[isaacdstern]

So I have come across 2 separate occasions TODAY where Kabbage has funded on top of deals and has not paid off the balance...just an FYI to everyone out there

[skideeppow]

yup, me too. Three deals in the last month.
Is the Kabbage platform all automated? There is no personal interaction?

[Sean Cash]

I think you just put in your bank info, they pull credit, and it approves you instantly. I don't think they do any underwriting. They probably have no idea what stacking is, nor would they care.

I asked some people in the p2p lending world and the thought never crossed their mind. If the credit score is there and cash flow supports it, it gets approved. Not a single consideration is given to who the loans are from or if their future revenues have been sold.

credit utilization good?
credit score good?
cash flow good?

FUND IT.

[isaacdstern]

absolutely insane if you ask me

[Sean Cash]

to date, the only people I have ever heard care about stacking are people who work in the MCA industry. In the rest of the world, it is customary to have multiple unsecured lines of credit at once. Whether or not a business or consumer can get more financing is up to the lenders. Some would consider OnDeck Capital to be stacked. But when the shoe is on other foot, all those capital raises of theirs and debt is looked upon as a good thing.

We congratulate funders on senior & subordinated credit lines in this business and then say merchants can't have more than 1 thing at a time because it's bad for them. Good for us but bad for them...

My guess is because of the cost. But if they can afford it?

[isaacdstern]

That is not the insane part to me...the insane part to me is the automated underwriting...there are so many factors to take into consideration when you decide to give a business an advance...how about the #1 thing like verifying if a merchant is current on their rent...how is a computer going to do that??? I think the model is nuts...but hey thats just me

[funding pro]

For such a small deal, it costs too much money to underwrite a transaction. The only way they can fund a deal with any chance of making money is to automate it. How will the collections affect their profitability? Time will tell...

[isaacdstern]

The 2 I saw today were not that small...one was a $20k and the other was $18K

[skideeppow]

the one i had last week was for around 18k, not a little advance.

[Sean Cash]

That is not the insane part to me...the insane part to me is the automated underwriting...there are so many factors to take into consideration when you decide to give a business an advance...how about the #1 thing like verifying if a merchant is current on their rent...how is a computer going to do that??? I think the model is nuts...but hey thats just me

I think it's kind of like Wonga, the UK based payday lender that almost bought OnDeck. Their whole model was to fund EVERYTHING and then try to find factors that may have contributed to defaults later and tweak their system to limit approvals. Different rules seem to apply when you can burn through millions of dollars "just to test things out" and then raise another 100 mil once you think you see a trend and a "possible way" to become profitable.

[isaacdstern]

I guess when the decision maker has absolutely no skin in the game that works

[Sean Cash]

skin is everything. It's partially why no traditional MCA company would fund online businesses a few years ago. What's a business owner got to lose when he has no property lease, no employees, no capital invested in his business?

Website: $20
Cost and obstacles to exiting the business: nothing (or maybe something to liquidate inventory on hand)
Getting a cash advance and calling it quits on your online store: priceless

[Quickfunder]

Pot. Kettle. Black.

[Mmarano]

It's all something Normal folks like us don't understand. Some firms are specifically designed to take losses. I don't get it. My partner and I banter over this quite a bit. I have wayyy tooo much pride to torch 75 Million. That's what kabbage raised. Probably have a gun to the head to deploy that money.

[Capital Stack]

their doing like $30 mil a month already and im sure trying to turn a profit

[Chambo]

their doing like $30 mil a month already and im sure trying to turn a profit

NO WAY they are profitable yet with two year terms...

[AndyYSCISOdept]

That honestly sounds like a 6 month business model. 3 months UP >>>then 3 Months DOWN!!!!

[AndyYSCISOdept]

It's all something Normal folks like us don't understand. Some firms are specifically designed to take losses. I don't get it. My partner and I banter over this quite a bit. I have wayyy tooo much pride to torch 75 Million. That's what kabbage raised. Probably have a gun to the head to deploy that money.

Agreed...losing money is in the DNA of some but not all MCA companies, and trust me when I say, "The difference is painfully obvious"

[AndyYSCISOdept]

I guess when the decision maker has absolutely no skin in the game that works

Why would the Decision maker have NO SKIN IN THNE GAME??????????

[Joseph Esparza]

I would have to agree that underwriting becomes tighter as capital becomes thinner and vise-versa, thereby eliminating [some of] the need to over compensate with docs.

[JayBallentine]

how about the #1 thing like verifying if a merchant is current on their rent...how is a computer going to do that???

Here's a possibility...

"Are all of your bills automatically paid from your primary business bank account - including your rent? If so, you qualify for our express funding / approval program - we'll have you funded in 24 hours! Enter your bank log-in details here!"

Then the software checks to make sure that he is current on the rent plus evaluating all other factors.

Not enough merchants automate bill payments now, but that trend is starting to change as we are becoming less interested in doing things like manually writing checks to cover the rent. Additionally, baby boomers are aging out and tomorrows "Joe Merchant" will be younger and more tech savvy - and will use apps to pay bills, order inventory, deploy marketing campaigns, and apply for business funding.

Carefully organizing big data and social graphs will make it easier for the entire process to become more and more frictionless for both funders and merchants. In 5-10 years whether a guy will default should be entirely predictable EVEN IF his credit is amazing and he's banking $1 trillion a month.

I could go on and on about this stuff... hopefully we'll make some positive contributions.

[Scott Williams]

Sean, the basic problem with stacking is not that it's an additional funding source. The problem is that it's very often a breach of the merchant's agreement with the original funder. That is where this gets hairy. There are serious legal concerns that come into play when you knowingly induce someone to breach a contract.

I have seen stacking going on since I entered this space in 2007 (well maybe 2008 is the first time I saw it). Yes, its definitely at the highest level now. The merchant is breaching the original funders contract but I assume the original funders contract would not hold up in court. Why hasn't a funder won a court case against a stacking funder by now? 7+ years of stacking and there hasn't even been a funder win a court case against a stacking funder.
I know all of the big funders have great legal teams. I assume their legal teams have advised them to not move forward with legal action since they think they wouldn't win the case.

[Ryan Shiroky]

because its easier to add in default fees into the merchants total payback and have an internal collections dept. bang the phones up... cheaper too... Why spend a buck when you can make a buck?