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  1. #1

    Is the Cost Really Lower For a Business Loan vs Merchant Advance.....

    So, the business loan companies are advertising lower rates and trainings that their product is superior and is cheaper than merchant advances. In order to see if this is the case, we grabbed a recent contract from a customer who borrowed $100,000 from a business loan company- one of the larger ones who market to ISOs often.

    The Loan of $100,000: The interest rate over 12 months was $19,118.87 so essentially a 1.19/12. However, let's discuss the FEES that were on contract that a customer had to pay as well:

    1- Origination Fee: $2,500
    2- Platform Fee: $4,000
    3- LOAN GUARANTY FEE: $12,110.13 (is this an upsell verbiage on contracts for brokers commission??)
    4- Loan Servicing Fee: $771

    TOTAL INTEREST PLUS FEES: $36,000 to borrow $100,000 over 12 months. Essentially, a 1.36/12.

    Now, with buy rates and premium rates and rates in general being lowered at most mid to large mca companies for better paper, this same merchant could have borrowed $100,000 at a 1.29/12 to 1.32/12 for example- So, $29,000-$32,000 max fees for $100,000.

    Doesnt look like the stories being told to public that these loans are CHEAPER to merchants. Because these loans are adding UPSELLS to brokers, most brokers are upselling merchants up to 12-13 points above rates and in turn, the effective costs are MORE than a MCA!

    THE ONLY BENEFIT for a loan in above example is IF they wanted a fixed daily payment- That was it- They accept cc sales to warrant a $100K or more advance-

    Ask the questions folks- these loans are not cheap when you add the interest, fees, plus UPSELLS by brokers.....

  2. #2
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    Only the origination fee is an additional fee. All the other stuff was already built into the 1.19 factor. It's broken up this way because 19% interest would be considered usurious on a bank loan. The actual funded amount is $97,500. The real factor is 1.22 which is pretty damn good. However, I do work with MCA companies that offer a 12 month 1.28 for premium deals which is comparable to ACH loans.
    Last edited by MCNetwork; 11-14-2012 at 03:26 PM.

  3. #3
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    MCAVet, I think I know which company you are talking about and this tactic is not really that new. In my opinion it seems like whenever someone discovers a pitch or competitive edge that is working really well, everyone starts doing it, and then it doesn't work as well anymore.

    Funny that after years of "decreasing factor rates," we are still inevitably working in the land of 1.30 and up. Unsecured business financing simply cannot be made much cheaper unless you're running a non-profit, get a government backed guarantee, or are willing to work exclusively with merchants that have FICOs above 740.

    Years ago, the one-up pitch on the competition was to say that you were a direct funder and to convince the merchant that whoever else they were dealing with was a broker. The goal was to convince them that brokers would inevitably charge massive broker fees, even if you were actually a broker yourself. Once everyone started saying they were a direct funder, that line didn't work anymore. Now with widespread syndication, most of us really are direct funders in some way.

    Merchants seem to shop around now more than ever. If all parties are going to charge a 1.36, then maybe it makes sense to pitch a 1.19 + FEES even if the net result is the same. If it works and the merchant understands it, then why not sell it this way?

    Eventually everyone's going to do this until we see ads for 1.09 factor rates with another .27 added on in fees. Inevitably, we end up back in the land of 1.30+.

    I am guessing the problem you have with this MCAVet is that merchants are being misled into thinking they're getting something a lot cheaper, when in fact it's really just the same semi-expensive money. The problem in the short run with marketing a 1.36 outright is that your competition will work to convince your prospects that you will be adding .27 onto your deals just as they are adding that layer of costs onto their 1.09s.

    Your competition will say: "He says it's only 1.36 but after his fees, it'll be 1.63 (1.36 +.27) net! Don't believe him when he says there's no added platform fees and guaranty fees. Everyone does this."

    The competitive evolution to win in this business is to separate yourself from the others. The tactic of pretending to seriously undercut rates, while painting the competition as a bunch of sharks WORKS! Many ISOs and funders are spending more on acquiring leads than they can afford. A good phone personality isn't going to win enough deals.

    You can be mad at the wool being pulled down over the public's eyes, but as long as there is full disclosure of the rates, fees, costs, it's legal and they agree to it, then what can you really do? Merchants will end up paying 1.30+ at the end of the day.

    Now might be a good time to announce your own 1.19 program, 1.09 program, or heck 1.04 program + FEES. Make sure the customers understand the costs, go win some deals, and make the next guy mad that you are cheating and making him look super expensive.

    Two years from now, everyone will go back to saying they offer a 1.36, either that or it will be a negative factor rate + FEES.

