00:00.000 --> 00:01.230 Sean Murray: Hi, I'm Sean Murray. 00:01.260 --> 00:04.170 Johny Fernandez: And I'm Johny Fernandez. Sean. It's great to 00:04.170 --> 00:07.860 be here. Let's dive right into we have a couple of surprises. 00:08.550 --> 00:09.660 But before we get into that. 00:09.660 --> 00:11.610 Sean Murray: Okay, I feel like I feel like I never know what they 00:11.610 --> 00:13.440 are. You always start off by telling people we're gonna have 00:13.440 --> 00:15.600 a surprise and then I start to panic because I don't know what 00:15.600 --> 00:17.700 they are, but okay, all right. Good to know. 00:17.790 --> 00:20.700 Johny Fernandez: So we're gonna talk about quarterly fundings. 00:20.880 --> 00:21.780 Okay. First. 00:21.870 --> 00:24.630 Sean Murray: That's true. Yeah, I do. I do have some numbers in 00:24.630 --> 00:27.300 front of me here. I want to tell everyone what's going on in the 00:27.300 --> 00:30.450 industry, we are seeing a surge in funding activity, it's one 00:30.450 --> 00:33.180 thing to kind of just talk about it broadly and not give any hard 00:33.180 --> 00:36.990 figures. Fortunately, we do have hard figures. I'm gonna give you 00:36.990 --> 00:40.170 a stats for three different companies. The first one is 00:40.170 --> 00:44.850 OnDeck, which is now owned by Enova, OnDeck is funded, or I 00:44.850 --> 00:48.060 guess you could call them Enova now, Enova has funded $722 00:48.060 --> 00:52.080 million year to date. And to give you some kind of 00:52.080 --> 00:54.720 perspective as to what that number means, it's still 00:54.720 --> 00:58.020 trailing behind where they were in 2019. They're probably at 00:58.020 --> 01:03.180 about 50%, of where they were in 2019. So even though their 01:03.180 --> 01:06.990 volume is picking back up after being acquired by Enova, they're 01:06.990 --> 01:11.610 not quite on pace with where they were pre COVID. But OnDeck 01:11.610 --> 01:13.710 through Enova is definitely seeing a surge back, they've 01:13.710 --> 01:17.190 already funded $722 million worth of small business loans 01:17.400 --> 01:21.720 this year so far. Compare that to Shopify Capital, if you're 01:21.720 --> 01:25.770 not familiar with Shopify Capital, that is the MCA and or 01:25.770 --> 01:29.040 business loan arm of Shopify, Shopify is the number two 01:29.040 --> 01:33.240 ecommerce site in the world second to Amazon. So imagine 01:33.240 --> 01:36.450 that, they have their own lending arm, they do MCA too not 01:36.450 --> 01:39.480 just loans, MCA and loans. Shopify Capital has already 01:39.510 --> 01:45.090 funded $671 million for the first half of 2021. Pretty close 01:45.090 --> 01:49.620 to Enova and OnDeck. Yeah. And then on top of both of those 01:49.620 --> 01:54.630 companies is Square, Square, formerly known as Square Capital 01:54.630 --> 01:57.450 is their funding arm Square Capital is now known as Square 01:57.450 --> 02:01.800 Loans, Square Loans has funded $1 billion for the first half of 02:01.800 --> 02:05.520 2021. So they're ahead of OnDeck and Shopify. 02:05.640 --> 02:06.840 Johny Fernandez: 1 billion with a B. 02:07.020 --> 02:10.290 Sean Murray: 1 billion with the B. Now all three companies are 02:10.290 --> 02:14.130 not exactly ahead of where they were. Actually, that's wrong. 02:14.370 --> 02:19.650 Shopify of the three Shopify is ahead of where it was in 2019. 02:20.520 --> 02:23.490 So they're doing really good. Yeah. Whereas the other two are 02:23.490 --> 02:26.730 not quite back to where they were. But they're quickly 02:26.730 --> 02:30.780 catching up. Yeah. So those are those are the top three that we 02:30.780 --> 02:33.930 have stats for. Yeah. Other companies will release the stats 02:33.930 --> 02:36.090 over time, we're getting a lot of it from public filings. 02:36.360 --> 02:38.130 People are a lot more tight lipped about how much they're 02:38.130 --> 02:41.130 funding nowadays versus pre COVID. Because everyone's 02:41.130 --> 02:43.800 suffered. But if it's a public company, we get all that info 02:43.800 --> 02:46.620 when it's and it's public. So that's where we are with funding 02:46.620 --> 02:49.620 volume and small business loan in MCA industry. 