1 00:00:00,000 --> 00:00:02,264 Sean Murray: Today I want to talk about funders verse 2 00:00:02,320 --> 00:00:05,887 lenders, what is the difference between them? I think if you're 3 00:00:05,943 --> 00:00:09,283 newer to the industry, you're more inclined to use the word 4 00:00:09,340 --> 00:00:12,453 lender. Because if you're providing financing, a lot of 5 00:00:12,510 --> 00:00:16,020 people's mind goes right to the word loan and lend. So surely, 6 00:00:16,076 --> 00:00:19,643 it must be lenders and lending, right. And if you're providing, 7 00:00:19,699 --> 00:00:23,096 if you're brokering, financing to a financing provider, some 8 00:00:23,152 --> 00:00:26,606 sort of capital provider, you might automatically assume that 9 00:00:26,662 --> 00:00:29,946 they are lending, but they may not be lending in the small 10 00:00:30,002 --> 00:00:33,399 business finance industry. And that's typically how I define 11 00:00:33,455 --> 00:00:36,739 the industry that we report on small business finance, not 12 00:00:36,795 --> 00:00:40,418 merchant cash advance. It's not the business loan industry. It's 13 00:00:40,475 --> 00:00:43,532 a collection of a lot of different things. It includes 14 00:00:43,588 --> 00:00:46,702 factoring it includes bank lending, it includes all the 15 00:00:46,758 --> 00:00:49,985 different things. And so it's important to understand the 16 00:00:50,042 --> 00:00:53,495 distinction between all of it, because if you're a broker and 17 00:00:53,551 --> 00:00:56,722 you're communicating to the customer, you really need to 18 00:00:56,778 --> 00:01:00,344 make sure that they know exactly what it is you're brokering to 19 00:01:00,401 --> 00:01:03,967 them. So you yourself, need to be very educated on the subject. 20 00:01:04,024 --> 00:01:07,364 And you need to understand the terms and conditions just as 21 00:01:07,421 --> 00:01:10,704 well as the funding or capital provider does. So what is a 22 00:01:10,760 --> 00:01:13,817 lender, I think we can all automatically assume that a 23 00:01:13,874 --> 00:01:17,554 lender makes loans, a bank would be a lender, for sure. A company 24 00:01:17,610 --> 00:01:21,007 like OnDeck, for example, they provide loans, you could call 25 00:01:21,063 --> 00:01:24,743 them a lender. But there's other products out there in the market 26 00:01:24,799 --> 00:01:28,366 too, products like merchant cash advances, that comes up a lot. 27 00:01:28,422 --> 00:01:31,593 And I think for some reason, we sort of lump language in 28 00:01:31,649 --> 00:01:35,329 together. Especially if you're a broker and you work with several 29 00:01:35,385 --> 00:01:38,952 different companies, you might work with companies that provide 30 00:01:39,008 --> 00:01:42,122 MCAs, you might work with companies that provide loans, 31 00:01:42,178 --> 00:01:45,575 you might work with factors. And you might just say, they're 32 00:01:45,632 --> 00:01:49,141 lenders they lend, but that's not the case. And so when you're 33 00:01:49,198 --> 00:01:52,311 talking about something specific, it's important to use 34 00:01:52,368 --> 00:01:55,312 the right language for a merchant cash advance, as I 35 00:01:55,368 --> 00:01:58,878 previously mentioned, on this show, merchant cash advances are 36 00:01:58,935 --> 00:02:02,388 not loans. It's not because I feel that way. It's not because 37 00:02:02,444 --> 00:02:06,011 merchant cash advance companies don't want people to think that 38 00:02:06,067 --> 00:02:09,407 they're not making loans. It's because they're actually not 39 00:02:09,464 --> 00:02:12,577 loans. And this has been affirmed by several courts. So 40 00:02:12,634 --> 00:02:16,257 as long as we're following, you know, the structure, the defined 41 00:02:16,313 --> 00:02:19,484 structure of what an MCA is, it's important to also talk 42 00:02:19,540 --> 00:02:22,654 about them in a manner that makes absolute sense and is 43 00:02:22,710 --> 00:02:25,880 consistent. A merchant cash advance company would not be 44 00:02:25,937 --> 00:02:29,334 called a lender. You could call them a merchant cash advance 45 00:02:29,390 --> 00:02:32,730 provider, you could call them a capital provider or capital 46 00:02:32,787 --> 00:02:36,240 source, you can call them a lot of different things. But they 47 00:02:36,296 --> 00:02:39,523 are definitely not a lender because a lender makes loans. 