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Sean Murray: All right. Well,
welcome back. My name is Sean

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Murray with deBanked. I am the
president and Chief Editor. And

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today we're going to talk about
what makes a good ISO. Last time

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we talked about what makes a
good funder and it was all about

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what ISOs are looking for and
funder. A new thread was posted

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on Daily Funder since then it
was it was about what makes a

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good ISO. And I thought it was
an interesting question. Because

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it just goes to show how complex
commercial finance can be. And

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if you're a regulator out here,
and you're watching this, I hope

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that you understand that the
intricacies of a small business

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finance is a lot more than just
evaluating the customer. It's

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also analyzing the broker or the
referral source, believe it or

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not, and three things that go
into it are responsiveness,

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trust, and knowing who your who
your partners are. And the the

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post on Daily Funder actually
got a lot more responses. And

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what makes a good ISO, versus
what makes a good funder.

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Apparently, funders had a lot to
say about what makes a good ISO.

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It's actually a topic I know a
little bit about, because they

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used to be an underwriter. And
believe it or not, how you feel

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about the broker plays a role
and whether or not the deal gets

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completed, or not just one deal,
but a whole bunch of deals. And

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the first thing that really came
to mind was responsiveness. And

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this was one of the things that
was mentioned in the thread on

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Daily Funder itself, if you're a
funder, and when we're talking

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about funders, we're really
talking about underwriters,

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right? Because the underwriters
are the ones who have to work on

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the deals themselves. So the
underwriters are really what we

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mean by funders. And if you're
an underwriter, and we're

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talking about responsiveness,
we're trying to think about, not

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just how accessible a broker can
be, but also whether or not they

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can get the information that the
underwriter is looking for. So

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if you're, if you're
underwriting a file, and you

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need bank statements in a multi
day bank, and you're trying to

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get it from the merchant, you're
hoping that the broker is going

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to do it for you. And the worst
thing that a, an underwriter can

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have a broker who doesn't care.
Who doesn't understand why, or

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is making a big fuss about it.
So that's, that's a big, that's

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a big thing for underwriters.
And they take these as signals

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as to how they feel about you,
and how they're going to feel

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about working with you on your
future deals. In all these

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little signals, they factor in
to how that relationship is

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gonna play out. And it goes into
trust, which is probably the

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number two most important thing
does the underwriter trust you?

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And it's kind of interesting to
think about. If you're the

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merchant, and you apply for
financing, you're worried about

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whether or not the underwriter
is going to trust you with their

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money. But you probably don't
think about whether or not the

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underwriter is going to trust
the broker that you're working

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with. And believe it or not, it
plays a big role.And there are a

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lot of different things that go
into trust, I think, a very,

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very important one is whether or
not you're upfront and

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transparent about the
application that you bring. If

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there's any issues with the
deal, they want to know that the

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broker is going to tell them
right out of the gate, they

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don't want to find out at the
end of the deal, right before it

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funds or right before gets
declined, that you as the broker

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knew something the whole time
and withheld that information.

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And if you're a broker, I kind
of get it right because you're

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thinking, hey, well, it's the
underwriters job to figure

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things out on their own. You're
just the broker. If the if the

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underwriter approves the deal
may miss something that's their

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fault. But really, the
underwriter is kind of depending

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on you to an extent. And so they
need to have some trust in you

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that you're doing everything on
the up and up. Because if the

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deal doesn't perform, it's going
to come back on the underwriter

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and then the underwriter is
probably going to blame you. And

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so they're they're kind of
trusting that you're going to

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tell them what they need to
know, because the broker is the

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one managing the client
relationship. From the very

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beginning. It's important to
know that underwriters don't

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always make commission or don't
really have performance

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incentives. And when they don't,
right, and they're not judged,

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and they're not judged on their
performance of the deal. Or

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they're not judged on the
decisions that they make. They

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can kind of create little
subconscious biases about who

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they like and who they don't
like, at the end of the day. And

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so if you're a broker, you want
to be one of those people that

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are subconsciously liked and
being trustworthy is a good way

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to make that happen. And then
another, another factor is

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definitely limiting your
outlets, probably the number one

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thing that was talked about on
the Daily Funder thread is a

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funder really does not like when
you were shotgunning, a pile out

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to 100 different sources, and
you happen to be one of them.

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The reason is because a lot of
time can be spent analyzing a

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deal that has virtually no
chance of going forward on

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account of you having submitted
it to 99 other sources. And so

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what they put in all this work,
and they're like, hey, I need

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this, this and this. And they
literally spend not only time

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they spend money, right? They
have to check credit. They're

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doing you know, background
checks, those things cost money.

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And then they find out you, you
got it funded with a competitor.

