[dailyPLUNDR]

Hi all,

I have been in the MCA industry for about a year now and have become quite familiar with the different programs offered by the funders that my ISO works with. The standard renewal concept in this space has perplexed me for some time and I was hoping some of the veterans here may be able to shed some light on the policy.

It seems that the way renewal offers are consistently structured is that the merchant is made a "second position offer" that buys out the first position, and nets the proceeds (I am aware of an 'add-on' type product but have only ever seen this offered once, when there are probably 100+ funders in the space.) This leaves the merchant paying interest on top of interest, oftentimes at a higher daily payment, with little extension on the term. Have merchants simply not caught onto this yet? Why would anyone consider it a good business practice to provide a worse offer to someone who is interested in being a repeat customer of yours (not to mention has been a reliable with repayment)? It seems to me with this practice it is no wonder that merchants would prefer to stack from an entirely different company. All of this when half of MCA's are sold on an "Introductory offer where we will see better rates and terms on consecutive deals".

Let me offer a brief example on a brand new program from one of my funders:

4M Initial BR: 1.14
4m Renewal BR: 1.16

Has this practice survived simply because no one has called BS on it yet? Will it continue to survive as this space gets more competitive and regulated?

I feel as though I must be missing something -- especially with the "Do right by your Merchant!" mentality of most of the major funders on this forum.

I apologize if this is an amateur question. However it seems to me the only reason you would "renew" the contract (as a funder) like this rather than "add-on" or "refinance" is purely out of the expectation for an even greater return (and if so, that's fine and is the only answer I need). I am not as familiar with the investment side of MCA and so I could be wrong but it seems to me there may be a less predatory way to offer this type of renewal without negatively affecting profitability and ROI requirements.

[Michael I]

Hi all,

I have been in the MCA industry for about a year now and have become quite familiar with the different programs offered by the funders that my ISO works with. The standard renewal concept in this space has perplexed me for some time and I was hoping some of the veterans here may be able to shed some light on the policy.

It seems that the way renewal offers are consistently structured is that the merchant is made a "second position offer" that buys out the first position, and nets the proceeds (I am aware of an 'add-on' type product but have only ever seen this offered once, when there are probably 100+ funders in the space.) This leaves the merchant paying interest on top of interest, oftentimes at a higher daily payment, with little extension on the term. Have merchants simply not caught onto this yet? Why would anyone consider it a good business practice to provide a worse offer to someone who is interested in being a repeat customer of yours (not to mention has been a reliable with repayment)? It seems to me with this practice it is no wonder that merchants would prefer to stack from an entirely different company. All of this when half of MCA's are sold on an "Introductory offer where we will see better rates and terms on consecutive deals".

Let me offer a brief example on a brand new program from one of my funders:

4M Initial BR: 1.14
4m Renewal BR: 1.16

Has this practice survived simply because no one has called BS on it yet? Will it continue to survive as this space gets more competitive and regulated?

I feel as though I must be missing something -- especially with the "Do right by your Merchant!" mentality of most of the major funders on this forum.

I apologize if this is an amateur question. However it seems to me the only reason you would "renew" the contract (as a funder) like this rather than "add-on" or "refinance" is purely out of the expectation for an even greater return (and if so, that's fine and is the only answer I need). I am not as familiar with the investment side of MCA and so I could be wrong but it seems to me there may be a less predatory way to offer this type of renewal without negatively affecting profitability and ROI requirements.

it used to be way worst . all the lenders used to do it and only pay you on the net half commission ( in reality its a quarter of original cm)

[Chambo]

Hi all,

I have been in the MCA industry for about a year now and have become quite familiar with the different programs offered by the funders that my ISO works with. The standard renewal concept in this space has perplexed me for some time and I was hoping some of the veterans here may be able to shed some light on the policy.

It seems that the way renewal offers are consistently structured is that the merchant is made a "second position offer" that buys out the first position, and nets the proceeds (I am aware of an 'add-on' type product but have only ever seen this offered once, when there are probably 100+ funders in the space.) This leaves the merchant paying interest on top of interest, oftentimes at a higher daily payment, with little extension on the term. Have merchants simply not caught onto this yet? Why would anyone consider it a good business practice to provide a worse offer to someone who is interested in being a repeat customer of yours (not to mention has been a reliable with repayment)? It seems to me with this practice it is no wonder that merchants would prefer to stack from an entirely different company. All of this when half of MCA's are sold on an "Introductory offer where we will see better rates and terms on consecutive deals".

Let me offer a brief example on a brand new program from one of my funders:

4M Initial BR: 1.14
4m Renewal BR: 1.16

Has this practice survived simply because no one has called BS on it yet? Will it continue to survive as this space gets more competitive and regulated?