02:49.680 --> 02:53.070 Johny Fernandez: Awesome. So it's definitely, I guess, when 02:53.070 --> 02:56.790 you read that, would you say it's something? It's a recovery 02:56.790 --> 03:01.170 for these guys? Are they you know, is this where, they 03:01.170 --> 03:05.910 expected to be? Are they doing overall big picture, would you 03:05.910 --> 03:07.590 say they are they doing well? 03:09.090 --> 03:11.400 Sean Murray: You know, I think what's telling you about those 03:11.400 --> 03:17.040 three is that Shopify is the one that performed at almost better 03:17.250 --> 03:20.340 during COVID than before COVID. Yeah. And that's because they 03:20.340 --> 03:25.410 were 100% ecommerce based. Ecommerce did really well, 03:25.470 --> 03:27.870 during COVID. That's all you can you can only shop online, but 03:27.870 --> 03:32.850 for the most part, right. Yeah. And so I think it's telling that 03:32.880 --> 03:37.260 Shopify is in a good position to weather any future pandemics, or 03:37.260 --> 03:40.470 any type of shut down or lock down by virtue of having an E 03:40.470 --> 03:45.180 commerce platform to base everything off of as for Square 03:45.210 --> 03:47.880 Square also did pretty well, during the pandemic, they deal 03:47.880 --> 03:51.600 with a lot of small merchants. Just how small became evident 03:51.600 --> 03:55.680 this morning, I did the math and the $1 billion that they funded 03:55.680 --> 04:01.290 this this year so far, has come out to a an average size loan of 04:01.290 --> 04:05.550 $6,000 per loan. Oh, wow. The average loan that Square does is 04:05.550 --> 04:09.000 only six grand, that's tiny. Yeah. That's super, super tiny. 04:09.030 --> 04:12.840 Yeah. So I think part of their their risk is hedged by how 04:12.840 --> 04:16.920 small the loans are. Because some lenders out there, you 04:16.920 --> 04:20.430 know, they'll do large loans. 100k 200k 300k and if a bunch go 04:20.430 --> 04:23.700 bad, you can lose literally, you know, millions at a time, where 04:23.700 --> 04:26.040 if we're talking about businesses that are you know, 6k 04:26.040 --> 04:30.300 here, 5k here, 7k here, you know, the volume makes up for. 04:30.450 --> 04:33.630 Yeah. The volume makes up for it. And Square also has a lot 04:33.630 --> 04:38.340 of, you know, has a lot of micro and, you know, retail merchants 04:38.340 --> 04:41.850 that are, you know, a little bit different than I guess you could 04:41.850 --> 04:45.180 say your traditional, you know, restaurant so to speak, although 04:45.180 --> 04:49.290 they are really heading into into that market, I think OnDeck 04:49.500 --> 04:54.510 is probably the one that is lagging behind, maybe where it 04:54.510 --> 04:57.150 should be just in terms of origination volume, but from 04:57.150 --> 05:00.270 what we've heard so far is that the loan performance has 05:00.270 --> 05:03.690 actually been really good. In fact, Enova, has reported that 05:04.440 --> 05:07.830 the cash flow generated by the legacy portfolio has far as 05:07.830 --> 05:12.300 surpassed their expectations. And so even though OnDeck's loan 05:12.300 --> 05:15.690 volume isn't where it's supposed to be, you know, where you know, 05:15.690 --> 05:19.170 versus it's pretty COVID level, the performance of its portfolio 05:19.380 --> 05:23.010 has has been great. And so I think we can look at all those 05:23.010 --> 05:26.220 factors in the context of the type of lending they do, and 05:26.220 --> 05:29.820 businesses they target and say, it's definitely a sign of a 05:29.820 --> 05:33.840 recovery, for sure. And for the for Shopify Capital, the story 05:33.840 --> 05:37.440 of E commerce is that that's the place to be if you want to if 05:37.440 --> 05:39.960 you want to be in the business lending market, because not only 05:39.960 --> 05:43.530 do they weather, the pandemic, but they like totally thrived. 05:43.530 --> 05:46.860 And they're doing more now. They were doing more during COVID. 05:46.890 --> 05:50.760 Yeah. Than before COVID. And now they're doing more more now, 05:50.760 --> 05:53.490 still, than they were during the middle of COVID. So it's just 05:53.490 --> 05:54.750 been, it's been great for them. 05:54.930 --> 05:59.160 Johny Fernandez: Awesome. That's good to hear. So, to transition 05:59.160 --> 06:03.120 out of that. So the other surprise that we have today is 06:04.170 --> 06:05.370 another lightning round. 