  4. #4
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    Quote Originally Posted by MCAVeteran View Post
    Doesnt look like the stories being told to public that these loans are CHEAPER to merchants.
    It doesn't look like the stories that are being told it and plays right into the hands of the companies offering these loans. I agree with sean for the most part.

  5. #5
    MCNETWORK- it isnt just origination fees. we have a copy of the contract and on the 1st page it outlines all the fees as mentioned above. the interest was $19,118.87, the additonal $16,881.13 was only $2500 origination fees the rest were addtl fees. Its quite simple- lawyers got together and created a loophole to usury and charging FEES outlined on contract bypasses the fees being interest rates. I hope merchants realize when comparing both products they undertsand this and we stop the lipstick on the pig marketing that has plagued this business from inception. Its a loan with mca costs... maybe marginal savings at best when you talk about brokers being the selling channel as nobody is going to sell those loans at buy rate levels, rather + 8-12 points raising the cost of the actual loan. Now, if you cut out the broker, 12 points are saved on cost to merchants....But, thats where all the business or most derives so....lets play fair here and call it what it is. the only value is someone who wants fixed payments M-F or doesnt accept cc sales IMO

    $97,500 Disbursement Amount-
    $136,000 Total Repayment Amount (interest + FEES)
    Last edited by MCAVeteran; 11-14-2012 at 10:18 PM.

  6. #6
    Veteran Reputation points: 134971 Chambo's Avatar
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    and THAT is why more and more of these MCA's are developing their own sales forces. They can pay the rep 5-6 points and save money

  7. #7
    Chambo- this is true, BUT, the marketing drives in the business and an inside sales rep team can only do so much. The resellers have the relationships with customers already and trust built to do business and any funder I have seen hire their own direct sales force or inside sales force has reverted back to ISO channels sooner or later for business. The footprint a direct sales force can cover is limited. If you add bankcard channels, brokers, referral partners, etc- much much wider base of business exists. Its really a quagmire. You want the business but have to pay to acquire the business and in turn merchants have to pay higher rates due to commissions the channels who bring you the business need to continue to market and bring you more business. You really need both channels and the funders who have that in place seem to be doing well as long as you do not have channel conflicts and keep things fair.

  8. #8
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by MCAVeteran View Post
    You want the business but have to pay to acquire the business
    Yes, you can pay the rep less but you have way higher marketing costs.

    I have seen internal sales reps charge higher factor rates and higher closing costs than brokers. Internal reps can upsell too and the end result for the merchant is the same no matter what channel they go through. They can go through 10 middle men and still be charged more by an internal rep who has incentives to drive up the price as high as he can.

  9. #9
    Veteran Reputation points: 134971 Chambo's Avatar
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    that's why NLF, TBB, SFS, I'm sure Rapid, and others with their own in house staff offer merchants cheaper "standard facotrs" than the outside reps. Also a competitive edge in the price wars

  10. #10
    Veteran Reputation points: 134971 Chambo's Avatar
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    Or you can just be like AMI and not pay anything on renewals

  11. #11
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    Quote Originally Posted by Chambo View Post
    Or you can just be like AMI and not pay anything on renewals
    they don't pay ANYTHING on renewals????

  12. #12
    renewals def are the franchise of this industry. most companies pay less on renewals. those who dont pay less today, will one day , as every company makes up for initial deal payouts on renewals. watch out for ads that pay alot on initial deal to acquire the business and pay you a fraction on renewals- examine those schedule A's closely or you may have a surprise down the road when your customer wants addtl cash- many do-

    AMI does pay on renewals- maybe not as high as some want, but they pay. Not sure how their sister company new logic pays out on renewals- until you fund your own deals, there will always be a debate on renewals and what is a fair payout company by company-

  13. #13
    Veteran Reputation points: 134971 Chambo's Avatar
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    Quote Originally Posted by miked View Post
    they don't pay ANYTHING on renewals????
    They pay zero up front and all residual. They also take control of the deal

  14. #14
    that is how they built their empire. renewals....franchise of the business....

  15. #15
    Veteran Reputation points: 134971 Chambo's Avatar
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    Quote Originally Posted by MCAVeteran View Post
    that is how they built their empire. renewals....franchise of the business....
    So you are saying you agree with this method? No commish up[ front on renewals, no control for rep?

  16. #16
    Senior Member Reputation points: 148 Capital Stack's Avatar
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    agreed with chambo on this one

  17. #17
    do not agree with this method. but, i think some larger isos do get upfronts/resids on renewals from them. they dont have just one schedule A for everyone. their national accounts i would assume have a much better deal than a one off iso or broker-

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