48 00:02:39,580 --> 00:02:43,203 The most common term that people use to describe a merchant cash 49 00:02:43,259 --> 00:02:46,656 advance company is a funder, merchant cash advance companies 50 00:02:46,712 --> 00:02:50,109 are funders, you've probably have heard that word a bit. Now 51 00:02:50,166 --> 00:02:53,675 you know exactly what it means. A funder is usually being used 52 00:02:53,732 --> 00:02:56,959 to describe a merchant cash advance company. But you know 53 00:02:57,015 --> 00:03:00,582 what? A funder is kind of broad, because what does a funder do? 54 00:03:00,638 --> 00:03:04,035 Well, it's not exactly you're not exactly sure. So you could 55 00:03:04,091 --> 00:03:07,375 describe a lender as a funder too. But you couldn't do the 56 00:03:07,431 --> 00:03:11,054 same in reverse. You can't call a merchant cash advance company, 57 00:03:11,111 --> 00:03:14,677 a lender. Well, you can call a you can call a lender, a funder. 58 00:03:14,734 --> 00:03:18,187 Kind of confusing, isn't it? But if we're talking about MCAs, 59 00:03:18,244 --> 00:03:21,244 make sure you use the word funder. Don't use the word 60 00:03:21,300 --> 00:03:24,754 lender. And if you're talking about loans, well, you can call 61 00:03:24,810 --> 00:03:28,433 them funder, but a lot of people call lenders, lenders, if we're 62 00:03:28,490 --> 00:03:31,603 talking about something different altogether, like true 63 00:03:31,660 --> 00:03:34,886 factoring, that's when you're buying actual like accounts 64 00:03:34,943 --> 00:03:38,396 receivable. You don't call them factoring providers per se, I 65 00:03:38,453 --> 00:03:41,453 suppose you could call them a funder if you wanted. A 66 00:03:41,510 --> 00:03:44,623 factoring provider is not a lender, because they're not 67 00:03:44,680 --> 00:03:47,907 lending anything. Factoring providers are called factors. 68 00:03:47,963 --> 00:03:51,473 And that's the term they use for factoring. So if your work if 69 00:03:51,529 --> 00:03:54,869 you're a broker, and you're brokering a client to a company 70 00:03:54,926 --> 00:03:58,096 that's gonna factor the receivables, you would say we're 71 00:03:58,153 --> 00:04:01,266 gonna work with a factor. If you're brokering them to a 72 00:04:01,323 --> 00:04:04,606 merchant cash advance company, you could tell them, you're 73 00:04:04,663 --> 00:04:07,776 gonna work with a funder, if you're brokering them to a 74 00:04:07,833 --> 00:04:11,229 company that's gonna make a loan, you could say, we're gonna 75 00:04:11,286 --> 00:04:14,796 broker you to a lender. Now, it could all be kind of confusing 76 00:04:14,852 --> 00:04:18,475 to the customer, they might not know all these terms. They don't 77 00:04:18,532 --> 00:04:21,815 know what funder means. They don't know what factor means. 78 00:04:21,872 --> 00:04:25,042 And it's on you to try to educate them. I know it's very 79 00:04:25,099 --> 00:04:28,552 easy to just go with the easiest term. I think we all want to 80 00:04:28,608 --> 00:04:32,061 just settle for loan and lender right out of the gate because 81 00:04:32,118 --> 00:04:35,288 it's a term that people are so familiar with. But in the 82 00:04:35,345 --> 00:04:38,741 business to business finance industry, right business owners 83 00:04:38,798 --> 00:04:42,194 are sophisticated, and it's important to educate them on the 84 00:04:42,251 --> 00:04:45,761 different types of capital that are available so make sure you 85 00:04:45,817 --> 00:04:46,950 use the right terms. 