[CreditGuy]

all the dailys will be below 30%.

Let's do some quick math and a little actual underwriting.

It was previously disclosed that this was a $40MM+ home health care business and they needed to stack because of slow pays from the government (Medicare). That means this is being used a bridge loan and not growth capital, so revenue benefit to the borrower is null. The industry average net income for publicly traded (professional management, huge economies of scale, data driven and efficient business decisions, etc.) Medicare home health care is around 3% (citation) and falling as ACA cutbacks drive reimbursement rates lower as a % of gross revenues. This can change slightly based depending on payer mix (Medicare/Insurance/Private Payer). Since we know this is a Medicare bridge, we will use 3% net income. That means a business this size, in this industry, puts $1.2MM to the bottom line annually. If an average 1st will fund 15% of revenues, and average 2nd funds up to 20-25%, and the 3rd and 4th are just seeking to keep it under 30% of daily revenue, how is lending almost 10x net income ("dailys...below 30%") to this business of any benefit to the borrower? 30% of daily revenues would be $47k a day (holy ****!) or 12MM per annum. Compare that to the net income of $1.2MM a year and this scenario is a loser. Now, it is possible that since this is "just over 6 months" in term, this one alone won't put them immediately out of business, but the merchant paying back more than $1.2M principal and interest at any point over the year wipes out their net income entirely. This type of lending isn't subject to underwriting in any traditional sense, it is gambling that your money comes back before the house of cards collapses. It is predatory and reckless.

I made a lot of assumptions because I don't have all the facts (banks, financials, etc.). It is possible this business is an absolute gold mine run super efficiently with 30% margins and has $12M in free cash flow a year, but those folks aren't stacking MCAs like pancakes. Hell, even if this had 4x the margins of the industry average with 12% net income, anything north of 24% daily for more than 6 months would wipe out their entire profit for the year.

Not only of the ethics of the transaction are poor, but the math sucks too.

[omegafund]

I tend to agree with this. We have funded a dozen or so health care business with revenues 15M+ in the past. The guys with 25% + margins are few and not MCA candidates, and never would stack. We qualified one for 1.5M LOC and they were only at $5M gross. Not sure what would drive a 40MM+ revenue company to get 4 MCAs not many with margins over 75%! but that is for another day

Let's do some quick math and a little actual underwriting.

It was previously disclosed that this was a $40MM+ home health care business and they needed to stack because of slow pays from the government (Medicare). That means this is being used a bridge loan and not growth capital, so revenue benefit to the borrower is null. The industry average net income for publicly traded (professional management, huge economies of scale, data driven and efficient business decisions, etc.) Medicare home health care is around 3% (citation) and falling as ACA cutbacks drive reimbursement rates lower as a % of gross revenues. This can change slightly based depending on payer mix (Medicare/Insurance/Private Payer). Since we know this is a Medicare bridge, we will use 3% net income. That means a business this size, in this industry, puts $1.2MM to the bottom line annually. If an average 1st will fund 15% of revenues, and average 2nd funds up to 20-25%, and the 3rd and 4th are just seeking to keep it under 30% of daily revenue, how is lending almost 10x net income ("dailys...below 30%") to this business of any benefit to the borrower? 30% of daily revenues would be $47k a day (holy ****!) or 12MM per annum. Compare that to the net income of $1.2MM a year and this scenario is a loser. Now, it is possible that since this is "just over 6 months" in term, this one alone won't put them immediately out of business, but the merchant paying back more than $1.2M principal and interest at any point over the year wipes out their net income entirely. This type of lending isn't subject to underwriting in any traditional sense, it is gambling that your money comes back before the house of cards collapses. It is predatory and reckless.

I made a lot of assumptions because I don't have all the facts (banks, financials, etc.). It is possible this business is an absolute gold mine run super efficiently with 30% margins and has $12M in free cash flow a year, but those folks aren't stacking MCAs like pancakes. Hell, even if this had 4x the margins of the industry average with 12% net income, anything north of 24% daily for more than 6 months would wipe out their entire profit for the year.

Not only of the ethics of the transaction are poor, but the math sucks too.

[MCNetwork]

Let's do some quick math and a little actual underwriting.

It was previously disclosed that this was a $40MM+ home health care business and they needed to stack because of slow pays from the government (Medicare). That means this is being used a bridge loan and not growth capital, so revenue benefit to the borrower is null. The industry average net income for publicly traded (professional management, huge economies of scale, data driven and efficient business decisions, etc.) Medicare home health care is around 3% (citation) and falling as ACA cutbacks drive reimbursement rates lower as a % of gross revenues. This can change slightly based depending on payer mix (Medicare/Insurance/Private Payer). Since we know this is a Medicare bridge, we will use 3% net income. That means a business this size, in this industry, puts $1.2MM to the bottom line annually. If an average 1st will fund 15% of revenues, and average 2nd funds up to 20-25%, and the 3rd and 4th are just seeking to keep it under 30% of daily revenue, how is lending almost 10x net income ("dailys...below 30%") to this business of any benefit to the borrower? 30% of daily revenues would be $47k a day (holy ****!) or 12MM per annum. Compare that to the net income of $1.2MM a year and this scenario is a loser. Now, it is possible that since this is "just over 6 months" in term, this one alone won't put them immediately out of business, but the merchant paying back more than $1.2M principal and interest at any point over the year wipes out their net income entirely. This type of lending isn't subject to underwriting in any traditional sense, it is gambling that your money comes back before the house of cards collapses. It is predatory and reckless.

I made a lot of assumptions because I don't have all the facts (banks, financials, etc.). It is possible this business is an absolute gold mine run super efficiently with 30% margins and has $12M in free cash flow a year, but those folks aren't stacking MCAs like pancakes. Hell, even if this had 4x the margins of the industry average with 12% net income, anything north of 24% daily for more than 6 months would wipe out their entire profit for the year.

Not only of the ethics of the transaction are poor, but the math sucks too.

Spoken like a true underwriter!

I'm all for making money in this industry. It's hyper competitive out there and it's tough to make a decent living if you're a small ISO. But when pop-up stack funders come into this space with their bull**** underwriting criteria and start causing merchants to default on their 1st position funders because they think taking 30% of their monthly gross makes perfect sense, then that's where you have to draw the line.