1 00:00:00,000 --> 00:00:01,230 Sean Murray: Hi, I'm Sean Murray. 2 00:00:01,260 --> 00:00:04,170 Johny Fernandez: And I'm Johny Fernandez. Sean. It's great to 3 00:00:04,170 --> 00:00:07,860 be here. Let's dive right into we have a couple of surprises. 4 00:00:08,550 --> 00:00:09,660 But before we get into that. 5 00:00:09,660 --> 00:00:11,610 Sean Murray: Okay, I feel like I feel like I never know what they 6 00:00:11,610 --> 00:00:13,440 are. You always start off by telling people we're gonna have 7 00:00:13,440 --> 00:00:15,600 a surprise and then I start to panic because I don't know what 8 00:00:15,600 --> 00:00:17,700 they are, but okay, all right. Good to know. 9 00:00:17,790 --> 00:00:20,700 Johny Fernandez: So we're gonna talk about quarterly fundings. 10 00:00:20,880 --> 00:00:21,780 Okay. First. 11 00:00:21,870 --> 00:00:24,630 Sean Murray: That's true. Yeah, I do. I do have some numbers in 12 00:00:24,630 --> 00:00:27,300 front of me here. I want to tell everyone what's going on in the 13 00:00:27,300 --> 00:00:30,450 industry, we are seeing a surge in funding activity, it's one 14 00:00:30,450 --> 00:00:33,180 thing to kind of just talk about it broadly and not give any hard 15 00:00:33,180 --> 00:00:36,990 figures. Fortunately, we do have hard figures. I'm gonna give you 16 00:00:36,990 --> 00:00:40,170 a stats for three different companies. The first one is 17 00:00:40,170 --> 00:00:44,850 OnDeck, which is now owned by Enova, OnDeck is funded, or I 18 00:00:44,850 --> 00:00:48,060 guess you could call them Enova now, Enova has funded $722 19 00:00:48,060 --> 00:00:52,080 million year to date. And to give you some kind of 20 00:00:52,080 --> 00:00:54,720 perspective as to what that number means, it's still 21 00:00:54,720 --> 00:00:58,020 trailing behind where they were in 2019. They're probably at 22 00:00:58,020 --> 00:01:03,180 about 50%, of where they were in 2019. So even though their 23 00:01:03,180 --> 00:01:06,990 volume is picking back up after being acquired by Enova, they're 24 00:01:06,990 --> 00:01:11,610 not quite on pace with where they were pre COVID. But OnDeck 25 00:01:11,610 --> 00:01:13,710 through Enova is definitely seeing a surge back, they've 26 00:01:13,710 --> 00:01:17,190 already funded $722 million worth of small business loans 27 00:01:17,400 --> 00:01:21,720 this year so far. Compare that to Shopify Capital, if you're 28 00:01:21,720 --> 00:01:25,770 not familiar with Shopify Capital, that is the MCA and or 29 00:01:25,770 --> 00:01:29,040 business loan arm of Shopify, Shopify is the number two 30 00:01:29,040 --> 00:01:33,240 ecommerce site in the world second to Amazon. So imagine 31 00:01:33,240 --> 00:01:36,450 that, they have their own lending arm, they do MCA too not 32 00:01:36,450 --> 00:01:39,480 just loans, MCA and loans. Shopify Capital has already 33 00:01:39,510 --> 00:01:45,090 funded $671 million for the first half of 2021. Pretty close 34 00:01:45,090 --> 00:01:49,620 to Enova and OnDeck. Yeah. And then on top of both of those 35 00:01:49,620 --> 00:01:54,630 companies is Square, Square, formerly known as Square Capital 36 00:01:54,630 --> 00:01:57,450 is their funding arm Square Capital is now known as Square 37 00:01:57,450 --> 00:02:01,800 Loans, Square Loans has funded $1 billion for the first half of 38 00:02:01,800 --> 00:02:05,520 2021. So they're ahead of OnDeck and Shopify. 39 00:02:05,640 --> 00:02:06,840 Johny Fernandez: 1 billion with a B. 40 00:02:07,020 --> 00:02:10,290 Sean Murray: 1 billion with the B. Now all three companies are 41 00:02:10,290 --> 00:02:14,130 not exactly ahead of where they were. Actually, that's wrong. 42 00:02:14,370 --> 00:02:19,650 Shopify of the three Shopify is ahead of where it was in 2019. 43 00:02:20,520 --> 00:02:23,490 So they're doing really good. Yeah. Whereas the other two are 44 00:02:23,490 --> 00:02:26,730 not quite back to where they were. But they're quickly 45 00:02:26,730 --> 00:02:30,780 catching up. Yeah. So those are those are the top three that we 46 00:02:30,780 --> 00:02:33,930 have stats for. Yeah. Other companies will release the stats 47 00:02:33,930 --> 00:02:36,090 over time, we're getting a lot of it from public filings. 48 00:02:36,360 --> 00:02:38,130 People are a lot more tight lipped about how much they're 49 00:02:38,130 --> 00:02:41,130 funding nowadays versus pre COVID. Because everyone's 50 00:02:41,130 --> 00:02:43,800 suffered. But if it's a public company, we get all that info 51 00:02:43,800 --> 00:02:46,620 when it's and it's public. So that's where we are with funding 52 00:02:46,620 --> 00:02:49,620 volume and small business loan in MCA industry. 