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  1. #1
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    Syndication Changing in MCA

    Today syndication is changing the dynamic in MCA. when risk is syndicated more dynamic deals are getting done e.g. credit, sic code etc.

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  2. #2
    I completely agree. It has to make a funding bank more comfortable when an ISO says they will put up X amount into a deal. Most of the time ISO's are calling for an exception, now if they put money into the deal i.e. take risk it should and does help get deals done

  3. #3
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    Quote Originally Posted by UCSource View Post
    I completely agree. It has to make a funding bank more comfortable when an ISO says they will put up X amount into a deal. Most of the time ISO's are calling for an exception, now if they put money into the deal i.e. take risk it should and does help get deals done
    This is squeezing out the mom and pop ISOs who are not capitalized well enough to participate. A wave of industry consolidation has already started.

  4. #4
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    Quote Originally Posted by miked View Post
    This is squeezing out the mom and pop ISOs who are not capitalized well enough to participate. A wave of industry consolidation has already started.
    I agree about the consolidation. It's a natural evolution and not necessarily a cause/effect of syndication though. Easy money in this business really doesn't exist anymore. You can compare the evolution to other major industries like mortgage, finance, and insurance. Brokers can survive easily but they have to be well versed, have access to all available products (especially loans and premium MCA's) and they also have to have a solid marketing plan.

    There are alot of similarities to the mortgage world in the MCA space. I know first hand because I owned a mortgage banking/broker firm for 8 years. There was a time when anybody could sit in a seat, make phone calls, and close deals. You didn't even have to know what you're were talking about. Just close deals and make fat commissions. The industry started changing even before the financial meltdown. Big call center warm body broker shops were already closing before the financial meltdown. The meltdown definitely made the consolidation happen much quicker.

    The commission part of the mortgage industry is mostly pro's now. Folks that are committed to their business. Folks that are well versed in all products. Marketing is done strategically. Professionalism is required. And there are no more big fat checks and with little effort anymore. My wife is a b2b insurance pro. There are many similarities in that market as well. You can make a solid living in the insurance world nowadays but you have to be a true professional focusing on the bigger picture. You have to build a book through hard work and very competitive pricing. This means giving up some upfront commissions as well.

    I think the MCA space is moving full speed in this direction. Clients are smarter and the box is smaller. They will shop for the best deal. They need to trust who they are doing business with. My favorite clients are the ones many are afraid of. Intelligent business owners with good credit and good statements. They embrace this type of financing more than many agents realize and I think all the premium programs out there are excellent. Risk based pricing was greatly needed to help the space grow. A good book of business can be made of savvy owners. Constantly targeting the desperate is not worth the reward IMO. Too many dead deals. Far too much time chasing ghosts with no paycheck. I think too many agents focus on bad credit / desperate merchants because it's easy to get them to apply and sign but the % that actually fund keeps getting lower and lower.

    Our business model has all 3 components though. We direct fund, syndicate, and broker so I probably see the world a little differently but I believe that a small broker only shop can survive and even thrive in this market. Home runs are few and far between but you can hit singles all day long. Always shooting for max commission hurts more than it pays. I think a small iso w/ low overhead and well versed agents can do just fine. Syndicating has advantages but it's not required.

  5. #5
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by Finance1 View Post
    I agree about the consolidation. It's a natural evolution and not necessarily a cause/effect of syndication though. Easy money in this business really doesn't exist anymore. You can compare the evolution to other major industries like mortgage, finance, and insurance. Brokers can survive easily but they have to be well versed, have access to all available products (especially loans and premium MCA's) and they also have to have a solid marketing plan.

    There are alot of similarities to the mortgage world in the MCA space. I know first hand because I owned a mortgage banking/broker firm for 8 years. There was a time when anybody could sit in a seat, make phone calls, and close deals. You didn't even have to know what you're were talking about. Just close deals and make fat commissions. The industry started changing even before the financial meltdown. Big call center warm body broker shops were already closing before the financial meltdown. The meltdown definitely made the consolidation happen much quicker.

    The commission part of the mortgage industry is mostly pro's now. Folks that are committed to their business. Folks that are well versed in all products. Marketing is done strategically. Professionalism is required. And there are no more big fat checks and with little effort anymore. My wife is a b2b insurance pro. There are many similarities in that market as well. You can make a solid living in the insurance world nowadays but you have to be a true professional focusing on the bigger picture. You have to build a book through hard work and very competitive pricing. This means giving up some upfront commissions as well.

