Balance Letters, Payoff Letters, And Not Letting Go

The following is a guest-authored opinion piece on the business financing space

Everyone is struggling to keep their head above the water. Just imagine the scene in the movie Titanic. Currently we are in the scene where they zoom out to show the ship sinking slowly with more people in the water trying to survive than on the ship. “Never letting go” is something everyone is doing and clinging on to whatever floats is the only way to survive. The decline in submissions and quality of funded deals is one aspect that many Funding Companies are realizing. No one is letting go of a piece of their portfolio without a fight.

For many A/B paper (for those who go by the grade system) or the Prime to Sub-Prime, 1st position companies know what I am talking about and it’s time to come clean on the truth and the real perception of why things are the way they are.

You can’t get that payoff letter because that Funding Company does not want to let go of their good paying Merchant. Whether the funding was originated from a Broker or organically, that Business is in bed with that funding company and did not have any intention of breaking a relationship until the option was brought to their attention. Whether this Merchant was solicited by another Broker or the Merchant decided to take it upon themselves to seek additional funding, there is one thing that will most often happen.

As soon as the Funding Company receives a request for a payoff letter or balance letter, they will ask why it is needed or delay the process in releasing one or not give one at all until the Merchant is 100% positive and the reasoning and demand is final. Is there anything wrong with this?

To a Broker? Yes. To a Business Owner? No. As many Brokers will fight and try to justify the circumventing of their Merchants, in this case, this is not circumventing at all. The Business has a contract with the Funding Company and until they have a zero balance, that Funding Company has the right to review their account and offer additional funds or discounts to keep their business. This is how it is with any company. Try calling your cable company to cancel your service. What do they do first? They transfer you to the reconciliation department to try to appease you, offer you free or discounted features, and find out what they did wrong or what company you are switching to. Companies are always trying to improve their service and give their clients the best experience.

Throughout the years, if the original Funding Company could offer a better rate or term than what the competing offer is, it has always been in the best interest of the Merchant to continue with that original Funding Company. It is NOT in the best interest nor is it ethical to put the Merchant in another position that will hurt the business or “double up” contracts to equal an amount if ONE company cannot adhere to the request. “Stacking” by offering a second position is one thing, squeezing in as many positions is another, and over time it has hurt many 1st position Funding Companies.

Fast forward to now, the rise in funded accounts that have “defaulted” may have fallen victim to the promises of something better. There is no one educating or clearing the air that there probably isn’t something better… but that advice won’t make anyone commissions and those Funding Companies still rely on Brokers to bring in submissions.

There has been no recourse on this issue, rather growth, and those who have paved the way have found their path covered in dirt. Stomping in this path are other funding companies who have adopted practices from veterans but feel the need to set hierarchy to something they can’t control.

So, with that said, who really sets the rules to what is fair when we are all walking on egg shells? The cost of acquiring a customer and the cost of losing one is an expensive and tricky loss. It is safe to say that once a Merchant is stacked- there is no going back. Should ethics rule over the choices and fate of a Business? Should we put more emphasis on realistic expectations before and after a Business is funded?

A simple request for a payoff letter can open a can of worms. The underlying factors of the difficulties companies face in our industry are all brought upon by the decisions we make when working with each Merchant. At the end of the day you have to ask yourself- am I helping or am I hurting the Business?