53 00:02:49,680 --> 00:02:53,070 Johny Fernandez: Awesome. So it's definitely, I guess, when 54 00:02:53,070 --> 00:02:56,790 you read that, would you say it's something? It's a recovery 55 00:02:56,790 --> 00:03:01,170 for these guys? Are they you know, is this where, they 56 00:03:01,170 --> 00:03:05,910 expected to be? Are they doing overall big picture, would you 57 00:03:05,910 --> 00:03:07,590 say they are they doing well? 58 00:03:09,090 --> 00:03:11,400 Sean Murray: You know, I think what's telling you about those 59 00:03:11,400 --> 00:03:17,040 three is that Shopify is the one that performed at almost better 60 00:03:17,250 --> 00:03:20,340 during COVID than before COVID. Yeah. And that's because they 61 00:03:20,340 --> 00:03:25,410 were 100% ecommerce based. Ecommerce did really well, 62 00:03:25,470 --> 00:03:27,870 during COVID. That's all you can you can only shop online, but 63 00:03:27,870 --> 00:03:32,850 for the most part, right. Yeah. And so I think it's telling that 64 00:03:32,880 --> 00:03:37,260 Shopify is in a good position to weather any future pandemics, or 65 00:03:37,260 --> 00:03:40,470 any type of shut down or lock down by virtue of having an E 66 00:03:40,470 --> 00:03:45,180 commerce platform to base everything off of as for Square 67 00:03:45,210 --> 00:03:47,880 Square also did pretty well, during the pandemic, they deal 68 00:03:47,880 --> 00:03:51,600 with a lot of small merchants. Just how small became evident 69 00:03:51,600 --> 00:03:55,680 this morning, I did the math and the $1 billion that they funded 70 00:03:55,680 --> 00:04:01,290 this this year so far, has come out to a an average size loan of 71 00:04:01,290 --> 00:04:05,550 $6,000 per loan. Oh, wow. The average loan that Square does is 72 00:04:05,550 --> 00:04:09,000 only six grand, that's tiny. Yeah. That's super, super tiny. 73 00:04:09,030 --> 00:04:12,840 Yeah. So I think part of their their risk is hedged by how 74 00:04:12,840 --> 00:04:16,920 small the loans are. Because some lenders out there, you 75 00:04:16,920 --> 00:04:20,430 know, they'll do large loans. 100k 200k 300k and if a bunch go 76 00:04:20,430 --> 00:04:23,700 bad, you can lose literally, you know, millions at a time, where 77 00:04:23,700 --> 00:04:26,040 if we're talking about businesses that are you know, 6k 78 00:04:26,040 --> 00:04:30,300 here, 5k here, 7k here, you know, the volume makes up for. 79 00:04:30,450 --> 00:04:33,630 Yeah. The volume makes up for it. And Square also has a lot 80 00:04:33,630 --> 00:04:38,340 of, you know, has a lot of micro and, you know, retail merchants 81 00:04:38,340 --> 00:04:41,850 that are, you know, a little bit different than I guess you could 82 00:04:41,850 --> 00:04:45,180 say your traditional, you know, restaurant so to speak, although 83 00:04:45,180 --> 00:04:49,290 they are really heading into into that market, I think OnDeck 84 00:04:49,500 --> 00:04:54,510 is probably the one that is lagging behind, maybe where it 85 00:04:54,510 --> 00:04:57,150 should be just in terms of origination volume, but from 86 00:04:57,150 --> 00:05:00,270 what we've heard so far is that the loan performance has 87 00:05:00,270 --> 00:05:03,690 actually been really good. In fact, Enova, has reported that 88 00:05:04,440 --> 00:05:07,830 the cash flow generated by the legacy portfolio has far as 89 00:05:07,830 --> 00:05:12,300 surpassed their expectations. And so even though OnDeck's loan 90 00:05:12,300 --> 00:05:15,690 volume isn't where it's supposed to be, you know, where you know, 91 00:05:15,690 --> 00:05:19,170 versus it's pretty COVID level, the performance of its portfolio 92 00:05:19,380 --> 00:05:23,010 has has been great. And so I think we can look at all those 93 00:05:23,010 --> 00:05:26,220 factors in the context of the type of lending they do, and 94 00:05:26,220 --> 00:05:29,820 businesses they target and say, it's definitely a sign of a 95 00:05:29,820 --> 00:05:33,840 recovery, for sure. And for the for Shopify Capital, the story 96 00:05:33,840 --> 00:05:37,440 of E commerce is that that's the place to be if you want to if 97 00:05:37,440 --> 00:05:39,960 you want to be in the business lending market, because not only 98 00:05:39,960 --> 00:05:43,530 do they weather, the pandemic, but they like totally thrived. 99 00:05:43,530 --> 00:05:46,860 And they're doing more now. They were doing more during COVID. 100 00:05:46,890 --> 00:05:50,760 Yeah. Than before COVID. And now they're doing more more now, 101 00:05:50,760 --> 00:05:53,490 still, than they were during the middle of COVID. So it's just 102 00:05:53,490 --> 00:05:54,750 been, it's been great for them. 103 00:05:54,930 --> 00:05:59,160 Johny Fernandez: Awesome. That's good to hear. So, to transition 104 00:05:59,160 --> 00:06:03,120 out of that. So the other surprise that we have today is 105 00:06:04,170 --> 00:06:05,370 another lightning round. 