[Joe Dough]

What would you guys say is the average default rate in the industry?

[Zach]

6-10, high risk 8-14

[Chambo]

there are two #'s to consider. Default rate, as per # of deals, or rate as % of money funded

[Joe Dough]

Do you think that rate is/will go up because of stacking and length of terms? Has it gone up this year compared to last year?

[AndyYSCISOdept]

6-10, high risk 8-14

Which is way companies can afford to fund riskier and riskier deals because even at a true 15% default rate (based on dollars funded, which is the only one that matters) you are still very profitable.

[MCA]

I don't know too many funders that can be very profitable with a 15% default rate.

A-B paper default rate should be 5 - 8%

C-D paper default rate should be 9 - 13%

From my experience once you go over 13% default rate it is very hard to turn a profit. Cost of money, overhead, commissions, advertising etc... Will not allow you to have a default rate above 13%. Unless your average turn time on deals is under 5 months, closer to 3 months then maybe the D paper shops can stomach 13% + default rates because they're turning their money 2.5 - 3.5 times a year

[AndyYSCISOdept]

Which is exactly where I was going with the 15% number. If you are churning deals over 3X a year, then 15% is completely profitable.

[YuliyaG]

I don't know too many funders that can be very profitable with a 15% default rate.

A-B paper default rate should be 5 - 8%

C-D paper default rate should be 9 - 13%

From my experience once you go over 13% default rate it is very hard to turn a profit.

Turn length and pricing come into play here. You can make a nice profit on a 20% absolute default rate (where merchant pays back a net of $0) if you're doing 1.48 on 3 month turns for example.

[AndyYSCISOdept]

Turn length and pricing come into play here. You can make a nice profit on a 20% absolute default rate (where merchant pays back a net of $0) if you're doing 1.48 on 3 month turns for example.

Obviously the goal is a Default rate under 5% (Need those Tax Write Offs!)

[YuliyaG]

Obviously the goal is a Default rate under 5% (Need those Tax Write Offs!)

Ha! Definitely MIGHT be gettable if you're giving out ten bucks on a 1.10 PB with a 6 month turn... lol

[AndyYSCISOdept]

Ha! Definitely MIGHT be gettable if you're giving out ten bucks on a 1.10 PB with a 6 month turn... lol

I don't think what Im giving is as important as WHO IM GIVING IT TO. Agree?

[Michael I]

Turn length and pricing come into play here. You can make a nice profit on a 20% absolute default rate (where merchant pays back a net of $0) if you're doing 1.48 on 3 month turns for example.

please explain your math

[J.Celifarco]

Which is exactly where I was going with the 15% number. If you are churning deals over 3X a year, then 15% is completely profitable.

not when you take into account overhead and commission paid. You get over 13% bad debt I dont care what you are charging it is hard to make a profit

[Zach]

Chambo was right in the fact that there are two components to default:

The percentage of clients who stop or reduce payments
The cents per dollar that you on average lose (eg. 8 cents of every dollar that goes out is your loss reserve)

[MCABroker]

It's actually true, even at a 25% default you can turn 25k into a million in under 5 years with daily collection, 40%+ rates and 3-4 month terms. The real American Dream...

[Michael I]

Now I understand why we have so many pop up lenders that go out of business . Some people are really that clueless

[Sean Cash]

25k.jpg

[AndyYSCISOdept]

They go out off business because of who they target with their money and are under funded, they don't test the waters but instead take on huge debt and jump into the deep end with the "big boys" and if they have a bad string of deals it makes it improbable that they can recover. But I am sticking by my number of 15% of True default rate being the absolute max you can handle and be profitable. However, I am in no way saying that should be the goal.

[Michael I]

i agree with the 15% on the 1.45 deals . i was talking about the 20-25% and still make a profit , you are living in lala land .

[FUNd]

LMAO Sean

[AndyYSCISOdept]

i agree with the 15% on the 1.45 deals . i was talking about the 20-25% and still make a profit , you are living in lala land .

Agreed.

[TheShitzuofMCA]

Average 10%

Above Average still workable 15%

Bad 20%+

[YuliyaG]

please explain your math

The math is not simple. But here's a screen shot based on our formulas...

Screen Shot.jpg

One thing to keep in mind is that the money is going out as fast as it's coming in. So, you're putting money out as it's being paid back. So it's not as a simple calculation as you might expect - it's completely algorithmic... Really took quite a while to even figure where to start... It's based on a lot of assumptions. One of which is that a default is when a merchant pays $0

[Michael I]

but are you calculating broker commission , cost of capital and underwriting fees . also no one does 60 days deals anymore

[YuliyaG]

but are you calculating broker commission , cost of capital and underwriting fees . also no one does 60 days deals anymore

Yes I understand no one does 60 day deals anymore. Screen shot just shows what is possible if that were the case. Broker commissions and overhead costs are not calculated in this shot. This is just the most rudimentary thing we did before building out more focused models... just grabbed it and made a screen shot.