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Well, that for them is just a
waste of time, right? They're

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like, Well, hopefully we'll get
the next one. And if the same

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thing happens again, they're
like, Well, hopefully the next

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one. And it comes down to
eventually being like, well,

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what's it going to take for
these deals to close? If you're

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just sending it out to 100?
People? Are you sending us the

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right deals? Or are you just
using us to analyze credit or

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you just, you know, want to have
us is one of your 100 backup

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options. Nobody wants to be like
that, happened to me a long time

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ago. We had a situation, this is
more than 10 years ago. But we

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had a situation where I was an
underwriter and a broker was

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submitting deals. And I think
out of like 100 and, you know,

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304 deals, we funded one and it
was a tiny deal. And, you know,

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I as the underwriter was asked
by the funding company, what's

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going on? They thought it was
because of me. And I said, No, I

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probably approved more than half
but then we never heard

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anything, and there was no
follow up. And I'm not really

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even sure what happened to the
deals. Turns out, they were just

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being funded by another company.
And I believe the term that was

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used to describe that experience
was it was kind of like an

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academic exercise. It was like,
Hey, here's 100 plus deals to

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underwrite. None of them are
gonna fund but you know, what

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would you do in these
circumstances? Don't worry,

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they'll never happen in real
life. That's literally what was

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what was happening. Here. I was
doing those underwriting, and

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then nothing ever got funded.
And then I as the underwriter

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even though I wasn't compensated
on essentially, on my

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performance, it looked like I
wasn't doing anything, you do

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have to fund deals, if you're an
underwriter, you can't decline

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everything. And so that really
impacted how I was building the

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company. And then I looked on
very unfavorably upon that

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broker. And then when that
broker was really anxious about

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me finding a deal, after all
those deals that we weren't

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getting done, all of a sudden, I
didn't really trust that person.

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Because why are you so into this
one deal at the last 100 he

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didn't care about now, I feel
like there's something wrong

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with the deal. And you're trying
to trick me into doing so into

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funding it. And no under, no
underwriter wants to feel like

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they're in that position. They
want to be able to trust you,

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and they want to be able to rely
on you. And when things go wrong

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with the deal, even after
they're funded, there's a level

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of confidence in knowing that
the broker cares after the deal

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to do something as well, because
the funding company, the owners,

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whoever the investors gonna say,
they're gonna go to the

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underwriter and say, you know,
what's, what happened with this

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deal, it looks like it's going
sideways. And it's one thing for

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you to do all you can to try to
get it back on track. But it's

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also very helpful when you know,
the broker is going to be there

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too. And then if the broker is
doing those things, well,

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there's a good chance that the
next time that broker submits

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the deal, that underwriter is
going to look a little bit more

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favorably upon doing it. And
it's all really feeds into,

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again, what I said at the
beginning, about how it's a lot

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more than just the underwriter
judging the merchant, the

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merchants want to think it's
just about them, whether or not

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they were credit worthy,
trustworthy, you know, they look

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sustainable or whatever. But at
the end of the day, the

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underwriter is factoring in all
these things I just mentioned,

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thinking about whether or not
they can trust them. They're

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thinking about whether or not
they got a lot of other deals

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that sent in funded, how those
deals performed, what they did

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when things didn't go the way
they wanted. And that's what's

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being factored into the deal,
too. So if you're out there, and

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your regulator and you're
listening to this, it's not as

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black and white as whether or
not certain demographic factors

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contributed to whether or not
the deal got funded. It's the

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chance and it could be
subconscious. And it probably is

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mostly subconscious. But there
is a bias in terms of who

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referred the deal to begin with.
And so if you're saying, Well,

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two deals look equal, and one
got approved, and one didn't.

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But what's the demographics one
with a man, with a woman? You

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know, what kind of inference can
we draw from that? I don't know

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that you can draw any inference
until you look at how did the

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deals get submitted to you was
one from a broker that the

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underwriter liked and one from a
broker that the underwriter

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didn't like or one they trusted
a lot when they didn't really

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trust that plays a role in all
of it. And so you want to be the

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broker who had who has the
trust, right? And I don't think

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that ever even been addressed
when we're in the sense of

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regulation for how demographics
should be evaluated. And I'm

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talking in particular about
section 1071, of Dodd Frank,

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which is supposed to be carried
out by the CFPB. They're the

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ones that are looking at
demographic factors and small

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business lending. And it's never
been brought up, that the broker

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or the referral source plays a
role in whether or not a deal

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gets done. In consumer lending,
you don't really have that you

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have somebody applies, the FICO
score gets checked, and then

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they're wondering, they're
wondering, or they're worrying

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about whether or not there were
little, you know, intangible

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variables that impact whether or
not somebody got approved, that

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could be deemed some sort of
discriminatory, you know,

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variant. But here, here it could
it, could it come down to the

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broker, they might not even
thought about the applicant at

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all, if you can believe it,
let's just say they funded 49

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out of last 50 deals and another
deal comes in and they're like,

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you know, it's small, we like
this broker, we're going to fund

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it, like, imagine now trying to
be the CFPB. And trying to

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determine whether or not there
was any discrimination at play,

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when it came to the applicant,
it had nothing to do with the

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applicant, which is wild, but
that's the way that's the way

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commercial finance and small
business finance works. And if

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you're a broker, and you have,
you have the issue where funders

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don't trust you, or you don't
submit enough files for them to

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have belief in in how they work
and operate with you. Well, it

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kind of brings up the whole, you
know, idea of CO brokering,

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there are brokers out there, who
try to convince other brokers to

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submit to them on account of,
they can submit a deal to a

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funder and get and be more
likely to get an approval, and

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then somebody else who the
underwriter doesn't have a

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relationship with. And we hear
about relationships all the

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time, I have a relationship with
this company, I've a

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relationship with that company.
And you should submit to me and

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ultimate to them because there's
a higher chance of it getting

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approved. But guess what, that's
a real thing. It's a real thing

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in business, finance, it's a
real thing in commercial

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finance. And so if you're a
broker and you're getting all

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your deals declined by a funder
is notorious for high approvals?