106 00:06:06,960 --> 00:06:08,850 Sean Murray: Why did I know it was gonna be a lightning round? 107 00:06:08,880 --> 00:06:11,610 Every time you say surprise, I'm like, is it gonna be another 108 00:06:11,610 --> 00:06:12,630 lightning round? Okay. 109 00:06:13,140 --> 00:06:16,350 Johny Fernandez: So just to clarify, these lightning rounds 110 00:06:16,380 --> 00:06:21,180 have been, they've been very popular. And I think it's 111 00:06:21,180 --> 00:06:25,020 because not only do we try to make it somewhat fun, but also, 112 00:06:25,380 --> 00:06:30,150 it's very informative. It's very educational. And it is one of 113 00:06:30,150 --> 00:06:34,530 those things that people are clicking on, you know, these 114 00:06:34,530 --> 00:06:36,960 videos, because they want to know more about the industry. 115 00:06:36,960 --> 00:06:39,240 And I think overall, they just want to learn more about what 116 00:06:39,240 --> 00:06:44,100 exactly does certain things mean, when you're in a world 117 00:06:44,100 --> 00:06:48,660 that everyone kind of understands. Or they seem to 118 00:06:48,660 --> 00:06:52,230 understand these big terminologies, basic 119 00:06:52,230 --> 00:06:55,080 terminologies, but it's always scary to be the one that doesn't 120 00:06:55,080 --> 00:06:57,750 know. Because then that means you don't know. 121 00:06:57,840 --> 00:06:59,760 Sean Murray: So Johny. So you know, people I don't know, you 122 00:06:59,760 --> 00:07:01,260 know, I don't know where you're finding all the questions, but 123 00:07:01,260 --> 00:07:04,470 how can people reach you? If they have a question that they 124 00:07:04,470 --> 00:07:06,810 want answered on this particular show, what would be a good way 125 00:07:06,810 --> 00:07:07,620 to reach out to you? 126 00:07:07,920 --> 00:07:08,790 Johny Fernandez: Social media. 127 00:07:08,880 --> 00:07:09,210 Sean Murray: Okay. 128 00:07:09,240 --> 00:07:11,820 Johny Fernandez: Yeah, you can follow me on Johny Fernandez TV, 129 00:07:11,880 --> 00:07:16,980 Instagram, you can, same thing with Twitter. I know. I, you 130 00:07:16,980 --> 00:07:19,170 guys always tag me on like videos and things like that. So 131 00:07:19,170 --> 00:07:22,260 Twitter, Instagram. That's kind of the main source. 132 00:07:22,260 --> 00:07:23,220 Sean Murray: What about like LinkedIn? 133 00:07:23,460 --> 00:07:25,440 Johny Fernandez: LinkedIn, LinkedIn's a big one, too. Yes, 134 00:07:25,470 --> 00:07:27,750 I do have a LinkedIn, you can definitely reach me out there. 135 00:07:28,770 --> 00:07:31,200 Because it's one of those things that, you know, the more 136 00:07:31,200 --> 00:07:34,470 questions I get from you guys, we can share it here and get 137 00:07:34,470 --> 00:07:37,440 more. Because if you're asking the question, someone else is 138 00:07:37,440 --> 00:07:40,950 also asking that same question. I heard one time really quick 139 00:07:40,950 --> 00:07:44,010 story time in a class, if someone is asking a question, 140 00:07:44,010 --> 00:07:46,980 that means there's seven other people that don't know and that 141 00:07:46,980 --> 00:07:50,430 also want to know, and have that same question. Seven. 142 00:07:51,240 --> 00:07:53,700 Sean Murray: Okay. Even if it's a class of like, eight people? 143 00:07:53,760 --> 00:07:54,000 Johny Fernandez: Yeah. 144 00:07:54,000 --> 00:07:56,160 Sean Murray: Like, what's the average class size for that? 145 00:07:56,700 --> 00:07:57,180 Johny Fernandez: College. 146 00:07:57,450 --> 00:07:57,780 Sean Murray: Okay. 147 00:07:59,970 --> 00:08:00,600 Johny Fernandez: Good question. 148 00:08:00,630 --> 00:08:03,180 Sean Murray: Okay. Yeah. But it was. Okay. I like where you're 149 00:08:03,180 --> 00:08:07,290 going with it, ya know, so, you know, sometimes I'm surprised to 150 00:08:07,320 --> 00:08:10,290 see the feedback that we get on a few of them, it seems it does 151 00:08:10,290 --> 00:08:13,710 seem, some of the questions are complicated. And perhaps, you 152 00:08:13,710 --> 00:08:17,580 know, you know, it might be better for, you know, a larger 153 00:08:17,580 --> 00:08:21,360 discussion, but I think it's good. And people have found them 154 00:08:21,360 --> 00:08:24,720 helpful so far. So whatever, whatever you got, keep throwing 155 00:08:24,720 --> 00:08:27,720 it throwing them at me. And if you ever stump me, you know, 156 00:08:27,720 --> 00:08:30,150 I'll let you know. If I don't know the answer. You know. 157 00:08:30,180 --> 00:08:31,200 Johny Fernandez: But you know everything. 