[qualifiedsub]

I have a SUPER solid merchant that's willing to move forward with a large offer. He's hung up on the PG and isn't budging becuase if he wanted to sign a PG he would just got to a bank. He is in fact bankable and this is a valid point. Does anyone know of a good lender that will loan without a PG?

[FUNd]

So if he's so 'bankable', why is he talking to you? Not every bank requires a PG.

[qualifiedsub]

Because he's willing to pay extra to not have to sign a PG.

[FUNd]

Because he's willing to pay extra to not have to sign a PG.

What's his objection in standing behind his super solid company?

[dailyPLUNDR]

How much are they looking for?

[qualifiedsub]

Do you know anyone or not. I'm not here to argue with you. I have money to make.

[qualifiedsub]

How much are they looking for?

Just PMd you

[FUNd]

Do you know anyone or not. I'm not here to argue with you. I have money to make.

Who's arguing? I was asking you a question. Maybe you can actually sell the guy on why he should PG rather than running all over town trying to find a lender that will do a corp only unsecured loan.

[Cfairbank]

I have a SUPER solid merchant that's willing to move forward with a large offer. He's hung up on the PG and isn't budging becuase if he wanted to sign a PG he would just got to a bank. He is in fact bankable and this is a valid point. Does anyone know of a good lender that will loan without a PG?

If you are looking for a cash advance (not a loan), PG is only a guarantee of performance. As long as the merchant abides by the terms of the contract, if company goes south, cash advance companies can't enforce PG. Does your merchant understand that? Or are you looking for a longer term loan?

I ask this because despite the fact you are asking for a loan, it's posted in cash advance. If you are looking for loan, disregard the above, and may be better suited to put this question in the lending or deal bin.

[VFG]

If he's bankable PG is required. If he's bankable then he can just go to the bank and avoid the MCA. Ask him what would he do if he was the one loaning you the money and if he would skip the PG. That usually works

[FUNd]

If you are looking for a cash advance (not a loan), PG is only a guarantee of performance. As long as the merchant abides by the terms of the contract, if company goes south, cash advance companies can't enforce PG. Does your merchant understand that? Or are you looking for a longer term loan?

I ask this because despite the fact you are asking for a loan, it's posted in cash advance. If you are looking for loan, disregard the above, and may be better suited to put this question in the lending or deal bin.

Yep, this is all I was talking about, and good points Carl. Once somebody has control of the deal and has you chasing your tail, you typically lose anyway. You'll go back to the guy, "Great news! I was able to find you a deal without a PG!", his next statement is usually "The rate is way too high.."

[Zach]

Yep, this is all I was talking about, and good points Carl. Once somebody has control of the deal and has you chasing your tail, you typically lose anyway. You'll go back to the guy, "Great news! I was able to find you a deal without a PG!", his next statement is usually "The rate is way too high.."

I agree with this to some extent; if you allow the merchant to bully you into going after documents or specific programs, it will usually never fund. However, there are plenty of times where I've successfully used the good 'ol approach: Is there anything else you would need BESIDES this in order to move forward? Anything at all? So you are telling me that if I can get you XXXX, you will move forward with our offer with no further delays? I have your commitment on that?

Not saying it ALWAYS works... but it is much better than an amateur "I'll go get that for you!"

[wally]

So as someone new, I'm confused. You can't enforce a PG? Even with a judgement? Or you can't get a judgement? Or what? If the company goes away you don't sue the signer?

Thanks for the help. Just trying to understand.

[bdshaw]

Carl, what prohibits the guaranty from being executable?
Bob

[mishatbb]

Business backer's personal guarantee is only executed with a structural default (fraud, stacking). If a business fails naturally, no personal guarantee.

[bdshaw]

Mish, is that specifically stated?

[Cfairbank]

Carl, what prohibits the guaranty from being executable?
Bob

This is an absolutely critical component to a cash advance, and something that clearly isn't understood properly (or perhaps even universally applied properly). When you make a cash advance, you are purchasing a % of future revenue/receivables/receipts/etc (depending on structure) that will come in at an uncertain time and in inconsistent amounts. At no point is a merchant rep'ing or warranting that their revenue will be a certain amount in the future (and therefore there is no term or fixed payment in a cash advance). In factoring, you are tying repayment to a contract with a known amount and the merchant is rep'ing that the work has been done and they will be paid a specific amount for an invoice or other receivable -- cash advance is a percentage of total receipts, so a lot more uncertainty.

Let's take ACH advance as example because splits are "self adjusting". If an advance takes 10% of revenue and the delivery amounts were initially set on historical avg of 200K per month, if the merchant's monthly revenue goes down to 100K per month, the cash advance company is required to do a "true-up" and cut the payment/delivery amount in half following proof by the merchant. Similarly, if the revenue goes to zero or the company goes out of business, that cash advance company has the right to 10% of zero. At least that is how it's supposed to work...

Here's where the critical nuance in PG comes into play. Any cash advance company that has contracts prepared by legitimate counsel will call it a Personal Guarantee of Performance (or something along those lines). Since this is not a loan, they are guaranteeing their actions as it pertains to the contract, not guaranteeing the return of funds or business performance. As Mish pointed out, is that if the merchant goes out of business naturally, the personal guarantee will only become valid is if the contract was violated. Some of the more unscrupulous players will have extremely detailed "default" language in their documents and work to prove that the merchant violated the agreement and therefore should be held viable for the full amount of the loan (in all fairness, the majority of merchants that do eventually go out of business do violate the contract pretty clearly, and in those instances, it's absolutely valid to enforce it). But pushing the lines here on this personal guarantee runs a significant risk of re-characterization to a loan. I know we (Breakout) on at least two cases where we made a cash advance to a merchant that went out of business but didn't violate contract, they asked to enter into a "repayment" plan after collapsing the company to repay the outstanding balance, we told them we couldn't accept any funds because they followed the contract, and we can only take a % of revenue. That's the way a cash advance contract is supposed to work.

Cash advances, when offered properly, are not credit. But I do have some fear that not every company in the space is handling the PG or true-up properly (we see true-up issues on almost every deal we get stacked and revenue goes down), and those folks run a serious risk of re-charactization to a loan (and subsequent potential usury issues).

Edited to note: this is how cash advances are SUPPOSED to work. I am not an attorney and not representing or warranting that that is how all cash advance companies treat them -- I know some of the C/D guys, even the big ones, have crazy things like "two bounced payments and it's a default" -- and then they will try to enforce the PG of performance. Brokers getting pushback on PG: read the default section of the contract so you understand what would constitute a contractual default. All the up market guys that still offer cash advances (e.g. TBB) shouldn't have crazy clauses like that.

[WeFundIt]

Hey Carl, thanks for a very detailed explanation of the PG as it relates to MCA. This is why I like to visit this forum. The opportunities to learn are immense.

[stat]

great explanation Carl, very well said.