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  1. #1
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    Does a Daily ACH make it a loan?

    Question posed to me is with a set daily ACH amount it could be viewed as a loan and not a MCA.

    I always thought that regardless of collection via split funding or daily ACH it is still a MCA and NOT a loan.

    Any input here would be appreciated

  2. #2
    According to the industry, it is not a loan, but I understand there are accountants who do treat it as a loan for tax purposes. Technically, it is a purchase of future receivables and not a loan.

  3. #3
    Senior Member Reputation points: 30475 Zach's Avatar
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    This is my rough understanding of the subject (if I am wrong here, please correct me)

    The "payment method" does not necessarily infer it is a "loan". The reason some lenders call it a "loan" is because they are backed by an FDIC-insured bank that allows them to charge whatever rates they please (essentially a loophole around usury laws). Once you become FDIC-Insured (think BofI, Webbank, etc) you are allowed to dictate what rates are reasonable and legal to charge to a business.

    A merchant cash advance is just a sale of future receivables, with a unique collection method.

  4. #4
    Some consider a set daily ACH a loan, as it has a set term. The "advance" or "loan" will be paid back at a set time and at a set rate as opposed to a cash advance percentage deal where the payback is not set to be paid back on any certain day or time period. That is another way it differentiates itself from a loan.

  5. #5
    Veteran Reputation points: 157541 J.Celifarco's Avatar
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    It all depends on the bank doing the funding and the wording in the contract.. A MCA can have a daily ach, what is comes down to is the wording in the contract. If it is worded as a purchase of future receivables it is considered a MCA

  6. #6
    Veteran Reputation points: 134971 Chambo's Avatar
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    Quote Originally Posted by MCA View Post
    Question posed to me is with a set daily ACH amount it could be viewed as a loan and not a MCA.

    I always thought that regardless of collection via split funding or daily ACH it is still a MCA and NOT a loan.

    Any input here would be appreciated
    Technically, ACH deals were set up as receivables factoring (just like CC deals), only the payments were averaged out in a fixed payment style.
    This MEANS, that if the sales should happen to go down, the merchant's daily ACH should also go down -- with no penalty to the merchant whatsoever
    -side note: this is why some of the daily ACH companies put a % remit down on contract. Their collection will not surpass that % of monthly gross
    If one of these funders has a merchant who is having issues making payments, and just decides to go legal or whatnot, then the funder is technically in breach and has created a loan.

    Everyone is so bat**** about California because the courts there have stated the exact same thing (and AMI & Rewards paid handsomely). "Put a dress on a pig and it is still a pig", is what the judge said in the Rewards case.

  7. #7
    Quote Originally Posted by Chambo View Post
    Technically, ACH deals were set up as receivables factoring (just like CC deals), only the payments were averaged out in a fixed payment style.
    This MEANS, that if the sales should happen to go down, the merchant's daily ACH should also go down -- with no penalty to the merchant whatsoever
    -side note: this is why some of the daily ACH companies put a % remit down on contract. Their collection will not surpass that % of monthly gross
    If one of these funders has a merchant who is having issues making payments, and just decides to go legal or whatnot, then the funder is technically in breach and has created a loan.

    Everyone is so bat**** about California because the courts there have stated the exact same thing (and AMI & Rewards paid handsomely). "Put a dress on a pig and it is still a pig", is what the judge said in the Rewards case.
    Mat is correct. If you are doing a % of daily sales, you need to adjust the daily ACH if revenues change, not just keep the same daily ACH.

  8. #8
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    How would you be able to adjust the % of the daily ach? Is this is a function that someone like ACH works can offer? Through our bank we can only set a firm daily payment we cannot adjust to a % of their previous days sales. Any insight here would be very much appreciated

  9. #9
    Senior Member Reputation points: 5016 @jeannette's Avatar
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    Does a Daily ACH make it a loan?

    Retail Capital offers a variable ACH, we have a program that tracks the processing deposits in the bank and a % of sales are automatically transferred to us. It has significantly increased funding times on good MCA Split deals.
    Jeannette Nearing | Business Development Officer| AmeriFactors
    | M (770) 362-2307
    jnearing@amerifactors.com |

    http://www.amerifactors.com
    https://www.linkedin.com/in/jeannettenearing

  10. #10
    Veteran Reputation points: 134971 Chambo's Avatar
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    Quote Originally Posted by MCA View Post
    How would you be able to adjust the % of the daily ach? Is this is a function that someone like ACH works can offer? Through our bank we can only set a firm daily payment we cannot adjust to a % of their previous days sales. Any insight here would be very much appreciated
    Simple...lower the payments.

  11. #11
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    This is normally a manual and very time consuming process. That's why most funders don't do this.

  12. #12
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    Quote Originally Posted by MCNetwork View Post
    This is normally a manual and very time consuming process. That's why most funders don't do this.
    It can be automated.

  13. #13
    I would like to pose a question to MCA's that use a fixed, daily ACH withdrawals (especially with businesses that are seasonal) and the arrangement goes longer in time than the quarter that has strong sales.

    Hypo: Your merchant has two weeks of slow sales, causing multiple NSF's on your daily, fixed ACH pulls. After multiple bounced NSF's, the bank (not the merchant) locks out the MCA from additional withdrawals (which I have seen banks make this decision in the past)

    You communicate with the Merchant about the issue and they advise they had two slow weeks of sales; however they are back on track and would like to resume the daily ACH's (but can't afford to pay you the missed payments, NSF defaults and other fees that may have assessed all in one payment).

    What are some next steps? Waiver of the fees to keep them on-board, or advise them of the breach and potentially escalate to collections?

  14. #14
    Senior Member Reputation points: 148 Capital Stack's Avatar
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    We actually automated this process a year and a half ago. Our system pulls a fixed percentage of the previous days deposits if set up as a percentage of gross deal.


    Quote Originally Posted by JayBallentine View Post
    It can be automated.

  15. #15
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    Always a bad idea to default a merchant for minor issue's like this. Work it out and get them back on their feet many merchants like all business's have bumps in the road. As long as their intentions are good, get them through it and move on.


    Quote Originally Posted by Mcalawyers View Post
    I would like to pose a question to MCA's that use a fixed, daily ACH withdrawals (especially with businesses that are seasonal) and the arrangement goes longer in time than the quarter that has strong sales.

    Hypo: Your merchant has two weeks of slow sales, causing multiple NSF's on your daily, fixed ACH pulls. After multiple bounced NSF's, the bank (not the merchant) locks out the MCA from additional withdrawals (which I have seen banks make this decision in the past)

    You communicate with the Merchant about the issue and they advise they had two slow weeks of sales; however they are back on track and would like to resume the daily ACH's (but can't afford to pay you the missed payments, NSF defaults and other fees that may have assessed all in one payment).

    What are some next steps? Waiver of the fees to keep them on-board, or advise them of the breach and potentially escalate to collections?

  16. #16
    Senior Member Reputation points: 30475 Zach's Avatar
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    The daily ACH is simply a method of retrieval; this doesn't force the transaction to be considered a loan. Many sales reps pitch ACH products as a loan, regardless of whether or not they are a purchase of future receivables.
    Zachary Ramirez – CEO
    Phone: 562-391-7099
    Email: zach@zacharyjosephramirez.com

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