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.