    I think the MCA space is moving full speed in this direction. Clients are smarter and the box is smaller. They will shop for the best deal. They need to trust who they are doing business with. My favorite clients are the ones many are afraid of. Intelligent business owners with good credit and good statements. They embrace this type of financing more than many agents realize and I think all the premium programs out there are excellent. Risk based pricing was greatly needed to help the space grow. A good book of business can be made of savvy owners. Constantly targeting the desperate is not worth the reward IMO. Too many dead deals. Far too much time chasing ghosts with no paycheck. I think too many agents focus on bad credit / desperate merchants because it's easy to get them to apply and sign but the % that actually fund keeps getting lower and lower.

    Our business model has all 3 components though. We direct fund, syndicate, and broker so I probably see the world a little differently but I believe that a small broker only shop can survive and even thrive in this market. Home runs are few and far between but you can hit singles all day long. Always shooting for max commission hurts more than it pays. I think a small iso w/ low overhead and well versed agents can do just fine. Syndicating has advantages but it's not required.
    Extremely well said. Great post!

  6. #6
    syndication is only for a slice of the ISO's out there who are liquid enough to do this on any material level. its a great addition to the industry and the financial models that exist really can show a cofunder how their money can grow/spin over the course of year 1, year 2, year 3 with renewals and cash flow. its interesting how the conversation goes from "whats your bad debt and underwriting like" with a prospect who wants to cofund to a broker who says "how much do you approve and how loose is your UW"- you def dont want to invest your money with a company who has a buy the market culture- most of us in this bz have seen the disaster reckless UW has caused.

  7. #7
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by MCAVeteran View Post
    syndication is only for a slice of the ISO's out there who are liquid enough to do this on any material level. its a great addition to the industry and the financial models that exist really can show a cofunder how their money can grow/spin over the course of year 1, year 2, year 3 with renewals and cash flow. its interesting how the conversation goes from "whats your bad debt and underwriting like" with a prospect who wants to cofund to a broker who says "how much do you approve and how loose is your UW"- you def dont want to invest your money with a company who has a buy the market culture- most of us in this bz have seen the disaster reckless UW has caused.
    Yet new players still come in all the time with the "buy the market" mentality.

  8. #8
    Quote Originally Posted by miked View Post
    This is squeezing out the mom and pop ISOs who are not capitalized well enough to participate. A wave of industry consolidation has already started.
    That's why companies like The Factor Exchange exist. The "mom and pop" ISOs and "Onesy-Twosey" brokers are backed by one giant ISO network and The Factor Exchange assumes half of the risk by syndicating 50% on nearly ever deal...
    The massive volume of FEX submissions to lenders gives the ISOs power to negotiate for better rates and terms, One point of submission reaches 15+ lenders, the merchants credit is only pulled once, and the commission is passed straight through to the ISOs because FEX makes their money from participation.
    Companies like this empower the smaller brokerages...

  9. #9
    Senior Member Reputation points: 903 Scott Williams's Avatar
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    Some funders like the "mom and pop" ISO's once they have a good track records down. The funder knows the ISO directly and the ISO is the main point of contact with the merchants so he/she knows all the details about the deal/business. I think having a small ISO that has a proven track record of well performing clients is very valuable to some direct funders.

  10. #10
    Quote Originally Posted by Scott Williams View Post
    Some funders like the "mom and pop" ISO's once they have a good track records down. The funder knows the ISO directly and the ISO is the main point of contact with the merchants so he/she knows all the details about the deal/business. I think having a small ISO that has a proven track record of well performing clients is very valuable to some direct funders.
    I agree with you Scott, smaller ISOs tend to be very hands on with their merchants and are quick to obtain stipulations and requested financial documents.
    Funder's do value and appreciate this. Unfortunately this is not the case for all direct Funders, this applies more to the larger direct funders who are primarily volume focused...
    I do not believe they spend as much time building a relationship with the smaller one-man brokerages (and please correct me if I am wrong)... The UW staff seems to be far more communicative if you are a larger producer...