158 00:08:31,230 --> 00:08:33,060 Sean Murray: I don't know everything. By the way, it's 159 00:08:33,060 --> 00:08:35,220 okay out there people like if you don't know the answer, to 160 00:08:35,220 --> 00:08:39,210 something is don't pretend to know the answer. If there are 161 00:08:39,210 --> 00:08:41,310 times when I don't know the answer, then I'll just straight 162 00:08:41,310 --> 00:08:43,890 up tell you I don't know the answer. Just just so you know. 163 00:08:44,190 --> 00:08:47,760 I'm hoping I'm hoping doesn't happen when we're live. But it 164 00:08:47,760 --> 00:08:49,830 could happen. Yeah. And there are times I'm not gonna know the 165 00:08:49,830 --> 00:08:52,710 answer. And I'm going to try not to give you know, someone bad, 166 00:08:52,890 --> 00:08:55,230 bad information, try to give everyone the best information 167 00:08:55,230 --> 00:08:57,150 possible to the extent that I have it. 168 00:08:57,390 --> 00:08:58,590 Johny Fernandez: Cool. Let's start. 169 00:08:58,710 --> 00:08:59,190 Sean Murray: Okay. 170 00:08:59,220 --> 00:09:00,060 Johny Fernandez: Question number one. 171 00:09:00,090 --> 00:09:00,540 Sean Murray: Okay. 172 00:09:00,660 --> 00:09:02,970 Johny Fernandez: Should I form an LLC to be a broker? 173 00:09:04,830 --> 00:09:08,520 Sean Murray: Should you form an LLC to be a broker? So I don't 174 00:09:08,520 --> 00:09:12,540 know that it has to be an LLC, per se. But if you're gonna be a 175 00:09:12,540 --> 00:09:15,300 broker in the small business finance industry, you should 176 00:09:15,330 --> 00:09:20,340 certainly organize a legal entity from the beginning. I 177 00:09:20,340 --> 00:09:24,030 think that there's a tendency for new entrants to think, let 178 00:09:24,030 --> 00:09:28,170 me try it first. And if it's working out, well, then I'll do 179 00:09:28,170 --> 00:09:32,130 that. Yeah. Because it costs money to form an LLC or form an 180 00:09:32,130 --> 00:09:36,330 S corp or form a C Corp or whatever it is, someone's gonna 181 00:09:36,330 --> 00:09:41,190 form. But you're kind of you're kind of setting yourself up for 182 00:09:41,190 --> 00:09:44,460 some level, some level of failure if you're not willing to 183 00:09:44,460 --> 00:09:49,110 commit that much. Because forming like an LLC. You know, 184 00:09:49,110 --> 00:09:52,800 it might cost you a couple 100 bucks to do it, right. You're 185 00:09:52,800 --> 00:09:55,170 probably going to need a bank account in that name. You're 186 00:09:55,170 --> 00:09:59,700 probably going to need like a tax ID to go along with it. But 187 00:09:59,700 --> 00:10:04,080 all those things kind of prepare yourself mentally that this is a 188 00:10:04,080 --> 00:10:07,650 commitment. Yeah. To move forward. Yeah. And by taking 189 00:10:07,650 --> 00:10:10,920 those steps, you're really truly saying this is something I'm 190 00:10:10,920 --> 00:10:14,910 gonna try. I'm investing in it to some extent. And if you don't 191 00:10:14,910 --> 00:10:18,060 do those things, you're kind of giving yourself an out well. You 192 00:10:18,060 --> 00:10:19,920 know, what did I, what did I really put into it? You know 193 00:10:19,920 --> 00:10:22,740 what I mean? That type of thing. But the flip side of that 194 00:10:22,740 --> 00:10:25,140 question is, should you form an LLC, and it doesn't have to be 195 00:10:25,140 --> 00:10:29,130 an LLC, LLC, per se, I'm not, you know, I'm not an accountant 196 00:10:29,130 --> 00:10:32,280 or a lawyer. But um, you should really think about forming an 197 00:10:32,280 --> 00:10:36,390 entity for the purpose of legal liability, because one thing we 198 00:10:36,390 --> 00:10:39,900 have talked about on here is that if you are a broker in the 199 00:10:39,900 --> 00:10:43,380 commercial finance world, no matter what, no matter what 200 00:10:43,380 --> 00:10:46,950 anyone has told you, about being a broker, and how easy it is, 201 00:10:46,950 --> 00:10:50,730 and work from home and all this other stuff. Yeah. You know, 202 00:10:50,730 --> 00:10:54,300 there, there are certain situations that arise that will 203 00:10:54,300 --> 00:10:57,180 make you feel as if you really are in commercial finance. And 204 00:10:57,210 --> 00:10:59,460 you could end up in like a lawsuit, you could end up 205 00:10:59,460 --> 00:11:02,640 meeting a lawyer and and you never know what could happen, 206 00:11:02,670 --> 00:11:05,190 you could be in a contract dispute with a funding company, 207 00:11:05,190 --> 00:11:08,040 you could have a merchant that was unhappy with, you know, 208 00:11:08,220 --> 00:11:10,530 what, what happened with the funder, and they're blaming you 209 00:11:10,530 --> 00:11:13,230 and you're an independent sole proprietor, you're kind of 210 00:11:13,230 --> 00:11:16,560 making yourself legally liable individually, and you want to 211 00:11:16,560 --> 00:11:19,320 avoid that. So I would say you should definitely form some type 212 00:11:19,320 --> 00:11:21,960 of entity for a variety of different, different reasons. 