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Well, it could be because they
don't trust you. And so

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submitting your deals to a
broker, who can then submit them

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on your behalf could increase
those chances of it getting

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funded. Now, there should be
transparency and where the deal

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originally originated from you
don't want the funder to think

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that, you know, this, the
original source is not who they

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say they are. But you know, it
all it all like does make sense,

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the whole idea that once
somebody could have a

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relationship that could impact
the approvals, that's a real

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thing. And I know this from
experience, not just not just

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from talking to people, there
were brokers that we would

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actually meet with in person.
And it actually, you know, I got

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to know what their character
was. And I'm not saying that I

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then approve deals because I
intentionally liked them. But

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maybe because there was some
subconscious bias that I believe

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this person was trying to do the
right thing, versus someone who

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I didn't know, who would send,
you know, one or two deals a

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month and make a whole scene
about it. And I felt like, I

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don't know, you know, maybe it's
not worth it, right? Because

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what happens if we do it, and it
goes bad, and I don't have any,

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any any leverage to to explain
why I did it, you know, I don't

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have any relationship with you.
I didn't know that if you were

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trustworthy or not. I didn't
feel if you were trustworthy.

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And so that's actually that's
actually a part of it. And I

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think it's going to continue to
be a part of it for a good

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period of time, I know that
there's a lot of FinTech now,

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and things are automated. But at
the end of the day, even then

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people are analyzing where the
deal flow is coming from, even

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if it's automated, and it's
coming from a website. And this

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website is notoriously had a
worse, higher default rate that

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never soars. They may go in and
say, Well, you know, let's

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decline more of those deals,
because they have a higher

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default rate for some reason,
right? And they're judging the

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source of the deals and not
judging the applicants on the

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deal. This, this happens. And
they say the default rate from

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the source was too high,
decrease their approval rate, or

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just turn them off altogether.
And that can happen you can have

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funders decide they don't want
to work with you; could be

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because they don't trust you,
could be because you send in too

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little deal flow, could be
because you're not responsive.

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Could be because you're just
using them as one of 100

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companies to shotgun a file at
and you can get terminated as an

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ISO and you may say also, so
what you know, other than 99

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other companies. Well, there's
other things to think about and

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that's whether or not your
renewals will stay with you

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whether or not you'll get paid
on those renewals. And whether

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or not your contract allows you
to even move a deal somewhere

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else or continue to engage with
those customers. You should

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really be thinking about long
term relationships with all the

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companies you work with, which
should be limited.It's pretty

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common for people to think about
it in terms of having a, you

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know, A, B, C, D, E, F paper,
whatever you want to call it,

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having a couple shops for a
couple for your B couple years,

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you know, C, D and a couple for
the garbage files. And it's okay

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to look at it from that
standpoint. So if you work with

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10, funders, 10 isn't too much
10 lenders isn't too much, but

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100 is way too much. And so you
could have two or three for

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your, for your premium quality
paper, and you can have two or

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three for your bottom quality.
That's okay, nobody's gonna fall

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to you. If you send your dealer
to two or three companies like,

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hey, this looks like an A paper
client. I'm going to send it out

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for two or three companies and
see which one comes back with

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with the best deal. Nobody's
faulting you for that. They're

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faulting you for when you send
it out to 100 different

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companies, or you're sending
them deals that clearly don't

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fit their parameters. Another
thing you don't want to you

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don't want to mess up. And so,
you know, these are all things

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that come into what a funder
thinks about when an underwriter

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thinks about when they're
working with a broker comes down

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to responsiveness, whether or
not you're able to get the

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paperwork, in that you answer
the underwriters questions and

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that you participate in the
process. You can't just be

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absentee that they trust you
trust being that, that you care

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that you're a good character,
and that you're not withholding

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any information back from the
underwriter and also limiting

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your outlets. They want to know
that, that you that they are an

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important partner in your broker
journey. they're okay with being

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one or two or three have a
certain quality paper, but they

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don't want to be one of 100. And
so if you're a broker, I know

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it's so easy to go out there and
say here's what to look for in a

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funder. But as you can tell from
the start on the daily funder

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bonders think the same way.
Here's what I look for in an

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ISO. Here's what I look for in a
broker. And that was our topic

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for today. So thank you very
much for being here. And I'll

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see you next time. I'm Sean
Murray with deBank