[J.Celifarco]

I get stacking is becoming more and more the norm in this industry. That said I need to understand why an ISO would try to stack a second position 10k 3 month 1.42 deal or why a bank would approve this when the balance on the deal is 15k and the merchant is doing over 50k a month. I was able to keep this deal by offering a regular refi because the ISO who tried to take it believed a 3 month second position deal would be better then a 8 month regular deal. Can someone explain to me the thinking of these companies. Who would the bank offer the second position when they could have the first position and why would the ISO try for a 10k second position when they would make more money on a bigger first position deal. I am starting to think there are companies out there that only know how to stack and dont have a clue how to do anything else

[Andy]

I agree with you. To me sounds like the broker had no idea what they are doing. Refinancing the first position would have been for the best for everyone involved, the merchant, the broker, and both funders. And with rush of new money into stacking companies, there are quite a few who have no idea what they are doing. It seems like some do basically no underwriting, and just assume if it passed the first position funders underwriting then it must be good to stack on. We actually had a company decline a deal saying they don't do first positions lol

The only argument is that stacking eliminates paying interest on interest, as done in a traditional refi. However in my opinion the much higher rate and much shorter term eliminates any benefit of saving interest on interest

[J.Celifarco]

There is no real benefit to stacking other then if the balance is too high to refi.. Other then that it is worse for the merchant the ISO and the bank in my opinion.. You had a bank tell you they don't do first positions?? Not sure what to say to that.. That is INSANE

[R Garcia]

Sounds like he can't get any new deals

[Sean Cash]

It seems like some do basically no underwriting, and just assume if it passed the first position funders underwriting then it must be good to stack on. We actually had a company decline a deal saying they don't do first positions lol

I have heard similar from some new entrants, people who are actually pretty smart but learned from the wrong guys. These guys are taught "Welcome to MCA, don't fund anything that wasn't already funded, a standard deal is 3 months, a starter is 6 weeks and anything better is OnDeck."

The MCA Industry 1.0 is so far gone that Ami Kassar thinks he invented the idea of residuals as a future improvement. In Better Practices, "Kassar suggests that short-term lending companies could start offering brokers a percentage of what the loan earns on a monthly basis. The commission would be paid over the life of the loan, instead of up front."

Whatever happened to the 5 and 5 deal? 5% upfront, 5% on the back? Now it's 20% upfront and anything not already funded is suspect.

[J.Celifarco]

The amount of people who think like the way you just described Sean is scary.. Do people know there was a cash advance industry before stacking??? I dont know

What you forgot to mention is back then when those commissions were being paid we were also boarding credit card accounts on almost every deal we funded

[Sean Cash]

The amount of people who think like the way you just described Sean is scary.. Do people know there was a cash advance industry before stacking??? I dont know

What you forgot to mention is back then when those commissions were being paid we were also boarding credit card accounts on almost every deal we funded

boarding credit card accounts? Wait, you mean you can get paid for boarding processing accounts?!?!

[J.Celifarco]

boarding credit card accounts? Wait, you mean you can get paid for boarding processing accounts?!?!

HA!

[Finance1]

The math can be spun on stacking pretty easily against doing a refi.

10k balance and need 10k

Refi: 20k 8 month deal @ 1.35 = $27,000 repay or $7k cost for $10k.

Stack: $10k @ 1.42 = $4,200 in cost for $10k.

Yea, time vs money is out of whack but still, it's not hard to spin to make a sale. Why the iso wanted to push the stack is hard to say. If he didn't own the first position then it's obvious. Retention could have cut him out. If he did own the first position then it was kinda dumb. Especially because stacks can screw up the clients ability to refi the first position deal leaving them worse off in the long run.

[Chambo]

. I am starting to think there are companies out there that only know how to stack and dont have a clue how to do anything else

This pretty much sums it up. A bunch of "Me Too" companies, who are looking for the quick buck,m don't plan on staying around, and don't have a CLUE about true underwriting or client retention.

[J.Celifarco]

The math can be spun on stacking pretty easily against doing a refi.

10k balance and need 10k

Refi: 20k 8 month deal @ 1.35 = $27,000 repay or $7k cost for $10k.

Stack: $10k @ 1.42 = $4,200 in cost for $10k.

Yea, time vs money is out of whack but still, it's not hard to spin to make a sale. Why the iso wanted to push the stack is hard to say. If he didn't own the first position then it's obvious. Retention could have cut him out. If he did own the first position then it was kinda dumb. Especially because stacks can screw up the clients ability to refi the first position deal leaving them worse off in the long run.

I see what you are saying in this example.. The deal I am talking about owed 15k doing 50k gross.. The ISO pitched a smaller second position deal. Pitched the merchant 12k second position instead of trying to do a 40k regular deal and pay off the existing position..

The point I was trying to make is that I am starting to think there are people in this industry who dont know there is an option other then to offer a stack.

[anonymous]

I have had a number of clients who tell me they wan't a second position to avoid paying interest on interest. In all reality the interest is front end loaded on most of these deals. If you take a look at your OD portal (for example) you will see that by the time they are half way through the term, the interest is essentially paid. At which point they offer "interest forgiveness (love it)" on the couple hundred bucks without the merchant knowing that the amount of interest being forgiven is so little. I would assume that this newer ISO didn't know how to properly explain this to his client and roll him into a consolidation. Instead he said sure, you want a $10K 2nd position, here it is - btw this is a "high-risk" deal which is why you will be paying 10% in junk fees/netting $9K.

[J.Celifarco]

this wasn't an ondeck deal. but either way the iso definitely did not know how to explain anything.. I am trying to figure out how these companies are surviving when they obviously have no understanding of what they are selling

[Andy]

this wasn't an ondeck deal. but either way the iso definitely did not know how to explain anything.. I am trying to figure out how these companies are surviving when they obviously have no understanding of what they are selling

They survive because there is enough businesses that need money and are not knowledgeable of there options that bad brokers/uneducated brokers can still take advantage of . Look how many posts there are on here about people brand new to the industry but yet they think its a good idea to open an ISO or even direct funding lol.
For example we have seen merchants with pearl balances that we got on deck approvals for. They had pearl because they had no idea there was better options available, and pearl was the first company they talked to.

and the ISO can survive because lets face it, there are a ton of ISOs are small home based , they have no overhead so they don't need to fund very much to scrap by

[Chambo]

The math can be spun on stacking pretty easily against doing a refi.

10k balance and need 10k

Refi: 20k 8 month deal @ 1.35 = $27,000 repay or $7k cost for $10k.

Stack: $10k @ 1.42 = $4,200 in cost for $10k.

Yea, time vs money is out of whack but still, it's not hard to spin to make a sale. Why the iso wanted to push the stack is hard to say. If he didn't own the first position then it's obvious. Retention could have cut him out. If he did own the first position then it was kinda dumb. Especially because stacks can screw up the clients ability to refi the first position deal leaving them worse off in the long run.

you are leaving out one essential point. With a stack, you now have TWO payments coming out, thus further killing one's cash flow

[Lendini]

To stack or not to stack that is the question... If the second position doesn't exceed affordability then in a lot of cases it's cheaper for the merchant then getting a refi. That being said when it exceeds the affordability it's in the merchant best interest to get the first position bought out.