    It takes far more persistence from the smaller ISO to initially "get their foot in the door" to start building that relationship with the lender, and even then, there is less flexibility in negotiating rate and term if the ISO is not assuming any of the risk by participating in the advance.

  11. #11
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    There is a big benefit to this space ( merchants, brokers, and funders alike) to have a variety of deal sources. Whether the deal come from SEO, lead gen companies, Big ISO's, one man shops, processor to funder, and even funder to funder the main goal is to find the right product for the merchant. As a direct lender we have every type of partnership and all hold equal value to us. Our underwriters (btw every sales agent has direct contact with) while reviewing a deal will look at the agents submission history to his deal performance on the funded deals or how many came in that have turned out to be fraudulent. Our review of that has nothing to do with the size of the ISO and the size of the ISO does not dictate the agents control on the offer. Every deal source is important as the success in this industry is based on volume. Volume of submissions and volume of outflow. There are only so many big house ISO's that can push major volume and because of that they have every lender in the space competing for the deal flow. To say that a small ISO has no merit is like saying that a merchant who process under 10K has no value andI would rather invest in 10 merchants at 10K each than put a 100K in one merchant. You know the saying of don't put your eggs all in one basket...

  12. #12
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    Quote Originally Posted by MissMCA View Post
    That's why companies like The Factor Exchange exist. The "mom and pop" ISOs and "Onesy-Twosey" brokers are backed by one giant ISO network and The Factor Exchange assumes half of the risk by syndicating 50% on nearly ever deal...
    The massive volume of FEX submissions to lenders gives the ISOs power to negotiate for better rates and terms, One point of submission reaches 15+ lenders, the merchants credit is only pulled once, and the commission is passed straight through to the ISOs because FEX makes their money from participation.
    Companies like this empower the smaller brokerages...
    Woah, back up. The factor exchange is involved in the MCA space and will syndicate on ISO deals?? I have heard of your platform but didn't think it was at all applicable to MCA. Please elaborate

  13. #13
    Quote Originally Posted by sean bash View Post
    Woah, back up. The factor exchange is involved in the MCA space and will syndicate on ISO deals?? I have heard of your platform but didn't think it was at all applicable to MCA. Please elaborate
    Sean, The Factor Exchange revolves entirely around Merchant Cash Advance. There are often misconceptions when people hear "Factor Exchange" they assume FEX is a factoring company or something similar to "Funders Cloud" not the case.

    The Factor Exchange is the largest aggregation group/originator and investor in the industry.
    The platform is quite simple:
    FEX provides one point of submission for ISOs that will distribute and submit their files to over 15 of the most reputable direct funders in the industry (according to their UW guidelines).
    Credit is pulled ONCE by FEX, lenders are not allowed to pull their own additional credit reports.
    Offers are flowed back to the ISO/Broker by a designated FEX Account Manager in real time.
    The broker has 10+ offer options to choose from. If they do not find any of the offers appealing, the AM will go to bat with UW to obtain the rates and terms the merchant is looking for.

    Beyond the convenience of a "one-to-many" submission point, the true advantages and benefits come from Factor Exchange syndicating 50%-70% on every funded deal.
    Because The Factor Exchange is assuming half of the financial risk, advance amounts are often higher, rate and term negotiations are more effective, UW is generally more flexible.
    Relationships between FEX and Lenders on the FEX network are at a C-Level, agreements have been set in place for higher commissions (because of massive submission volume), and because FEX is making money from syndication there is no need to charge the brokers a fee and commissions are passed straight through.

    Some brokers are hesitant at first because they are very hands on with their merchants, and they question who the file "belongs to" after submission.
    It is very important that brokers are aware that they will NEVER be circumvented. Ever.
    FEX understands that a brokers book is their livelihood, and they want their portfolio to flourish so they can build a solid foundation of renewals.
    FEX does not have an in-house brokerage and will never compete with their brokers, and Lenders are NOT ALLOWED to renew merchants without the brokers prior consent.

    If you want further details contact KC@FactorExchange.com or 888-819-5643.