213 00:11:21,960 --> 00:11:25,410 One is to protect yourself legally, and to prepare yourself 214 00:11:25,410 --> 00:11:28,650 mentally, that this is something you're truly interested in 215 00:11:28,650 --> 00:11:29,190 pursuing. 216 00:11:29,220 --> 00:11:31,500 Johny Fernandez: Yeah. And I think to kind of piggyback off 217 00:11:31,500 --> 00:11:35,160 of that, I know for a fact that if you are planning on joining 218 00:11:35,190 --> 00:11:38,310 this industry, definitely speak with an accountant that 219 00:11:38,310 --> 00:11:42,450 understands the MCA world number one, and also, you know, maybe 220 00:11:42,450 --> 00:11:46,410 an LLC may not be the best fit for you, like you said, you 221 00:11:46,410 --> 00:11:48,660 know, depending on everyone's situation, there could be other 222 00:11:48,660 --> 00:11:52,050 entities that they could go after, and something that's 223 00:11:52,050 --> 00:11:55,050 going to fit you cause sometimes, you know, an LLC may 224 00:11:55,050 --> 00:11:57,810 not be the best option for you. Because, you know, you may be an 225 00:11:57,810 --> 00:12:02,970 entrepreneur, dig digging into other things or other projects. 226 00:12:02,970 --> 00:12:06,150 So it's definitely worth it to consult with an accountant. 227 00:12:06,480 --> 00:12:09,660 Sean Murray: Yeah, yeah. It can't be said enough, you gotta 228 00:12:09,660 --> 00:12:12,840 consult with somebody, I know that there's plenty of advice. 229 00:12:12,840 --> 00:12:14,850 So get out there that says you don't need any of that you can, 230 00:12:14,880 --> 00:12:17,970 you know, work from home, all you need is a computer, etc. But 231 00:12:18,060 --> 00:12:21,450 this is the commercial finance industry, commercial means big 232 00:12:21,450 --> 00:12:24,630 boy table. Yeah. And you got to act like a, you know, big boy, 233 00:12:24,630 --> 00:12:29,100 big girl, whatever, to be a part of it. And so you need to do 234 00:12:29,100 --> 00:12:31,440 these things, if you're going to be in commercial finance, no 235 00:12:31,440 --> 00:12:34,410 matter what anyone else has told you about how the business 236 00:12:34,410 --> 00:12:35,010 operates. 237 00:12:35,070 --> 00:12:38,850 Johny Fernandez: And I think, to, you don't do this, but one 238 00:12:38,850 --> 00:12:42,690 of the videos that we talked about was not, if I'll ever get 239 00:12:42,690 --> 00:12:45,390 to this one, I'll get sued. And we talked about, you know, 240 00:12:46,260 --> 00:12:49,350 getting sued and hiring a lawyer. And that's like a very 241 00:12:49,350 --> 00:12:53,040 popular video, because no one really talks about that. When 242 00:12:53,040 --> 00:12:55,530 you start in this industry, like, oh, like, you're gonna get 243 00:12:55,530 --> 00:12:59,370 sued, like, here's how to prepare, like, sometimes, people 244 00:12:59,370 --> 00:13:04,080 blindly get served with documents and you're like, so 245 00:13:04,080 --> 00:13:07,290 that's something to avoid. Yeah. And, you know, if they come 246 00:13:07,290 --> 00:13:10,530 after you having like, some type of entity with whether it's an 247 00:13:10,530 --> 00:13:13,650 LLC an S corp, whatever it is, it's gonna help them out. 248 00:13:13,680 --> 00:13:15,720 Sean Murray: Yeah, it's, it's all it really is a matter of 249 00:13:15,720 --> 00:13:19,590 time, where you're going to need some type of legal defense, I 250 00:13:19,590 --> 00:13:22,080 don't, I don't mean like, you know, that you're definitely 251 00:13:22,080 --> 00:13:24,450 gonna end up in court. But there's gonna be a time when 252 00:13:24,450 --> 00:13:26,730 there's a miscommunication between parties, and it might 253 00:13:26,730 --> 00:13:30,270 not even be you, it might even it might be the merchant, and 254 00:13:30,270 --> 00:13:32,070 the funding company, and you're the broker, and you're like, I 255 00:13:32,070 --> 00:13:35,370 have no part in it, right. But let's say it's like a $500,000 256 00:13:35,400 --> 00:13:39,960 deal. And you made a nice commission off that. And, you 257 00:13:39,960 --> 00:13:42,570 know, something went wrong in terms of how the deal played out 258 00:13:42,600 --> 00:13:47,010 well, and the merchant deals, or the even the funder fields that 259 00:13:47,010 --> 00:13:51,630 you were involved in what went wrong. And all of a sudden, you 