[SCP]

I was just about to push a deal through and last minute, the funder comes back and says they can't do a 2nd position over Fora because Fora has a clause in their merchant contract essentially saying they'll seek legal vengeance over any funder who tries to stack as a 2nd position. I felt this very strange, anyone run into this before? With Fora or any other company for that matter? Thanks

[J.Celifarco]

I was just about to push a deal through and last minute, the funder comes back and says they can't do a 2nd position over Fora because Fora has a clause in their merchant contract essentially saying they'll seek legal vengeance over any funder who tries to stack as a 2nd position. I felt this very strange, anyone run into this before? With Fora or any other company for that matter? Thanks

any merchant who stacks is technically in breach of the 1st position contract. If Fora has found a way to enforce this, and stop people from stacking on them, good for them.. Eventually people were going to figure out how to do this.. I am surprised it has taken this long for it to start happening

[mcg168]

I know IOU wont stack on certain companies because they seek legal action if they are stacked on. BFS being one of them.

Also, Swift has a $5,000 fee if the merchant stacks against them.

Glad to see some companies are fighting back against the stacking.

[Chambo]

I was just about to push a deal through and last minute, the funder comes back and says they can't do a 2nd position over Fora because Fora has a clause in their merchant contract essentially saying they'll seek legal vengeance over any funder who tries to stack as a 2nd position. I felt this very strange, anyone run into this before? With Fora or any other company for that matter? Thanks

FORA, MCC, RAPID, SFS....stack on them and don't be surprised if you get a certified legal letter

Stacking is technically a breach of contract. Just because every does it, doesn't make it right

[PRIMO CASH]

Just to play Devil's advocate, I'm curious how many of these "Cease and desists" or Breach of contracts have actually gone through to the point of judgment. In an industry with no regulation, just because a contract says something does not make it LAW. I could write a contract that says after the 3rd missed payment I own your house but in a court it would never hold up. Would love to hear some feedback..Since I am CERTAIN all of you only fund 1st position deals......................right???

[J.Celifarco]

I dont know how many exactly but more then a few have gone to court.. I was told before Pearl sold they were had faced more then a few of these and came to settlements with a couple of banks and paid. I dont know for certain as I was told this but I believe the person who told me so tend to believe this is true.

To your second point Primo there are companies who don"t stack and there are companies who stay away form stacking and do it rarely and when they do try to give merchants deals that don"t kill them. My problem lies with the companies that disregard 1st positions totally and focus on stacks, and don"t care what the deal does to the merchants ability to run their business. That is a business model that hurts the industry because companies that do that tend to offer deals which hurt merchants rather then help them. This kills the ISO's that do sell 1st positions deals because we end up losing the refi's on our deals. By the time they qualify for more money the 2nd position deal destroyed the banks and they no longer qualify for additional funding

[PRIMO CASH]

I dont know how many exactly but more then a few have gone to court.. I was told before Pearl sold they were had faced more then a few of these and came to settlements with a couple of banks and paid. I dont know for certain as I was told this but I believe the person who told me so tend to believe this is true.

To your second point Primo there are companies who don"t stack and there are companies who stay away form stacking and do it rarely and when they do try to give merchants deals that don"t kill them. My problem lies with the companies that disregard 1st positions totally and focus on stacks, and don"t care what the deal does to the merchants ability to run their business. That is a business model that hurts the industry because companies that do that tend to offer deals which hurt merchants rather then help them. This kills the ISO's that do sell 1st positions deals because we end up losing the refi's on our deals. By the time they qualify for more money the 2nd position deal destroyed the banks and they no longer qualify for additional funding

I agree with that John. Some funders (especially the small and new ones) just don't care. In fact I know of a few that actually LOOK for deals funded by OnDeck or SFS just to fund behind them as if it was a plus that a large company funded. To the extent that they flat out say "we don't do 1st positions" which blows my mind. But there are instances when funders get cold feet and dont fund the max amount a client can actually handle. Even some of the big guys out there. In these cases, I don't see an issue with a 2nd position. Where do we draw the line of what "Stacking" is?
I actually reached out to a few people not too long ago about the idea to include ISO shops in NAMAA and not just funders so we can at least make an effort to clean up the industry a bit...I look forward to some kind of regulation because as it stands this industry is a filthy mess....