  14. #14
    The broker through a broker model has been attempted numerous times and usually come renewal time, it all falls apart and transparency is difficult on this platform. the commissions are also diluted on new and renewals w/this model. the syndication part makes it a little more interesting but the customer is being shared with 2 parties the broker has no control over- you and the funder who elects to fund it with you. also, the data share of the account has now gone to 10+ companies who can, whether you know it or not, solicit this customer down the road for business. Lots of moving variables here but best of luck with this model! most isos are plugged in with the common 5-10 funders directly that are experienced brokers- who owns the asset of the receivables who makes the advance? You or the 3rd party funder? What if that funder sells, goes out of bz, etc? What hapenns to brokers resids/renewals.. the lenders on your website are very user friendly to any broker who calls them up to sign up directly to-

  15. #15
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    It looks like their entire purpose is really just to syndicate on advances and not share in the commissions.

  16. #16
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    Cool not always a broker relationship

    Quote Originally Posted by miked View Post
    It looks like their entire purpose is really just to syndicate on advances and not share in the commissions.
    Actually if you evaluate the landscape of the overall Funders in the market you generally see four (4) makeups.

    1) Funder has a credit line usually structured as a senior debit facility on the receivables purchased

    2) Funder has a private equity structure which allows "balance sheet" booking

    3) Funder sells prior to or post closing the rights and receivables to a secondary market buyer

    4) Funder has a lead in a transaction and syndicates the contract with multiple participants

    The syndication model today is allowing for much more aggressive underwriting i.e. high risk. when not under the auspicious of a credit line or private equity firm, who require a whole slew of stipulations and conditions on SIC Code, credit scores, etc..

  17. #17
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    Overall lots of money pouring in. MissMCA, that published Factor Exchange closing rate of 95% on the website looks suspiciously like a marketing gimmick

    Other than that, MCAVet's worry that massively farming out the deal may jeopardize the account rep's chance to retain the merchant. Sure, credit might be pulled once and it might possibly have a better chance of getting funded since you're syndicating on it, but after that, a lot of reps are going to be worried.

    Absent a face-to-face relationship (as 90% of this business is), the account rep's relationship with the merchant is going to be greatly at risk to anyone else that has come into contact with the application. It's dog eat dog. Can you make them feel better about this?

  18. #18
    Veteran Reputation points: 134971 Chambo's Avatar
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    I would be curious to hear any feedback about Factor Exchange and how it has worked out for the reps who submitted.

    Are the offers really quicker and larger, as Miss MCA voiced?

    Are there really multiple offers coming forth? Or are deals swayed to one particular MCA moreso than others?

  19. #19
    Love the intensity brother and the way you broke it down. Your personal story paints the picture many have faced. Love your analogy to amazon financing merchants and the reason they do it. A fresh set of eyes on an industry that's doing the same thing over and over again can never hurt. Some may hate on what you say but there are tons of ways to hit that 10 billion $$$$$$$$$. Just have to think outside the box.

  20. #20
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    hey directlender I sent you a PM

  21. #21
    Direct Funder- your story parallels with many ISOs and brokers story out there on "stealing accounts" - However, funders have plenty of stories on the broker "stealing" accounts as well. Its one big dysfunctional model IMO. Wholesale model vs Retail Model- the debate has and will continue...

  22. #22
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    the theme of who owns the merchant keeps coming up and I think a lot of isos slowly become their own funding company because they want to assert that control over their merchant. The more parties you share control with, the less that merchant is yours. You'll never need to worry about the funder selling off your portfolio, reassigning it, or soliciting it if you are the funder. good read overall. you kind of poured your heart and soul out there directlender lol.

  23. #23
    If you really take the time to read the iso agreements, you will understand you, as the broker, dont own the account. Once that funder advances the merchant, they OWN the assets they are purchasing and the right to collect on it. Their only obligation is to pay you for referring the business and on renewals. However, it does not prevent the funder from assigning the contract at a future date. It is true, until you become the funder, you are simply at the mercy of the agreement and funders willingness to pay you.

  24. #24
    Veteran Reputation points: 134971 Chambo's Avatar
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    Unless you have better customer relations on the broker level & pick and choose your funders wisely. The usual reason a merchant will opt to deal with the fund directly and cut you out is usually because it is cheaper for them to do it that wya, you the rep is too aggressive with them. 90% of the reasons I hear that merchant try to go direct s to avoid the fees the reps can charge.

  25. #25
    A forum user Reputation points: 2147483647 Sean Cash's Avatar
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    I can only think of the obvious ones that you pointed out. kabbage and amazon.



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