[Funder Mark]

I have a merchant that just got a renewal from Pearl. He had a previous balance of $9k, and got an offer $25k, with a payback of $36,250. However, after paying off the previous balance, he is receiving $16k, but paying back the full $36,250. Unless my math is very wrong here, that is a 100% factor rate.

Why exactly would a merchant take this kind of money, in this position? Considering the full cost of the money, he will get a better rate at the loanshark down the block!!

[Zach]

Double-Dipping... almost every funder uses this strategy to increase yield.

Brutal, isn't it?

[Funder Mark]

As Chambo says, its practices like this that will make the Feds come up with massive regulations, and with the 100% effective rate here, if the guy would defualt and go to jury, its hard to imagine him losing. The guy is paying 100% on the money in 6 months!!

[PRIMO CASH]

I have a merchant that just got a renewal from Pearl. He had a previous balance of $9k, and got an offer $25k, with a payback of $36,250. However, after paying off the previous balance, he is receiving $16k, but paying back the full $36,250. Unless my math is very wrong here, that is a 100% factor rate.

Why exactly would a merchant take this kind of money, in this position? Considering the full cost of the money, he will get a better rate at the loanshark down the block!!

Well he may be receiving $16k after paying off old balance but he owes that old balance at whatever rate it was initially, either way. So yes he got $16k cash but they also paid off the $9k balance. Same thing if they just let the $9k run while receiving $16k cash. I get what you are saying but that $9k didn't just disappear. The difference is a couple grand or so. Question is, how bad does he need those $16k cash?

[stat]

I have a merchant that just got a renewal from Pearl. He had a previous balance of $9k, and got an offer $25k, with a payback of $36,250. However, after paying off the previous balance, he is receiving $16k, but paying back the full $36,250. Unless my math is very wrong here, that is a 100% factor rate.

Why exactly would a merchant take this kind of money, in this position? Considering the full cost of the money, he will get a better rate at the loanshark down the block!!

You are forgetting the fact that he still has a $9k balance, he is paying interest twice on the 9K but the effective rate on the new money is 45%, which is still very high but since you work with Pearl you should have known the type of rates to expect from them. The double interest on the 9K owed is the cost of getting additional funds before his full term is up. If he doesnt have to have the funds right away he can wait until he pays off the 9k balance and have the 25k at 45% flat.

[Sean Cash]

As Chambo says, its practices like this that will make the Feds come up with massive regulations, and with the 100% effective rate here, if the guy would defualt and go to jury, its hard to imagine him losing. The guy is paying 100% on the money in 6 months!!

Defaults like this have already been litigated hundreds, if not thousands of times. MCA companies typically win with ease. Double dips are pretty much an industry standard practice. There can be some very expensive money in the MCA industry. If it's too expensive for you or your merchants, then don't do it. These financing solutions are not for everyone.

[ADiamond]

I have a merchant that just got a renewal from Pearl. He had a previous balance of $9k, and got an offer $25k, with a payback of $36,250. However, after paying off the previous balance, he is receiving $16k, but paying back the full $36,250. Unless my math is very wrong here, that is a 100% factor rate.

Why exactly would a merchant take this kind of money, in this position? Considering the full cost of the money, he will get a better rate at the loanshark down the block!!

it's actually a 1.45 factor. The merchant is receiving $25k overall, one way or another he would have to pay back his $9k balance.

[Chambo]

that's why the contracts are carefully worded as SALES & PURCHASE agreements, not LOANS. If you are selling it as a loan, you are doing it wrong.

"Mr. Jones, we get the money wholesale at X & sell it you retail at Y. Much like you do with yur customers. You don't charge them interest on every sale, but you do have a markup"

[JSL23]

Sometimes it makes sense. There have been times where the Merchant owed (as an example) $15,000 on an existing advance with a 1.39 factor, got them $45,000 at 1.32 and paid off their balance, netting them $30,000. They did have to pay back the $15,000 twice, but at a better rate, lower daily and they were still able to get enough $$ to cover their needs WITHOUT needing to get a 2nd position.
Good deal for the Merchant. I really think it is one of those case by case scenarios.

Add-ons are nice though....when the Merchant does not have to pay back the remaining balance and they simply give them an additional $__________ and extend the term. I see more and more Lenders doing this for their good clients as time goes on.