260 00:13:51,630 --> 00:13:55,890 know, you have a lawyer asking questions to you. And you're 261 00:13:55,890 --> 00:13:59,400 going to need to have someone who is able to do the same on 262 00:13:59,400 --> 00:14:02,520 your behalf. And so even if it doesn't end up in court, or in a 263 00:14:02,520 --> 00:14:06,450 lawsuit or whatever, you're gonna end up in a situation, at 264 00:14:06,450 --> 00:14:09,030 some point, no matter what, where you're going to need an 265 00:14:09,030 --> 00:14:12,060 advocate a legal advocate on your behalf to kind of navigate 266 00:14:12,060 --> 00:14:14,880 you through, you know, whatever, whatever the best course of 267 00:14:14,880 --> 00:14:18,210 action is for yourself. And so the sooner you do those things 268 00:14:18,210 --> 00:14:20,550 from the beginning, have them all lined up, the better. That's 269 00:14:20,550 --> 00:14:23,340 the the very long answer to your simple question. 270 00:14:23,850 --> 00:14:27,390 Johny Fernandez: All right, so simple question number two, what 271 00:14:27,390 --> 00:14:30,030 is the difference between secured and unsecured? 272 00:14:31,440 --> 00:14:32,220 Sean Murray: Okay so what did. 273 00:14:32,280 --> 00:14:33,360 Johny Fernandez: Two sentences, go. 274 00:14:33,750 --> 00:14:37,830 Sean Murray: Two, two? Okay, yeah, two sentences. All right. 275 00:14:38,340 --> 00:14:40,140 What are the differences difference, what is the 276 00:14:40,140 --> 00:14:44,610 difference between secured and unsecured if it's a secured 277 00:14:44,850 --> 00:14:50,010 loan, or line of credit, that means that the loan is actually 278 00:14:50,430 --> 00:14:54,120 secured by an asset. So if you if the borrower defaults on the 279 00:14:54,120 --> 00:14:59,160 loan, that asset serves as you know kind of protection they can 280 00:14:59,160 --> 00:15:04,530 go and repossess that asset to get paid back, right, and it's 281 00:15:04,530 --> 00:15:09,930 against that very specific thing. An unsecured loan is one 282 00:15:09,930 --> 00:15:12,840 and when, it's not backed by anything essentially backed by 283 00:15:12,840 --> 00:15:15,810 the full faith and credit of the borrower. And if the borrower 284 00:15:15,810 --> 00:15:19,350 doesn't pay back, well, there's not anything specific that the 285 00:15:19,350 --> 00:15:22,380 lender can go and pursue kind of like a credit card as a good 286 00:15:22,380 --> 00:15:25,770 example of what's unsecured, they can hurt your credit. Yeah. 287 00:15:25,800 --> 00:15:28,650 They can send you angry letters you want I mean, they can 288 00:15:28,650 --> 00:15:32,220 pursue, they can pursue you, but they can't come and repossess 289 00:15:32,250 --> 00:15:36,060 something specific. Whereas if it's a secured loan, they can go 290 00:15:36,060 --> 00:15:38,400 and say, you know, this was secured against this piece of 291 00:15:38,400 --> 00:15:41,730 equipment or this property, whatever and go and repossess 292 00:15:41,730 --> 00:15:41,910 it. 293 00:15:42,300 --> 00:15:46,560 Johny Fernandez: Awesome. Next question, what is a clawback? 294 00:15:48,270 --> 00:15:52,890 Sean Murray: What is a clawback? A clawback is when the funder or 295 00:15:52,890 --> 00:15:56,940 lender takes back the commission it gave to the broker there, I 296 00:15:56,940 --> 00:15:59,610 don't know if this is where it came from. But there in my in my 297 00:15:59,610 --> 00:16:04,410 imagination. I picture like a claw, a claw coming in, clawing 298 00:16:04,410 --> 00:16:07,320 back the commission. They're literally clawing it back. 299 00:16:07,590 --> 00:16:10,380 Johny Fernandez: Remember that Jim Carrey Movie? The claw. 300 00:16:12,180 --> 00:16:13,560 Sean Murray: I don't, yeah. I don't know. I don't remember 301 00:16:13,560 --> 00:16:14,280 that one. But. 302 00:16:15,600 --> 00:16:17,940 Johny Fernandez: Well he's a lawyer, and he's his dad and the 303 00:16:17,940 --> 00:16:18,540 claw. 304 00:16:18,690 --> 00:16:21,420 Sean Murray: I don't I don't remember that. What year was 305 00:16:21,420 --> 00:16:21,750 that? 306 00:16:22,020 --> 00:16:24,630 Johny Fernandez: 1994, 1995 with Jim Carrey. Oh, man, what's that 307 00:16:24,630 --> 00:16:24,990 movie called? 308 00:16:24,990 --> 00:16:25,770 We're going way back. 309 00:16:25,800 --> 00:16:28,290 I know. Not way back. It's like 20 years ago. 310 00:16:28,740 --> 00:16:29,550 Sean Murray: Wait were you born yet? 311 00:16:29,550 --> 00:16:32,610 Johny Fernandez: I was born. I was alive. I was born. I was 312 00:16:32,610 --> 00:16:36,360 going to school. Anyways. 