06:06.960 --> 06:08.850 Sean Murray: Why did I know it was gonna be a lightning round? 06:08.880 --> 06:11.610 Every time you say surprise, I'm like, is it gonna be another 06:11.610 --> 06:12.630 lightning round? Okay. 06:13.140 --> 06:16.350 Johny Fernandez: So just to clarify, these lightning rounds 06:16.380 --> 06:21.180 have been, they've been very popular. And I think it's 06:21.180 --> 06:25.020 because not only do we try to make it somewhat fun, but also, 06:25.380 --> 06:30.150 it's very informative. It's very educational. And it is one of 06:30.150 --> 06:34.530 those things that people are clicking on, you know, these 06:34.530 --> 06:36.960 videos, because they want to know more about the industry. 06:36.960 --> 06:39.240 And I think overall, they just want to learn more about what 06:39.240 --> 06:44.100 exactly does certain things mean, when you're in a world 06:44.100 --> 06:48.660 that everyone kind of understands. Or they seem to 06:48.660 --> 06:52.230 understand these big terminologies, basic 06:52.230 --> 06:55.080 terminologies, but it's always scary to be the one that doesn't 06:55.080 --> 06:57.750 know. Because then that means you don't know. 06:57.840 --> 06:59.760 Sean Murray: So Johny. So you know, people I don't know, you 06:59.760 --> 07:01.260 know, I don't know where you're finding all the questions, but 07:01.260 --> 07:04.470 how can people reach you? If they have a question that they 07:04.470 --> 07:06.810 want answered on this particular show, what would be a good way 07:06.810 --> 07:07.620 to reach out to you? 07:07.920 --> 07:08.790 Johny Fernandez: Social media. 07:08.880 --> 07:09.210 Sean Murray: Okay. 07:09.240 --> 07:11.820 Johny Fernandez: Yeah, you can follow me on Johny Fernandez TV, 07:11.880 --> 07:16.980 Instagram, you can, same thing with Twitter. I know. I, you 07:16.980 --> 07:19.170 guys always tag me on like videos and things like that. So 07:19.170 --> 07:22.260 Twitter, Instagram. That's kind of the main source. 07:22.260 --> 07:23.220 Sean Murray: What about like LinkedIn? 07:23.460 --> 07:25.440 Johny Fernandez: LinkedIn, LinkedIn's a big one, too. Yes, 07:25.470 --> 07:27.750 I do have a LinkedIn, you can definitely reach me out there. 07:28.770 --> 07:31.200 Because it's one of those things that, you know, the more 07:31.200 --> 07:34.470 questions I get from you guys, we can share it here and get 07:34.470 --> 07:37.440 more. Because if you're asking the question, someone else is 07:37.440 --> 07:40.950 also asking that same question. I heard one time really quick 07:40.950 --> 07:44.010 story time in a class, if someone is asking a question, 07:44.010 --> 07:46.980 that means there's seven other people that don't know and that 07:46.980 --> 07:50.430 also want to know, and have that same question. Seven. 07:51.240 --> 07:53.700 Sean Murray: Okay. Even if it's a class of like, eight people? 07:53.760 --> 07:54.000 Johny Fernandez: Yeah. 07:54.000 --> 07:56.160 Sean Murray: Like, what's the average class size for that? 07:56.700 --> 07:57.180 Johny Fernandez: College. 07:57.450 --> 07:57.780 Sean Murray: Okay. 07:59.970 --> 08:00.600 Johny Fernandez: Good question. 08:00.630 --> 08:03.180 Sean Murray: Okay. Yeah. But it was. Okay. I like where you're 08:03.180 --> 08:07.290 going with it, ya know, so, you know, sometimes I'm surprised to 08:07.320 --> 08:10.290 see the feedback that we get on a few of them, it seems it does 08:10.290 --> 08:13.710 seem, some of the questions are complicated. And perhaps, you 08:13.710 --> 08:17.580 know, you know, it might be better for, you know, a larger 08:17.580 --> 08:21.360 discussion, but I think it's good. And people have found them 08:21.360 --> 08:24.720 helpful so far. So whatever, whatever you got, keep throwing 08:24.720 --> 08:27.720 it throwing them at me. And if you ever stump me, you know, 08:27.720 --> 08:30.150 I'll let you know. If I don't know the answer. You know. 08:30.180 --> 08:31.200 Johny Fernandez: But you know everything. 