[skideeppow]

I have a merchant, has had multiple advances with me over the years. It is a restaurant and he is not yet ready for a refi but needs some money. He has been shopping around and found someone that is willing to give him 15k at a 1.22 ach program, 252 payments of $73 in the second position.
I was under the impression that when another company stacks, it is over a 3 months period at a high factor rate, 1.49 or so (ie Pearl, FF).

Any thoughts?

[mfs01]

Does this funding company know about their other advance?

[skideeppow]

The email my merchant got is from Merchants Advance Network in Ft Lauderdale FL. Does what funding company know about what advance? The email clearly states that you can have another advance and it does not need to be paid off.

[Finance1]

Sounds like IOU Central all the way.

[isaacdstern]

I agree..they don't pay anyone off and that deal is exactly how they price deals

[skideeppow]

IOU will stack deals? Had no idea they did that.

[Finance1]

They don't even look at it as stacking. The are a "business loan provider" and not a receivables purchaser. Their rule on existing MCA's are 90 day seasoning.

I will say they underwrite responsibly. They like good credit, solid banks, and 2 years time in biz etc. If someone gets approved by IOU, they typically deserve it.

[MCNetwork]

I agree. IOU only goes for clean merchants and their loans make sense. Their factors are extremely low and tough to beat.

[Chambo]

Sounds like IOU Central all the way.

IOU Central and On Deck don't pay off other companies. TBB will add on too if they feel sales merit it....full long term deals

[skideeppow]

ODC always pays off. They always request a final payoff letter.

[Chambo]

ODC always pays off. They always request a final payoff letter.

Maybe with you they do....I have seen them stack numerous times. I have even seen them get paid off on a deal and turn around and stack right back on top

[Nickell & Dyme]

IOU Central is also about to utilize wiring functions to be able to start paying off loans, liens, debts, etc. IOU definitely doesn't want to be considered as an irresponsible lender to any of the major players eyes and seem to back that up by being pretty conservative with their lending, costs, loan amounts and soon they won't do a 2nd loan.

Heck.... now IOU is offering a calculator that shows how much interest cost a merchant saves upon renewal or early loan payoff, pretty slick!

[HeatherF]

IOU Central is also about to utilize wiring functions to be able to start paying off loans, liens, debts, etc. IOU definitely doesn't want to be considered as an irresponsible lender to any of the major players eyes and seem to back that up by being pretty conservative with their lending, costs, loan amounts and soon they won't do a 2nd loan.

Heck.... now IOU is offering a calculator that shows how much interest cost a merchant saves upon renewal or early loan payoff, pretty slick!

First off cute name!

Secondly I am confused about how adding a wire function allows a company to suddenly start paying off advances... as there are capabilities via ACH, Money Order, Cashiers Check, and Credit Card to allow the paying off of other funders.

[Sean Cash]

For lenders under the gun to impress investors with explosive growth month over month, stacking will become the standard. Can you imagine missing your funding target and jeopardizing the chance to raise another $100 mil or go public because you took the "high road" on something?

[MCNetwork]

Yeah I used to take the high road on stacking. Now I realize that if you can't beat 'em, join 'em!

[HeatherF]

Sean.... but doesn't default rate also affect the ability to raise capital ... obviously does not prohibit the ability to go public but the buy in price once it does would be affected by all aspects of the company. There are banks walking away from funders who have default rates at 8 to 10% ... and you can not tell me that by doing second placement that your rates are lower than that. Even if you are the funder who takes the second placement your capital is at risk for the 3rd and 4th stacker to come along. There are few merchants that I have seen that once they stack they are never again in the black.

[MCNetwork]

Banks may walk away from 10% default rates but there are plenty of private investors who don't mind. The average stack deal is a 3 month 1.45 factor and a 10% default rate is a minor operational cost. That's why the short term stackers are the most profitable of all the funders in the MCA industry.

[Finance1]

MCN nailed it. Stack lenders are popping up left and right. They wouldn't be if there wasn't plenty of profits in the game. There is without question an imbalance of available capital and demand in this space. Any way to get money on the street will be exploited.

I personally find a company offering 1.40-1.50 over 3 in 2nd through 1,000th position as a core product embarrassing to the industry but it is what it is.

[isaacdstern]

Think about it from a risk perspective:
AMI Approves and funds a deal for 200k over 10 months
In month 2 merchant needs more money, he takes a Hopper for 25k over 60 days
That is a no brainer...deal was just heavily underwritten and you are giving the merchant 10% of his current balance...You are in and out 3 times before the deal is even eligible for a renewal with AMI

[HeatherF]

Short term gains or long term goal?

Lets compare industries here and possibly take note of what the future may hold... Payday companies have been providing financial assistance to the public and when that first started a consumer was only thought to handle one payday advance at a time due to the rate and the state that the consumer was in to have to search out such alternative funding. Now you have a consumer taking out 4 to 5 payday advances at one time. Should the consumer know that they can't handle that ... yes they should but they do anyways and over the past couple of years have been crying grievances for being taken advantage of and not understanding what they were getting into.

Now is the Government telling the consumers you should know better and read what you enter to.. No they are going aggressively after this industry and shutting companies down... as well as attacking industries that cater to Payday lenders.

So the question is at what point does grass hopping/ stacking propel this industry into that type of stigma that the government sees us a glorified payday lenders to small business owners. I understand Isaac's point that the longer term advances help promote a merchant to take on additional responsibility in light of having extra capital now but there are few merchants who stop at that one stack and when a merchant is confronted about the stack...they always state "i didn't know i couldn't do that" or " i didn't know i couldn't afford that" or my favorite " I thought i could handle it. "

So is this short term gain by the up and coming want to be funders in the space worth the long term government regulation or worse them shutting down your ability to even offer services or re coup on the receivables you have bought?

[MCNetwork]

This is a good point. We'll have to wait a few years and see how things pan out. The hoppers are taking advantage of a good opportunity and milking it for all it's worth. They are nimble and quick and can move in and out with their surgical strike ACH cash advances. The MCA industry is constantly evolving and this is just the latest iteration. The big funders with their long term deals are stuck with the most exposure so it's natural that they'll be railing about how the hoppers are the usurious villains in this industry. It's really a case of the pot calling the kettle black.

I think eventually you'll stop seeing the 12-18 month deals altogether and 3-6 month term loans will become the norm. Or you'll see the big boys begin to offer short term stacks themselves.

[GoodCustomerService]

I see the big boys offering short term stacks before going back to 3-6 month deals. The reason why the MCA space has grown so much in the past couple years is because of the longer term, cheaper cost deals. It has brought better and more sizable businesses into our space.

[MCNetwork]

Yes and let's face the facts. A healthy business that has a competitive long term MCA program will not be interested in a 3 month 1.45 stack. And if he does take it, then he's in serious trouble.

[Sean Cash]

Yes and let's face the facts. A healthy business that has a competitive long term MCA program will not be interested in a 3 month 1.45 stack. And if he does take it, then he's in serious trouble.

I disagree. If they get a 50k advance at 1.25 12 month and they need an extra 8k 2 months later, they will take an 8k 1.45 3 month because the big money is cheap so they're more inclined to look the other way on the cost of the small money.

[Sean Cash]

And on that note, if Lending Club is going to be filing UCCs on what I believe will be 3-5 year loans, they should prepare to get smashed with stacks.