I feel as though I must be missing something -- especially with the "Do right by your Merchant!" mentality of most of the major funders on this forum.

I apologize if this is an amateur question. However it seems to me the only reason you would "renew" the contract (as a funder) like this rather than "add-on" or "refinance" is purely out of the expectation for an even greater return (and if so, that's fine and is the only answer I need). I am not as familiar with the investment side of MCA and so I could be wrong but it seems to me there may be a less predatory way to offer this type of renewal without negatively affecting profitability and ROI requirements.

One reason why the funds that add on, as opposed to refi, are highly coveted
It also just so happens that 98% of the reps out there could care less about what is best for the merchant. They just want to get paid as much as possible

[Cfairbank]

Hi all,

I have been in the MCA industry for about a year now and have become quite familiar with the different programs offered by the funders that my ISO works with. The standard renewal concept in this space has perplexed me for some time and I was hoping some of the veterans here may be able to shed some light on the policy.

It seems that the way renewal offers are consistently structured is that the merchant is made a "second position offer" that buys out the first position, and nets the proceeds (I am aware of an 'add-on' type product but have only ever seen this offered once, when there are probably 100+ funders in the space.) This leaves the merchant paying interest on top of interest, oftentimes at a higher daily payment, with little extension on the term. Have merchants simply not caught onto this yet? Why would anyone consider it a good business practice to provide a worse offer to someone who is interested in being a repeat customer of yours (not to mention has been a reliable with repayment)? It seems to me with this practice it is no wonder that merchants would prefer to stack from an entirely different company. All of this when half of MCA's are sold on an "Introductory offer where we will see better rates and terms on consecutive deals".

Let me offer a brief example on a brand new program from one of my funders:

4M Initial BR: 1.14
4m Renewal BR: 1.16

Has this practice survived simply because no one has called BS on it yet? Will it continue to survive as this space gets more competitive and regulated?

I feel as though I must be missing something -- especially with the "Do right by your Merchant!" mentality of most of the major funders on this forum.

I apologize if this is an amateur question. However it seems to me the only reason you would "renew" the contract (as a funder) like this rather than "add-on" or "refinance" is purely out of the expectation for an even greater return (and if so, that's fine and is the only answer I need). I am not as familiar with the investment side of MCA and so I could be wrong but it seems to me there may be a less predatory way to offer this type of renewal without negatively affecting profitability and ROI requirements.

You aren't missing anything, and this is a practice that is not at all understood by those outside of the space, as well as many inside the space. I fully agree this is a bad practice that should, at the very least, be disclosed to merchants (but isn't) -- by our internal calcs, "double dipping" adds approx. 15 factor points to EACH renewal on a six month 1.35x. So if we offer a 1.35x at 6 months that renews (no double dip), that is the equivalent of a 1.20x from many of our competitors (renewal with a full double dip) if the loan or advance renews.

That being said, some funders/lenders in the space are going away from this practice. We (breakout) never double dip. OnDeck, Rapid and others have gone or are going away from this. TBB has been a pioneer for a long time on this concept and has a fantastic video on their website that goes through this. I do think this is a practice that will come under intense scrutiny if/when regulatory oversight comes into place.

[FUNd]

Maybe a little off topic but 2 lenders who won't steal your renewal and pay you regardless of how much volume you fund are: BFS and Fora. Both stand up companies. If you want to get paid and not get backdoored, I suggest either. Feel free to add more to the list.

[mcg168]

You aren't missing anything, and this is a practice that is not at all understood by those outside of the space, as well as many inside the space. I fully agree this is a bad practice that should, at the very least, be disclosed to merchants (but isn't) -- by our internal calcs, "double dipping" adds approx. 15 factor points to EACH renewal on a six month 1.35x. So if we offer a 1.35x at 6 months that renews (no double dip), that is the equivalent of a 1.20x from many of our competitors (renewal with a full double dip) if the loan or advance renews.

That being said, some funders/lenders in the space are going away from this practice. We (breakout) never double dip. OnDeck, Rapid and others have gone or are going away from this. TBB has been a pioneer for a long time on this concept and has a fantastic video on their website that goes through this. I do think this is a practice that will come under intense scrutiny if/when regulatory oversight comes into place.

Unless I am being misled, OnDeck absolutely still makes the merchant pay the original balance down (double dip). They have a line of credit program, but thats a something completely different and the commission is so low its not really worth selling.

I dont have much experience with TBB, but they are relatively new to this industry so I wouldn't say they are the pioneer of this concept. I would give that label to BFS, whose been doing renewals this way for 10 years.