08:31.230 --> 08:33.060 Sean Murray: I don't know everything. By the way, it's 08:33.060 --> 08:35.220 okay out there people like if you don't know the answer, to 08:35.220 --> 08:39.210 something is don't pretend to know the answer. If there are 08:39.210 --> 08:41.310 times when I don't know the answer, then I'll just straight 08:41.310 --> 08:43.890 up tell you I don't know the answer. Just just so you know. 08:44.190 --> 08:47.760 I'm hoping I'm hoping doesn't happen when we're live. But it 08:47.760 --> 08:49.830 could happen. Yeah. And there are times I'm not gonna know the 08:49.830 --> 08:52.710 answer. And I'm going to try not to give you know, someone bad, 08:52.890 --> 08:55.230 bad information, try to give everyone the best information 08:55.230 --> 08:57.150 possible to the extent that I have it. 08:57.390 --> 08:58.590 Johny Fernandez: Cool. Let's start. 08:58.710 --> 08:59.190 Sean Murray: Okay. 08:59.220 --> 09:00.060 Johny Fernandez: Question number one. 09:00.090 --> 09:00.540 Sean Murray: Okay. 09:00.660 --> 09:02.970 Johny Fernandez: Should I form an LLC to be a broker? 09:04.830 --> 09:08.520 Sean Murray: Should you form an LLC to be a broker? So I don't 09:08.520 --> 09:12.540 know that it has to be an LLC, per se. But if you're gonna be a 09:12.540 --> 09:15.300 broker in the small business finance industry, you should 09:15.330 --> 09:20.340 certainly organize a legal entity from the beginning. I 09:20.340 --> 09:24.030 think that there's a tendency for new entrants to think, let 09:24.030 --> 09:28.170 me try it first. And if it's working out, well, then I'll do 09:28.170 --> 09:32.130 that. Yeah. Because it costs money to form an LLC or form an 09:32.130 --> 09:36.330 S corp or form a C Corp or whatever it is, someone's gonna 09:36.330 --> 09:41.190 form. But you're kind of you're kind of setting yourself up for 09:41.190 --> 09:44.460 some level, some level of failure if you're not willing to 09:44.460 --> 09:49.110 commit that much. Because forming like an LLC. You know, 09:49.110 --> 09:52.800 it might cost you a couple 100 bucks to do it, right. You're 09:52.800 --> 09:55.170 probably going to need a bank account in that name. You're 09:55.170 --> 09:59.700 probably going to need like a tax ID to go along with it. But 09:59.700 --> 10:04.080 all those things kind of prepare yourself mentally that this is a 10:04.080 --> 10:07.650 commitment. Yeah. To move forward. Yeah. And by taking 10:07.650 --> 10:10.920 those steps, you're really truly saying this is something I'm 10:10.920 --> 10:14.910 gonna try. I'm investing in it to some extent. And if you don't 10:14.910 --> 10:18.060 do those things, you're kind of giving yourself an out well. You 10:18.060 --> 10:19.920 know, what did I, what did I really put into it? You know 10:19.920 --> 10:22.740 what I mean? That type of thing. But the flip side of that 10:22.740 --> 10:25.140 question is, should you form an LLC, and it doesn't have to be 10:25.140 --> 10:29.130 an LLC, LLC, per se, I'm not, you know, I'm not an accountant 10:29.130 --> 10:32.280 or a lawyer. But um, you should really think about forming an 10:32.280 --> 10:36.390 entity for the purpose of legal liability, because one thing we 10:36.390 --> 10:39.900 have talked about on here is that if you are a broker in the 10:39.900 --> 10:43.380 commercial finance world, no matter what, no matter what 10:43.380 --> 10:46.950 anyone has told you, about being a broker, and how easy it is, 10:46.950 --> 10:50.730 and work from home and all this other stuff. Yeah. You know, 10:50.730 --> 10:54.300 there, there are certain situations that arise that will 10:54.300 --> 10:57.180 make you feel as if you really are in commercial finance. And 10:57.210 --> 10:59.460 you could end up in like a lawsuit, you could end up 10:59.460 --> 11:02.640 meeting a lawyer and and you never know what could happen, 11:02.670 --> 11:05.190 you could be in a contract dispute with a funding company, 11:05.190 --> 11:08.040 you could have a merchant that was unhappy with, you know, 11:08.220 --> 11:10.530 what, what happened with the funder, and they're blaming you 11:10.530 --> 11:13.230 and you're an independent sole proprietor, you're kind of 11:13.230 --> 11:16.560 making yourself legally liable individually, and you want to 11:16.560 --> 11:19.320 avoid that. So I would say you should definitely form some type 11:19.320 --> 11:21.960 of entity for a variety of different, different reasons. 11:21.960 --> 11:25.410 One is to protect yourself legally, and to prepare yourself 11:25.410 --> 11:28.650 mentally, that this is something you're truly interested in 11:28.650 --> 11:29.190 pursuing. 