313 00:16:36,480 --> 00:16:37,890 Sean Murray: All right. All right. Yeah just to get back to 314 00:16:37,890 --> 00:16:41,340 your question, so what is a clawback? A clawback is when a 315 00:16:41,340 --> 00:16:45,510 lender or funder claws back the commission, and they they're 316 00:16:45,510 --> 00:16:50,040 doing that because they have a stipulation in their contract 317 00:16:50,040 --> 00:16:53,280 that allows them to take that commission back or claw it back, 318 00:16:53,610 --> 00:16:57,210 if the deal defaults within a certain amount of time. So if 319 00:16:57,210 --> 00:16:59,790 you're a broker, you broker this deal you get paid the 320 00:16:59,790 --> 00:17:01,800 commission, you're like, awesome, you know, this is 321 00:17:01,800 --> 00:17:05,100 great, I rule. And then the next day, that merchant turns around 322 00:17:05,100 --> 00:17:07,920 and you know, runs off with the money or or, you know, goes out 323 00:17:07,920 --> 00:17:11,790 of business suddenly, within like 24 hours, that can be 324 00:17:11,790 --> 00:17:14,310 considered a material breach of the agreement that results in a 325 00:17:14,310 --> 00:17:17,820 clawback in which that lender or funder says, hold on, something 326 00:17:17,820 --> 00:17:19,560 went wrong here from the beginning, this wasn't a 327 00:17:19,560 --> 00:17:22,230 legitimate deal. We have the right to now clawback the 328 00:17:22,230 --> 00:17:23,940 commission it defaulted too quick. 329 00:17:24,359 --> 00:17:26,819 Johny Fernandez: All right. Next question is what is what is a 330 00:17:26,819 --> 00:17:27,809 payoff letter? 331 00:17:29,310 --> 00:17:34,050 Sean Murray: A payoff letter is a letter that a merchant gets 332 00:17:34,050 --> 00:17:40,110 from its funder or lender that details the outstanding balance. 333 00:17:40,710 --> 00:17:44,910 And the amount that would need to be paid to be paid off, so 334 00:17:44,910 --> 00:17:48,300 the payoff letter is how much is required to pay it off. 335 00:17:48,660 --> 00:17:51,450 Johny Fernandez: Cool. What is a zero balance letter? 336 00:17:52,770 --> 00:17:55,530 Sean Murray: What is a zero balance letter? A zero balance 337 00:17:55,530 --> 00:17:58,380 letter is essentially a payoff letter in which the balance is 338 00:17:58,380 --> 00:18:01,710 actually already zero, that formally states that there is no 339 00:18:01,710 --> 00:18:03,840 balance it's something that another lender or funder might 340 00:18:03,840 --> 00:18:07,170 want to see, to be 100% certain that there's no outstanding 341 00:18:07,200 --> 00:18:09,960 obligation with a competitor, they might say, we need the zero 342 00:18:09,960 --> 00:18:12,900 balance letter in order to move forward on the deal. 343 00:18:13,500 --> 00:18:14,820 Johny Fernandez: What are stips? 344 00:18:15,750 --> 00:18:18,990 Sean Murray: What are stips? So stips is really just short for 345 00:18:18,990 --> 00:18:22,500 stipulations. Basically, it's the it's the it's the 346 00:18:22,500 --> 00:18:25,710 documentation that will be required to close the deal. 347 00:18:26,070 --> 00:18:29,190 Oftentimes, in the small business finance industry, a 348 00:18:29,190 --> 00:18:31,050 merchant will be expected to provide some level of 349 00:18:31,050 --> 00:18:34,530 documentation upfront to get a pre approval, and then they need 350 00:18:34,530 --> 00:18:38,670 the stips to walk them through the end, close and get funded. 351 00:18:39,180 --> 00:18:41,100 Johny Fernandez: Awesome. What is a renewal? 352 00:18:41,880 --> 00:18:45,750 Sean Murray: What is a renewal? A renewal is just additional 353 00:18:45,750 --> 00:18:51,000 funds. So if you're a lender or a funder and your merchant, or 354 00:18:51,000 --> 00:18:55,290 customer needs additional funds, and they haven't satisfied the 355 00:18:55,290 --> 00:18:58,200 current outstanding obligation, you just renew them by giving 356 00:18:58,200 --> 00:18:59,280 them additional funds. 357 00:18:59,670 --> 00:19:00,810 Johny Fernandez: What is a true up? 358 00:19:02,490 --> 00:19:07,170 Sean Murray: A true up? Okay, good question. What is a true 359 00:19:07,170 --> 00:19:12,660 up? So a true up, in the circumstance, I'm assuming in 360 00:19:12,660 --> 00:19:15,660 the context of which I'm assuming it was asked is a true 361 00:19:15,660 --> 00:19:19,560 up is this would be probably part of a merchant cash advance 362 00:19:19,950 --> 00:19:25,170 deal. And in a merchant cash advance, payments are supposed 363 00:19:25,170 --> 00:19:29,010 to be collected in accordance with the revenue that a merchant 364 00:19:29,040 --> 00:19:31,470 generates. So there are some companies that will debit out a 365 00:19:31,470 --> 00:19:36,360 fixed amount per day. And that's supposed to be tied to how much 366 00:19:36,360 --> 00:19:38,820 they're actually doing in revenue, is based on a 367 00:19:38,820 --> 00:19:43,020 projection. Now, let's say that the merchants revenue doubled. 