86 00:04:46,950 --> 00:04:50,170 If you're talking about factoring. The providers called 87 00:04:50,170 --> 00:04:52,840 a factor if you're talking about merchant cash, merchant cash 88 00:04:52,840 --> 00:04:57,340 advance, the term is funder. If it's about loans, its lender. 89 00:04:57,760 --> 00:05:00,640 Very important thing is the other reason to make sure that 90 00:05:00,640 --> 00:05:03,400 you do that is because if you just say, a lender and you 91 00:05:03,400 --> 00:05:07,060 think, oh, it's not a big deal, whatever, well after the fact, 92 00:05:07,090 --> 00:05:10,120 after they get funded or whatever, in whatever sense 93 00:05:10,120 --> 00:05:14,050 they're getting capital, you might find that down the road 94 00:05:14,080 --> 00:05:17,080 when they have questions, or there's a problem. And they come 95 00:05:17,080 --> 00:05:19,450 to you, and they're talking about how do we do this or how 96 00:05:19,450 --> 00:05:23,230 do we do that? Well, what they do, or what they have at their 97 00:05:23,230 --> 00:05:25,870 disposal is all going to depend on what type of agreement they 98 00:05:25,870 --> 00:05:28,840 entered into, if they entered into a loan, there's going to be 99 00:05:29,020 --> 00:05:34,120 a certain set of tools at their disposal that they can use to 100 00:05:34,120 --> 00:05:37,240 resolve whatever the issue is, if it's a merchant cash advance, 101 00:05:37,360 --> 00:05:43,120 same thing, the the the options that are available to resolve a 102 00:05:43,120 --> 00:05:45,640 situation are very specific to the nature of the agreement. 103 00:05:45,970 --> 00:05:48,970 Same with factoring, same thing, everything is very, very 104 00:05:48,970 --> 00:05:52,660 specific. And if you just start off and say, loan, lender, you 105 00:05:52,660 --> 00:05:55,030 know, it's all the same whatever, after the fact, you're 106 00:05:55,030 --> 00:05:57,250 gonna find that some customers are going to be very, very, very 107 00:05:57,250 --> 00:06:00,670 confused. When it comes to merchant cash advances, that 108 00:06:00,670 --> 00:06:05,890 topic comes up all the time. One specific thing to know, if you 109 00:06:05,890 --> 00:06:09,970 are a broker is that if a customer sales have dropped 110 00:06:10,060 --> 00:06:14,530 after they got funded, well, they probably have the ability 111 00:06:14,620 --> 00:06:18,490 to have their payments lowered. And this isn't just because the 112 00:06:18,490 --> 00:06:22,030 funder is nice, if they want to lower the payments, there's 113 00:06:22,030 --> 00:06:24,700 usually something called a reconciliation clause in the 114 00:06:24,700 --> 00:06:29,260 agreement that specifically provides for that to happen if 115 00:06:29,260 --> 00:06:32,590 their sales drop, or the payments are supposed to drop 116 00:06:32,770 --> 00:06:36,250 too. And this is all because a merchant cash advance is tied to 117 00:06:36,250 --> 00:06:40,150 a business's future revenue, or their future sales. And so if 118 00:06:40,150 --> 00:06:43,090 their sales go up, technically, you should be collecting more, 119 00:06:43,210 --> 00:06:46,270 if their sales go down, you should be collecting less. Now 120 00:06:46,270 --> 00:06:48,220 this is all depends on whether or not the merchant is reaching 121 00:06:48,220 --> 00:06:50,710 out to make sure these reconciliations happen. But if 122 00:06:50,710 --> 00:06:53,890 you are the broker, and you've adequately explained the 123 00:06:53,890 --> 00:06:57,250 different programs, and now the customer is calling to say, my 124 00:06:57,250 --> 00:07:00,100 sales have dropped, you know, what can we do? You know, what 125 00:07:00,100 --> 00:07:02,110 can we do about lowering the payments? Well, you should be 126 00:07:02,110 --> 00:07:04,390 thinking immediately, this particular agreement was a 127 00:07:04,390 --> 00:07:08,260 merchant cash advance, let me now go and do whatever is 128 00:07:08,260 --> 00:07:11,830 necessary to make sure we take advantage of the reconciliation 129 00:07:11,830 --> 00:07:15,640 process. And as