I agree, in principle with everything you just said....however why pass up on the business if you can get a consolidation done!! I've taken the hard role before with Merchants and it has worked a couple of times, telling them they have to wait it out....while a couple of times it has not. I also have paid off 3 advances...Merchant was able to net 50%. Sometimes they learn their lesson, sometimes they go ahead and do it again.

My opinion is that we have to self regulate. The stackers won't go away....too much money at stake. Maybe, if everyone could somehow all agree and make it official that no more than a total of, say 15%(as an example) of the Merchant's yearly gross can be pulled it will allow "responsible stacking" (best expression i could think of). Example:

John Smith grosses $100,000/year...his remaining balance is $9,000....someone can do a $6000 2nd which would cap it at $15,000 total.

Obviously more stipulations would have to go into it to make that type of situation feasible, but this way everyone would walk away happy; the 1st position shops, the stacker and a consolidation would remain viable...




Quote Originally Posted by jotucker1983 View Post
The Choice,

I run into this on a consistent basis. So it typically goes like this:

- The merchant has 4 advances stacked on top of each other.

- The balances total about $65,000 and the merchant's gross annual sales are about $500,000. The four advances are all on short terms with total payments coming out at about $800 a day, so if he keeps going he will be done in about three and a half months.

- But do you know why he's having a hard time? The advances are taking over 40% of his monthly gross. He has vendors to pay, suppliers to pay, employees to pay, he has to pay himself, etc. So what happens? He starts bouncing checks, NSFs rack up, overdrafts rack up, negative balance days rack up, etc.

- So after sending me 3 months of statements with NSFs and Negative Days everywhere, $65k in total balances and only about $500k in gross annual sales if that much, the merchant says, "Hey John, can 1st Capital give me one loan to pay off all 4 of these advances so I can just make one payment? The payments are killing me John."

What do I tell the merchant? I tell him there's absolutely nothing we can do until he survives the mess that these companies have put him in. He's going to have to survive paying 40% plus of his gross sales to cash advance companies, survive a massive amount of NSFs and Overdrafts, and hopefully don't go out of business in the process. THEN, after we see that he paid off the advances, he's going to have to go a solid 60 days with little NSFs (under 5 - 10 a month) so we can see that his cashflow is back on track and that the business is back on track as well. Only THEN can we do something.

The moral of the story is, merchants and lenders need to stop going pass a 2nd position. A 2nd position, while we can still argue violates the contract on the 1st position, a lot of times a 1st position lender will not fund a merchant until they are 60% - 65% paid down, so doing a small 2nd position for a merchant that's at 40% paid down should be enough to get the merchant some side capital without causing cashflow issues.

Anything beyond that is excessive and needs to stop before the excessive advances put these merchants out of business, and Regulators come a calling.