[fundgorilla]

Just to play Devil's advocate, I'm curious how many of these "Cease and desists" or Breach of contracts have actually gone through to the point of judgment. In an industry with no regulation, just because a contract says something does not make it LAW. I could write a contract that says after the 3rd missed payment I own your house but in a court it would never hold up. Would love to hear some feedback..Since I am CERTAIN all of you only fund 1st position deals......................right???

I'm reminded of the classic: "ANY fool can make a rule, and EVERY fool will follow it."

[SCP]

I appreciate all of the valuable feedback and agree fully that IF you're going to engage in 2nd+ positions, you must do it ethically. I hope that most of us entered the industry because we wanted to make solid earnings but also because we have a heart for the small business owner, and that needs to take precedent. There's a time where you have to draw the line and just walk away from a deal, at least until that business can transition in the future.

In reference to this specific deal, SCP does not usually market to 2nd position merchants and I can count the number of merchants we've helped in this regard on two hands. Considering our preference for 1st time / 1st position merchants, all of this comes as news to me, and again I appreciate the feedback!

[Chambo]

I appreciate all of the valuable feedback and agree fully that IF you're going to engage in 2nd+ positions, you must do it ethically. I hope that most of us entered the industry because we wanted to make solid earnings but also because we have a heart for the small business owner, and that needs to take precedent. There's a time where you have to draw the line and just walk away from a deal, at least until that business can transition in the future.

In reference to this specific deal, SCP does not usually market to 2nd position merchants and I can count the number of merchants we've helped in this regard on two hands. Considering our preference for 1st time / 1st position merchants, all of this comes as news to me, and again I appreciate the feedback!

ha! that's a laugh.

Anyone who does a third position (or more), or charges a Closing cost, "Professional Service Fee" or the like has absolutely no regard for the merchants' help. "Let me make my money and get in and get out"

[CreditGuy]

IF you're going to engage in 2nd+ positions, you must do it ethically.

If you are trying to stack, you have already abandoned any scintilla of ethics and are fooling yourself if you think otherwise.

[J.Celifarco]

If you are trying to stack, you have already abandoned any scintilla of ethics and are fooling yourself if you think otherwise.

not to get off topic here but "scintilla" EXCELLENT WORD

also I both agree and disagree with this statement. Anyone who see'e my posts on here I think knows how I feel about stacking that said there are situations where it can make sense for the merchant. If the 1st position is taking a very small amount of gross sales and the payments on the second position keep the gross holdback under 15% then I dont think it is terrible. To that point this is a very small % of the time but when it does you are able the save the merchant from paying interest on interest on the first position.. Also if companies are going to start penalizing merchants who do stack with fee's or penalties then even that one situation will no longer be ok..

[mcaguru]

When Ondeck or for that matter any A paper Funding company funds a 1st position file. are they not stacking on the merchants current receivables? what about merchants landlord? what about his current credit lines? his Amex card?

I have no idea were this all came about?? In fact when someone gets a Discover Credit card with a 5K credit line after making X amount of payments it sets an alert to a few dozen companies that then sell that info to Amex and Citibank that offer the Discover Card Holder a 12K credit line! I have never heard about Discover complaining that "the 5K credit-line Client" may be exposed to do much credit and default on the 5K!!!

Maybe Discover should demand a payoff from Capital One when they offer a larger line??

[J.Celifarco]

When Ondeck or for that matter any A paper Funding company funds a 1st position file. are they not stacking on the merchants current receivables? what about merchants landlord? what about his current credit lines? his Amex card?

I have no idea were this all came about?? In fact when someone gets a Discover Credit card with a 5K credit line after making X amount of payments it sets an alert to a few dozen companies that then sell that info to Amex and Citibank that offer the Discover Card Holder a 12K credit line! I have never heard about Discover complaining that "the 5K credit-line Client" may be exposed to do much credit and default on the 5K!!!

except in those cases there is not a contract that is being breached. In the case of stacking most of the time the 1st position contract has clauses that make taking a 2nd position a breach

[cardinalequity]

How about a merchant breaching their
factoring agreements? The majority of factoring
companies that I know of have wording in their agreements that would make even a 1st position a breach. This puts the merchant at risk of losing their factoring (this is never pursued but it could) which would be detrimental to their business and ultimately would make it impossible to pay off there mca advance.

Does the 1st position lender ever ask to see the merchants factoring agreement to make sure they don't put the merchant at risk of losing it by breaching their agreement? The rabbit hole is deep and these sort of conversations can go so many ways.

I'm not saying this is right or wrong simply making an observation. It's not just mca Funder vs. mca Funder.