368 00:19:43,650 --> 00:19:46,290 And the amount that they the funder or lender collected this 369 00:19:46,290 --> 00:19:49,050 is the funder because it's MCA, the amount that the funder 370 00:19:49,050 --> 00:19:53,580 collected was really tied to what the normal volume would be. 371 00:19:53,580 --> 00:19:57,540 But now they found out that the volume doubled, they technically 372 00:19:57,660 --> 00:20:01,590 would be entitled to take double the money, because that would be 373 00:20:01,890 --> 00:20:05,340 consistent with the revenue that's being generated. And a 374 00:20:05,340 --> 00:20:09,300 merchant could choose to true up the deal by saying please debit 375 00:20:09,300 --> 00:20:12,480 out even more than what you've already taken, so that we're 376 00:20:12,480 --> 00:20:16,410 living up to the, you know, the exact precise arrangement of the 377 00:20:16,410 --> 00:20:19,170 contract. However, on the flip side, and here's where it's most 378 00:20:19,170 --> 00:20:21,660 often talked about, cause most merchants don't want to pay more 379 00:20:21,900 --> 00:20:27,510 sooner is, let's say the the business, the revenue dropped in 380 00:20:27,510 --> 00:20:31,770 half. And the merchant said, you took this amount of money, and 381 00:20:31,770 --> 00:20:34,260 that was supposed to be in relation to this volume of 382 00:20:34,260 --> 00:20:37,260 revenue, but my revenue dropped in half and so now the amount 383 00:20:37,260 --> 00:20:40,890 you took, is technically more than you were supposed to. So 384 00:20:40,890 --> 00:20:44,520 they can true it up by saying, here's what my actual revenue 385 00:20:44,520 --> 00:20:46,770 was, you know, that shows some kind of proof. Here's my bank 386 00:20:46,770 --> 00:20:50,940 statement. And then the funder is supposed to, as long as the 387 00:20:50,940 --> 00:20:54,090 merchant has everything that they're supposed to, the funder 388 00:20:54,090 --> 00:20:57,660 is supposed to refund, the overage that they collected to 389 00:20:57,660 --> 00:21:01,230 be consistent for the collection to have been consistent with the 390 00:21:01,230 --> 00:21:04,530 terms of the actual MCA arrangement and they call that 391 00:21:04,590 --> 00:21:06,780 truing it up or a true up. 392 00:21:07,200 --> 00:21:10,620 Johny Fernandez: Awesome. So really quick, going back to the 393 00:21:10,620 --> 00:21:12,780 clawback the movie was Liar Liar. 394 00:21:12,990 --> 00:21:13,320 Sean Murray: Okay. 395 00:21:13,320 --> 00:21:14,040 Johny Fernandez: With Jim Carrey. 396 00:21:14,070 --> 00:21:14,520 Sean Murray: Okay. 397 00:21:14,550 --> 00:21:18,000 Johny Fernandez: I remember. He goes to his son, he's like the 398 00:21:18,000 --> 00:21:22,950 claw and he does his thing with his son. And, you know, it's a 399 00:21:22,950 --> 00:21:24,300 pretty cool part of the movie. 400 00:21:24,690 --> 00:21:27,000 Sean Murray: We should make that part of a an official course. 401 00:21:27,030 --> 00:21:30,330 Like, for for brokers. What is the clawback and then you have 402 00:21:30,330 --> 00:21:31,650 to watch that movie. 403 00:21:31,830 --> 00:21:33,000 Johny Fernandez: Yeah, or that specific. 404 00:21:33,030 --> 00:21:33,360 Sean Murray: Yeah. 405 00:21:33,390 --> 00:21:34,920 Johny Fernandez: Where it's like the claws is coming to get you. 406 00:21:35,790 --> 00:21:36,600 The claw back. 407 00:21:37,110 --> 00:21:41,370 Sean Murray: I'm thinking of Inspector Gadget. No. Isn't it 408 00:21:41,370 --> 00:21:42,060 doctor claw? 409 00:21:42,090 --> 00:21:42,960 Johny Fernandez: Dr. Claw, yeah. 410 00:21:42,990 --> 00:21:45,510 Sean Murray: That for me, that's when I picture a claw. Well, I 411 00:21:45,510 --> 00:21:47,280 picture it first. Like a crab claw. 412 00:21:47,340 --> 00:21:47,760 Johny Fernandez: Okay. 413 00:21:47,910 --> 00:21:49,920 Sean Murray: Like doing that. And then when it's not a crab 414 00:21:49,950 --> 00:21:54,030 when I hear clawback, I see like Dr. Claw, Inspector Gadget being 415 00:21:54,030 --> 00:21:55,590 like, next time. 416 00:22:00,930 --> 00:22:02,340 Gadget next time. 417 00:22:02,370 --> 00:22:07,680 Johny Fernandez: All right, so in the voice of Dr. Claw. 418 00:22:07,710 --> 00:22:08,100 Sean Murray: Yeah. 419 00:22:08,310 --> 00:22:12,330 Johny Fernandez: We'll see you next time here on deBanked. I'm 420 00:22:12,360 --> 00:22:13,260 Johny Fernandez. 421 00:22:13,260 --> 00:22:14,220 Sean Murray: And I'm Sean Murray. 422 00:22:14,340 --> 00:22:15,210 Johny Fernandez: See you guys next time.