[Christian]

Alex -- that is great (and correct) legal background on difference between loans and cash advances. However, in the high risk space (really the only place you see full COJs up front), advances really are a lot closer to loans than advances (ever tried to get a true up on an ACH contract with one of those firms?). Two clear reasons I'd recommend brokers advise any client NOT to sign one -- and I'll even put the ethics of the practice and the fact the are unenforceable in many jurisdictions (and therefore just a scare tactic) aside for a moment.

1. You are right, cash advance should only be about contractual performance, not business performance -- however, if you read the "default" clauses of the YSCs of the space (the companies that are actually doing full COJs up front), it is so broad that PG of performance is effectively a PG -- for example, 2 missed payments and now you are "in default" and the PG of performance becomes a true PG -- and the full amount is due regardless of business performance, and they can try to enforce the COJ.
2. As Michael I said, the COJ is a clear intent to circumvent the first position who will usually have a UCC on the business and the first "right" to those receivables. I'm not convinced it should even be legal (even putting the ethics of a full COJ up front and the legality of stacking aside) to sign a second+ position COJ because they don't have the first right to those receivables.

The COJ that Everest uses seems to actually be pretty reasonable in terms of scope.

[ARFTC]

Tony,

If what you are providing for your client is an MCA, in other words a purchase of future receivables, then you need to understand that the COJ comes into play if the merchant defaults. The term default does not mean that the merchant is no longer able to make payments due to some unforeseen circumstance (lets say a hurricane destroys his business). A default would be something like the merchant committing fraud, or doing something deliberate that prevents the funder from collecting the rightfully purchased revenue. If this is an MCA product and not a loan, and your client does not have any intent of doing something deliberate to prevent the company from collecting what they legally purchased, then he/she should not have any issues signing the COJ.

This may be a good opportunity for you, and others on here, to fully understand the difference between an MCA and a loan. In an MCA transaction, the obligation of the merchant is conditional insofar as the future revenue that he sold for a discount actually comes to fruition. If the future revenue that he sold for a discount today to the funder fails to materialize due to some event out of his/her direct control, then he/she is not in default and the funder assumes all the risk. If the merchant commits fraud or deliberately does something (see the contract) to meet to terms of default (e.g. switch bank accounts without telling the funder, or starts depositing money into a different account, or putting a stop payment, etc...)then he/she is on the hook and hence where the COJ comes into play.

A loan on the other hand, is an unconditional promise to pay, regardless of whether the business is doing well or not. With a loan, the condition to pay on the merchants behalf has nothing to do of whether the business is doing well or not.

I hope this helps you understand the difference and also understand the point and intent of the COJ, and parts of the industry in general.

Alex- While I appreciate your input, I'm certain that 99% of the people on this site understand the difference between a loan and an MCA and the legal responsibilities. I've been in the alternative industry space for 15 years and when I see something like a COJ requested... I ask myself, how many other lenders are requiring this document?

My concern with this document is that anytime we present a legal document that needs to be notarized, we are asking the merchant to invest time and money in having the doc reviewed by counsel and then paying a Public Notary. So as a broker and in the interest of my time and my client's, I am going to attempt to avoid this COJ step every time that I can by placing my apps with the lenders that do not or rarely requires it.

[Michael I]

does any one else beside me find it interesting that the lenders that require coj are the same that do not know how to underwrite .

[J.Celifarco]

We pay DOUBLE DIGITS with out ISO's need to add extra fees to earn the double digits.

I get double digit commission from EVERY bank i work with without fees.. Any ISO that need extra fees to get to 10 points is working with the wrong banks.. ISOS that go through me get double digits and thats after a split so you need to find something new because that is really not that impressive anymore

[mcaguru]

I get double digit commission from EVERY bank i work with without fees.. Any ISO that need extra fees to get to 10 points is working with the wrong banks.. ISOS that go through me get double digits and thats after a split so you need to find something new because that is really not that impressive anymore

I agree. We also mastered Speed and Fewest Stips and a 2 person adjustment department that sit (perhaps a little to close) to the underwriters to make adjustments just about instantly.

[renewcap]

I think that is for all CA COJ's. Pretty sure it says the merchant was explained the COJ by the lawyer, not that it is recommended, but I could be wrong.

You are correct sir.

[skideeppow]

I agree. We also mastered Speed and Fewest Stips and a 2 person adjustment department that sit (perhaps a little to close) to the underwriters to make adjustments just about instantly.

I am calling total bull**** on this. I have been sent you guys a couple deals, and they are taking days to get approvals. Which is fine, i know they are high risk. But you constantly say things that are just not true.
Seems you will do any deal, but when i send it over it gets denied. YOu are what is wrong with this industry. Over promise and under deliver. I like Dennis, so i will keep on sending deals his way, you on the other hand are just awful.