[AlexSMF]

What's up guys.

Been some time since I have posted on here since leaving the industry, but wanted to share something very interesting we are working on at the new place.

We are in the process or rolling out an insurance product specifically for the MCA industry that funders can use to protect themselves against defaults from the receivables they have purchased from merchants.
There has been quiet a lot of due diligence done on this project, and as far as we know, it currently does not exist in the market.

A funder would be able to purchase a blanket policy that would pay out the remaining balance of the RTR to the funder in the event a merchant defaults or is not able to deliver remainder of the purchased receivables. I can provide more details for those of you who are interested. But we are looking to test out the product, currently have 2 companies that I approached before the product was ready and they expressed serious interest...obviously.

If this is something that you guys would like more details on or chat about, feel free to reach out. Could be a game changer in terms being able to obtain lower rates from your investors and being able to be more competitive on factor rates.

PM me if interested.

All the best,

Alex

[CreditGuy]

So...trade credit insurance.

[AlexSMF]

So...trade credit insurance.

Not necessarily.

[ADiamond]

Not necessarily.

send me info.

[Vfunding]

Pretty sure you are referring to credit insurance. https://en.wikipedia.org/wiki/Trade_credit_insurance
AIG and all their competitors have been selling this product for a century. In fact, just like our industry has brokerages to match companies with lenders, the credit insurance industry has brokerages that find their clients credit insurance policies.

[Christian]

The Big Short all over again! Maybe more like The Little Short this time...

[fma123]

send me info

[ridextreme]

any references on funders actually being settled back for their MCA defaults

[Sean Cash]

Allow people on here to buy or sell insurance on other companies defaults and let the good times roll!

[Zach]

Allow people on here to buy or sell insurance on other companies defaults and let the good times roll!

Then after that, we securitize and package up bundles of MCA's to sell off... ;-)


..Although, I do dig this insurance idea for MCA's. Eager to see how this plays out.

[Sean Cash]

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[Karen37a]

Who insures the insurer? I am kidding...its a ceding policy or stop loss insurance.

Plausible idea if you have that in place

[Karen37a]

Who insures the insurer? I am kidding...its a ceding policy or stop loss insurance.

Plausible idea if you have that in place..or go get it.

You can pm me if you have it, or pm me if you want to know where to get it.

[WalkingTall74]

Would be interested in learning more. PM me

[CreditGuy]

Since this product doesn't exist yet, the success of the program will be contingent upon getting enough take up to create the pool that will insure the losses. Put another way, unless the buy in doesn't reach X value they can't write the insurance. Also, it probably isn't a good of a deal as it sounds. Since any insurance is the socialization of a pool of costs, they have to cover those and overhead and profit. For a lender with a 10% dollar loss rate that isn't going to be cheap. It also necessitates that high credit quality portfolios buy the product to offset the 10% guys. If that doesn't happen, the costs spool up quickly and/or the fund goes broke.

Also, the insurer will have to UW your book to offer you a rate, since they aren't going to insure CAN's book at the same rate as a two bit hack shop doing 5th positions out of Brooklyn. Not to mention now the insurer will know everyone's loss rates and portfolio composition. That is very valuable information that you'd be paying them to take. Sure, they can sign an NDA, but that doesn't mean ****.

This is essentially a sales pitch. Act accordingly.

[Sachip24]

although sounds like a good idea, I get the strange feeling chop shops will use this as another junk fee to collect upfront from merchants " yea you pay this insurance fee to protect the lender against default" etc etc etc

[ridextreme]

although sounds like a good idea, I get the strange feeling chop shops will use this as another junk fee to collect upfront from merchants " yea you pay this insurance fee to protect the lender against default" etc etc etc

"junk fees" are a major part of american commerce. Whether it's a car, mtg, shipping and handling charge, set-up fee, or whatever, MCA brokers are not doing anything different than any other industry.

[mcaguru]

Are you sure you thought deeply enough into this ? seems like you can get smoked out with a net negative premium pool.

[Accord Business Funding]

PM me. Send me info.

[BankComplianceGuy]

Not necessarily.

Not necessarily, you pay us a premium that is not nearly correlated to the actual risk and then when a merchant defaults, we'll give you the runaround, how's that sound???

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[Zach]

Alex is a stand-up guy, and I'm sure he wouldn't bring this to light if he didn't have a preliminary strategy laid out. Try reaching out and seeing what he has to say.

[AlexSMF]

Alex is a stand-up guy, and I'm sure he wouldn't bring this to light if he didn't have a preliminary strategy laid out. Try reaching out and seeing what he has to say.

Thanks Zach. Some of you have asked for info on this so here it goes. To start of with, Creditguy is right; since this product does not officially exist yet, there needs to be enough in the pool to make it work. On top of that, as far the research I've done and the feedback Ive received from multiple specialty vehicle product underwriters (including CNA and ex AIG underwriters working at other major companies) trade credit insurance would not necessarily be applicable here for a few reasons that I can elaborate on (primarily due to structure of MCA's and insurance companies appetite for them).

That said, here is how the product works (You should read this if you made any references to "the big short", as this is not."

Lets say MCA company A has a pool of merchants they purchases future revenue from. Currently the amount outstanding to the MCA company is $10,000,000.
The insurance company would write a policy with a general aggregate limit of $5,000,000 and a $50,000 per occurrence maximum, not exceeding 75% of the outstanding amount. Reason for this is to make sure that the MCA company always has skin in the game. (at any point, they are always on the hook for 25%)

Premium can get assessed in a few ways, but the most obvious would be for the insurer to look at the historical default rate on the pool of dollar value of the aggregate limit they are writing. In this case, lets say on a pool of $5,000,000, the historical default rate in past 12 months is 8%, meaning $400,000. In this scenario, the premium would be somewhere in the vicinity of lets say $450,000.

The obvious question here is, why in the world would you pay a $450,000 insurance premium to protect yourself against $400,000 in losses. 2 reasons:
1) You are funded by investors and would like to use this as a tool to reduce the rate you are paying to them (if that is your structure)
2) You are looking to expand your underwriting guidelines in an attempt to capture more of the market but in return you run the risk of running up your default rate. In this scenario, the insurance acts as your safety net.

There are other reasons why you would purchase this, if for example you had good reasons to believe that your default ratio will be going up due to slacking economy, etc... however I would not recommend this product for that standalone reason.

If you are self funded, do not have investors, and not looking to do anything different with your underwriting or new products, then this insurance does not make sense for you, since the insurance premium will always be more than the dollar value of your historical default rate. Don't mean to be long winded here but I a firm believer in transparency and not a fan of having people insinuate that I am looking to get over on anyone. Those who have dealt with me in person would attest to that.

Given the aforementioned, if this is something that is of interest to you, then lets chat. Yes, I need participants to make this work and to give you guys more specifics if what I provided so far isn't enough.

[mcaguru]

Here is why we have no need purchase an official insurance product. in reality when you fund enough merchants the book cleanses itself (of course Underwriters need to be competent). If evrey file went good rates would be perhaps 1.08 factor rates.

[AlexSMF]

Not necessarily, you pay us a premium that is not nearly correlated to the actual risk and then when a merchant defaults, we'll give you the runaround, how's that sound???

11lonn.jpg

Bank compliance guy, it sounds like your cynicism is showing due to being the industry for too long. This isn't (enter shady sounding name here) from the corner writing these policies, this is being worked on by a well known major insurer.

[mcaguru]

Alex-
when your up and running reach-out !