[anonymous]

maybe a little off topic but 2 lenders who won't steal your renewal and pay you regardless of how much volume you fund are: Bfs and fora. Both stand up companies. If you want to get paid and not get backdoored, i suggest either. Feel free to add more to the list.

qs / iou

[Vfunding]

On Deck waives the remaining interest portion of the balance upon renewal, and buys out the principal balance with the new loan. This is for their standard term loan product not their LOC.

[Vfunding]

Also if your portfolio performs well and you have a good relationship with your funding source, many will do whatever it takes to help keep merchants happy and keep ISO's on board. You would be surprised how far a well performing portfolio gets you... We have seen funders who claim to only do full refi's do $200k+ add ons rather than buyouts for us. We've also have seen balance discounts on renewal for deals without an early pay incentive in the contract. Do business with good merchants, do business with good funders, and be professional and you will be offered benefits!

[MCNetwork]

Putting profitability aside, I thought the "double dipping" technique was used to keep the record keeping of cash advances straight. Otherwise, you'd have transactions that never end if a client keeps adding on. The reporting of new deals funded and completed deals would be murky, especially if the advances are being securitized and sold to third parties. The purpose of refinancing is to close out the earlier transaction and start a new one fresh. Yes the merchant is paying interest on interest but the selling point is that you're able to reduce his daily payments and improve his factor rate (hopefully) AND get him immediate capital. The pros should outweigh the cons.

[Cfairbank]

Unless I am being misled, OnDeck absolutely still makes the merchant pay the original balance down (double dip). They have a line of credit program, but thats a something completely different and the commission is so low its not really worth selling.

I dont have much experience with TBB, but they are relatively new to this industry so I wouldn't say they are the pioneer of this concept. I would give that label to BFS, whose been doing renewals this way for 10 years.

Agreed, TBB/BFS are the two examples I'd use -- Yes, BFS is bigger, but TBB has been around 9 years now -- in this space, that's an eternity. From the beginning, they have been a vocal critic of the double dipping concept.

[Funder Mark]

Putting profitability aside, I thought the "double dipping" technique was used to keep the record keeping of cash advances straight. Otherwise, you'd have transactions that never end if a client keeps adding on. The reporting of new deals funded and completed deals would be murky.

I totally agree. If there is an addon, what do you write in as the status of the previous advance? When you fully cover the previous balance, then you can write in paid in full, so for accounting purposes it is likely much better.

[Cfairbank]

Putting profitability aside, I thought the "double dipping" technique was used to keep the record keeping of cash advances straight. Otherwise, you'd have transactions that never end if a client keeps adding on. The reporting of new deals funded and completed deals would be murky, especially if the advances are being securitized and sold to third parties.

If a funder has that concern, let the renewal run side by side as a completely separate deal. Or simply do an add on structured as a separate deal. All double dipping does is accelerate returns and allows funders to charge fees on fees.

[Michael I]

Maybe a little off topic but 2 lenders who won't steal your renewal and pay you regardless of how much volume you fund are: BFS and Fora. Both stand up companies. If you want to get paid and not get backdoored, I suggest either. Feel free to add more to the list.

bro read your iso agreement more carefully . if you don't fund one deal with bfs in 90 days you will lose the last 7 years of your renewal book. it is all theirs . for a large iso that won't happen but a small guy can have a couple of months of no a plus paper for them

[Michael I]

Unless I am being misled, OnDeck absolutely still makes the merchant pay the original balance down (double dip). They have a line of credit program, but thats a something completely different and the commission is so low its not really worth selling.

I dont have much experience with TBB, but they are relatively new to this industry so I wouldn't say they are the pioneer of this concept. I would give that label to BFS, whose been doing renewals this way for 10 years.

bfs still does both ways .

[Michael I]

On Deck waives the remaining interest portion of the balance upon renewal, and buys out the principal balance with the new loan. This is for their standard term loan product not their LOC.

yes but its a sliding thing where they pay off more interest in the beginning

[MCNetwork]

The one funder who will 100% honor your renewals is Snap Advances. They also work them on your behalf. There's nothing better than to wake up with a small surprise in my checking account and an email that says "Congratulations! Your merchant was renewed and you've earned $$$!"

[Chambo]

Putting profitability aside, I thought the "double dipping" technique was used to keep the record keeping of cash advances straight. Otherwise, you'd have transactions that never end if a client keeps adding on. The reporting of new deals funded and completed deals would be murky, especially if the advances are being securitized and sold to third parties. The purpose of refinancing is to close out the earlier transaction and start a new one fresh. Yes the merchant is paying interest on interest but the selling point is that you're able to reduce his daily payments and improve his factor rate (hopefully) AND get him immediate capital. The pros should outweigh the cons.

TBB doesn't seem to have any trouble keeping track