MCA Brokers: Constructing Your Funder Network

Progressing forward into the 3rd Quarter of The Year Of The Broker, I wanted to continue our focus on the vital issue of inefficient training that new broker entrants are receiving within our space. In the previous article for deBanked on 6/22/2015, I inquired about if you knew what you were selling in terms of the Merchant Cash Advance product? Within the article, I discussed value points and overcoming the product’s criticism. In this article, I wanted to add to this discussion by deliberating over how to create a quality Funder Network for the Merchant Cash Advance Product.

As a Broker, I believe your job is to be as Jeff Thull from Prime Resource Group explains, which is to be a valued source of business advantage for your prospective and current clientele. In terms of the Merchant Cash Advance Product, you should have access to knowledge, resources, networks, and underwriting criteria that your prospective and current clientele lacks access to, allowing them to see you as a “valued extension” of their organization in terms of the value of your expertise and network. However, too many Brokers are not taking the time to truly be this source of business advantage for their prospective and current clientele, which involves not just continued knowledge, analysis and study over the industry from a “Macro” perspective, but also rounding up the quality relationships to properly serve their clientele on a “Micro” level, such as the creation of a high quality Funder Network. In this article, I wanted to provide some information to assist new Brokers in creating a high quality Funder Network for the Merchant Cash Advance product.

Keeping Things In Perspective
In my first article for deBanked from 5/10/2015, I discussed the importance of Selecting The Right Funders, if you haven’t already done so, please review this article to keep things in perspective going forward. After you have reviewed that article, now you should focus on carefully crafting your Funder Network so that you can fulfill your job as being a source of business advantage to your prospective and current clientele. This creation will be based on understanding industry paper grades, which represent the various situations of your clientele during the underwriting process that determine their approval, risk based pricing, terms and conditions.

Paper Grades
The Paper Grades across the board are pretty much the same, but your job is to make sure you have 1-2 reliable, credible and quality lenders for each of the Paper Grades so that you can properly serve your clientele with tailored pricing, terms and conditions based on their risk based profile.

• A Paper: These are merchants that usually have a 650 plus FICO score, clean bank statements with low NSFs/Overdrafts/Negative Days, healthy bank balances (ending and average), no tax liens, no judgment liens, no recent bankruptcies, and no landlord/mortgage issues. In terms of pricing, this merchant should qualify for premium pricing or what I define as Tier I Pricing.
   
• B Paper: These are merchants that usually have a 600 – 640 FICO, with a variety of potential profile weaknesses on top of the lower credit scoring. Some of those potential weaknesses include having somewhat clean bank statements, somewhat healthy bank balances, they might have a tax lien or judgment lien on a payment plan (and the judgment is not from a prior MCA Company or based on fraud), they might have had a dismissed/discharged bankruptcy, and/or they might have landlord issues but can be resolved at closing. Note that in terms of these weaknesses, this merchant should really have no more than two of these weaknesses, such as they might have somewhat clean bank statements along with a tax lien on a payment plan. In terms of pricing, this merchant should qualify for Tier II Pricing.
   
• C Paper: These are merchants that usually have a 540 – 580 FICO, with a variety of actual profile weaknesses that push them into this lower credit grade. Some of these weaknesses include having bank statements with 5 – 10 NSFs/Overdrafts/Negative Days, along with not so healthy bank balances. In addition, they might have a tax lien or judgment lien on a payment plan (and the judgment is not from a prior MCA Company or based on fraud), they might have had a dismissed/discharged bankruptcy, and/or they might have landlord issues but can be resolved at closing. Note that this merchant should really have no more than three of these weaknesses, such as they might have bank statements averaging 10 NSFs a month, a tax lien on a payment plan, and they might be one month behind with their landlord which can be made “whole” at closing. In terms of pricing, this merchant should qualify for Tier III Pricing.
   
• D/E Paper: These are merchants that are considered high risk and might not even get an approval completed. They usually would have as high as a 520 FICO score, but their FICO score could actually come in lower than 500. In addition, expect a variety of actual profile weaknesses that make their approval difficult, such as over 10 NSFs/Overdrafts/Negative Days a month on their bank statements, along with not so healthy bank balances. Furthermore, they might have a tax lien that’s not on a payment plan, or they could have a judgment lien that’s not on a payment plan or a judgment that included a prior MCA Company. Finally, they might have landlord issues that can’t be resolved at closing. Usually the weaknesses are severe to the point where an approval cannot be generated, however, if an approval is generated it’s usually a very high costing advance along the levels of what I define as Tier IV and Tier V Pricing. This level of pricing is very expensive and it might just be in the best interest of the client to not provide him any funding at the moment, opting to instead allow him time to improve his credit standing so he can at least qualify for C Paper status.

Final Word
Note that many industries are on generic restricted lists of Funders, and while they might be A Paper in terms of general credit standings and profile status, their restricted industry status might lead to an auto-decline or a decrease in their Paper Grade.

When you construct your Lender Network, your job is to get 1 – 2 lenders for each Paper Grade so that you can serve your clients efficiently based on their risk based profile. This process involves researching your prospective lenders, understanding their criteria, underwriting their pricing/terms, and testing out the relationship by sending a couple of deals to see how it goes from a first-hand basis.

Doing this level of work upfront gives you a higher probability of surviving in one of the most competitive landscapes in financial services. Not doing this level of work upfront makes your chances of survival, office profitability and career sustainability (as a broker) less probable.