but at a lower more reasonable rate--say 1.25 on a 6 month so daily payment could go down to approx $426 per day. However, funding providers all seem to say that they would have to qualify for 2x their balance, or $90,000 in this example. Why is this the case? Why does a funder insist on this? In many cases, the merchant can easily qualify for the $45k but not the $90k so is DQ'ed...why wouldn't the funder not want to do the deal at $45k and get a new reliable merchant on their paper?

Are there any funding providers out there that do NOT enforce this rule and allow 75% to 100% of proceeds to go towards payoff?

This industry has implemented many of its rules and procedures through trial and error. The 50% rule applies because data has shown that the less a merchant nets, the higher the chance of default. Kind of hard to explain to a merchant why netting $3000, but paying $13,800 is actually a good deal.