[jbrown]

There is a world of difference between a $5k credit card where you can make a minimum payment of interest only for a few bucks a month, and a $100k alt loan where the merchant is paying 8-10% of revenue in repayment. Having said that grantors of consumer credit look at your monthly payment obligations and will deny additional credit, mortgage, car loan etc. if you total repayments are more than "x" % of your monthly income.

As far as the factoring world, the responsible alt lenders work with the first position factoring company, SBA lenders, and commercial banks to subordinate where appropriate. I have spoken at the CFA and IFA conferences about best practices. Do it responsibly and be aware of the borrowers other legal contracts. So yes, the responsible funders don't put the borrower in a position where they are in breach by taking our money.

[Michael I]

I am confused on this whole post as fora does seconds themselves or have they stopped?
Maybe stackers don't stock on them because they don't want to lose their business they get from fora

[cardinalequity]

Agreed..simply showing a different perspective that even the great and wonderful 1st position Funder can be viewed as the bad breaching 3rd position bastards by simply shifting the context of conversation. I know many factoring guys who either hate the mca space, look down on it or are just straight scared of it due to its exponential growth.

Can we all just get along.

[mcaguru]

There is a world of difference between a $5k credit card where you can make a minimum payment of interest only for a few bucks a month, and a $100k alt loan where the merchant is paying 8-10% of revenue in repayment. Having said that grantors of consumer credit look at your monthly payment obligations and will deny additional credit, mortgage, car loan etc. if you total repayments are more than "x" % of your monthly income.

As far as the factoring world, the responsible alt lenders work with the first position factoring company, SBA lenders, and commercial banks to subordinate where appropriate. I have spoken at the CFA and IFA conferences about best practices. Do it responsibly and be aware of the borrowers other legal contracts. So yes, the responsible funders don't put the borrower in a position where they are in breach by taking our money.

I hear you! that's why you have the CEO Title

[mcaguru]

I hear you! that's why you have the CEO Title

The only issue that's left to discuss on the topic is this one remaining point..

I was Head of Business Development at 2nd source funding (largest MCA brokerage company in number of sales people!), 2nd Source boarded over 12,000 Merchants and they were "ALL" First position deals! Fast forward within a short period of time over a third of the merchants went out of business. Guess what NOT 1 Client had a 2nd position. My point is a first position deal to a well grounded businessman may be looked at like a 8th position.

I think MCA is a great product to many business owners, i just think the A paper Houses want to be viewed like Mother Theresa handing out capital on Christmas eve in the church parking lot.

[SCP]

If you are trying to stack, you have already abandoned any scintilla of ethics and are fooling yourself if you think otherwise.

I'd say that's a little strong...

As I mentioned before, obviously stacking is not the premier scenario for lender or borrower, but it can make sense and I believe there's instances you can do it with a clear conscience. For instance, this exact thread revolves around a client that has seen astronomical growth over the past 8 months (right around 300% increase revenue since January alone) and that's largely due to the initial advance they received from Fora, as the use of funds was for marketing and a new location. Now the desired use of funds is for an inventory purchase to secure a better purchase price on bulk orders. Which makes sense because the demand for their clothing lines has increased. I personally have no shame in seeking a solution for them. They've shown great recourse through the previous advance, and I hope they do the same again!

[jotucker1983]

I'd say that's a little strong...

As I mentioned before, obviously stacking is not the premier scenario for lender or borrower, but it can make sense and I believe there's instances you can do it with a clear conscience. For instance, this exact thread revolves around a client that has seen astronomical growth over the past 8 months (right around 300% increase revenue since January alone) and that's largely due to the initial advance they received from Fora, as the use of funds was for marketing and a new location. Now the desired use of funds is for an inventory purchase to secure a better purchase price on bulk orders. Which makes sense because the demand for their clothing lines has increased. I personally have no shame in seeking a solution for them. They've shown great recourse through the previous advance, and I hope they do the same again!

I agree that there are situations when it makes "sense" from a cashflow standpoint. For example, if the merchant's 1st position lender has a required "60% paid down" metric, the 1st position deal isn't taking a significant portion of their monthly gross, the merchant's current level of sales/cashflow management could support a 2nd position, and the 2nd position is going to be strategically structured to easily "fit in" the sequence, with both payments still being relatively "efficient" in terms of the pull on the monthly gross.

However, making "sense" from a cashflow standpoint, does not mean the stack wouldn't violate the Agreement put in place by the 1st position holder.