long as your customer is aware, from the very 130 00:07:15,640 --> 00:07:18,850 beginning, you can avoid hiccups. Because sometimes a 131 00:07:18,880 --> 00:07:22,390 merchant will do things that's against their best interest, not 132 00:07:22,390 --> 00:07:25,840 knowing exactly the type of agreement they entered into you, 133 00:07:25,840 --> 00:07:28,210 as the broker from the very beginning can prevent these type 134 00:07:28,210 --> 00:07:31,150 of issues by making sure that you inform them and educate them 135 00:07:31,360 --> 00:07:35,680 on exactly what they're going to take from the very beginning. I 136 00:07:35,680 --> 00:07:38,050 know it's easy to tell a customer or a prospect, 137 00:07:38,110 --> 00:07:40,840 congratulations, you've been approved. Here's the approval 138 00:07:40,840 --> 00:07:43,390 amount is for this amount of money. But you should tell them 139 00:07:43,390 --> 00:07:46,870 the underlying nature of the agreement. Is this factoring? Is 140 00:07:46,870 --> 00:07:50,560 this a merchant cash advance? Is this lending? And how do you 141 00:07:50,560 --> 00:07:53,920 describe the company providing the capital? Are they a funder? 142 00:07:54,070 --> 00:07:56,980 Are they a lender are they a factor are they something else? 143 00:07:57,070 --> 00:07:59,440 There's a lot of different products out there. And so if 144 00:07:59,440 --> 00:08:02,080 you're a broker, if you're someone who competes against 145 00:08:02,080 --> 00:08:04,450 these products, it's very important that you use the right 146 00:08:04,450 --> 00:08:08,230 terminology all the time, not just with your customer, either. 147 00:08:08,350 --> 00:08:10,600 You should also be using it internally, it's very good 148 00:08:10,600 --> 00:08:14,350 practice, to speak about these things in dialogue, just like 149 00:08:14,350 --> 00:08:17,650 we're having right now. Also an email. If you're talking about 150 00:08:17,650 --> 00:08:20,860 MCA, use the word funder in email, if you're talking to 151 00:08:20,860 --> 00:08:24,040 someone on the phone, same thing, don't put one thing in 152 00:08:24,040 --> 00:08:26,800 email and say a different thing on the phone. That's how you 153 00:08:26,800 --> 00:08:29,110 confuse the customer or prospect of someone else that you're 154 00:08:29,110 --> 00:08:32,500 working with. To be consistent. It's very good practice. If 155 00:08:32,500 --> 00:08:34,900 you're working with a merchant cash advance company, you use 156 00:08:34,900 --> 00:08:37,180 the word funder, you're working with the actual companies that 157 00:08:37,180 --> 00:08:40,360 provide loans, use the word lender. And if you're working 158 00:08:40,360 --> 00:08:42,430 with all the different companies, you've really got to 159 00:08:42,430 --> 00:08:44,620 differentiate them at any different point in time. It's 160 00:08:44,620 --> 00:08:48,520 very, very important. So I know that came across a little bit 161 00:08:48,520 --> 00:08:51,520 like a lecture, but I felt like people out there could probably 162 00:08:51,520 --> 00:08:55,720 use a good refreshing on why these terms even exist. I think 163 00:08:55,750 --> 00:08:59,170 the word lender and loans and lending. We all we're all 164 00:08:59,170 --> 00:09:02,020 familiar with them. But this is the business to business finance 165 00:09:02,020 --> 00:09:04,210 industry. It's it's big, and it's complex and it's 166 00:09:04,210 --> 00:09:06,790 complicated. And there's a lot of different things. And there's 167 00:09:06,790 --> 00:09:09,220 no reason that you shouldn't speak to your clients in the 168 00:09:09,220 --> 00:09:12,940 same way. They're sophisticated educated people too they run a 169 00:09:12,940 --> 00:09:16,060 business. It might be easier to use certain language, but you 170 00:09:16,060 --> 00:09:19,120 need to be very specific about what certain things are. That's 171 00:09:19,120 --> 00:09:21,550 how you achieve success with any transaction that you do.