11:29.220 --> 11:31.500 Johny Fernandez: Yeah. And I think to kind of piggyback off 11:31.500 --> 11:35.160 of that, I know for a fact that if you are planning on joining 11:35.190 --> 11:38.310 this industry, definitely speak with an accountant that 11:38.310 --> 11:42.450 understands the MCA world number one, and also, you know, maybe 11:42.450 --> 11:46.410 an LLC may not be the best fit for you, like you said, you 11:46.410 --> 11:48.660 know, depending on everyone's situation, there could be other 11:48.660 --> 11:52.050 entities that they could go after, and something that's 11:52.050 --> 11:55.050 going to fit you cause sometimes, you know, an LLC may 11:55.050 --> 11:57.810 not be the best option for you. Because, you know, you may be an 11:57.810 --> 12:02.970 entrepreneur, dig digging into other things or other projects. 12:02.970 --> 12:06.150 So it's definitely worth it to consult with an accountant. 12:06.480 --> 12:09.660 Sean Murray: Yeah, yeah. It can't be said enough, you gotta 12:09.660 --> 12:12.840 consult with somebody, I know that there's plenty of advice. 12:12.840 --> 12:14.850 So get out there that says you don't need any of that you can, 12:14.880 --> 12:17.970 you know, work from home, all you need is a computer, etc. But 12:18.060 --> 12:21.450 this is the commercial finance industry, commercial means big 12:21.450 --> 12:24.630 boy table. Yeah. And you got to act like a, you know, big boy, 12:24.630 --> 12:29.100 big girl, whatever, to be a part of it. And so you need to do 12:29.100 --> 12:31.440 these things, if you're going to be in commercial finance, no 12:31.440 --> 12:34.410 matter what anyone else has told you about how the business 12:34.410 --> 12:35.010 operates. 12:35.070 --> 12:38.850 Johny Fernandez: And I think, to, you don't do this, but one 12:38.850 --> 12:42.690 of the videos that we talked about was not, if I'll ever get 12:42.690 --> 12:45.390 to this one, I'll get sued. And we talked about, you know, 12:46.260 --> 12:49.350 getting sued and hiring a lawyer. And that's like a very 12:49.350 --> 12:53.040 popular video, because no one really talks about that. When 12:53.040 --> 12:55.530 you start in this industry, like, oh, like, you're gonna get 12:55.530 --> 12:59.370 sued, like, here's how to prepare, like, sometimes, people 12:59.370 --> 13:04.080 blindly get served with documents and you're like, so 13:04.080 --> 13:07.290 that's something to avoid. Yeah. And, you know, if they come 13:07.290 --> 13:10.530 after you having like, some type of entity with whether it's an 13:10.530 --> 13:13.650 LLC an S corp, whatever it is, it's gonna help them out. 13:13.680 --> 13:15.720 Sean Murray: Yeah, it's, it's all it really is a matter of 13:15.720 --> 13:19.590 time, where you're going to need some type of legal defense, I 13:19.590 --> 13:22.080 don't, I don't mean like, you know, that you're definitely 13:22.080 --> 13:24.450 gonna end up in court. But there's gonna be a time when 13:24.450 --> 13:26.730 there's a miscommunication between parties, and it might 13:26.730 --> 13:30.270 not even be you, it might even it might be the merchant, and 13:30.270 --> 13:32.070 the funding company, and you're the broker, and you're like, I 13:32.070 --> 13:35.370 have no part in it, right. But let's say it's like a $500,000 13:35.400 --> 13:39.960 deal. And you made a nice commission off that. And, you 13:39.960 --> 13:42.570 know, something went wrong in terms of how the deal played out 13:42.600 --> 13:47.010 well, and the merchant deals, or the even the funder fields that 13:47.010 --> 13:51.630 you were involved in what went wrong. And all of a sudden, you 13:51.630 --> 13:55.890 know, you have a lawyer asking questions to you. And you're 13:55.890 --> 13:59.400 going to need to have someone who is able to do the same on 13:59.400 --> 14:02.520 your behalf. And so even if it doesn't end up in court, or in a 14:02.520 --> 14:06.450 lawsuit or whatever, you're gonna end up in a situation, at 14:06.450 --> 14:09.030 some point, no matter what, where you're going to need an 14:09.030 --> 14:12.060 advocate a legal advocate on your behalf to kind of navigate 14:12.060 --> 14:14.880 you through, you know, whatever, whatever the best course of 14:14.880 --> 14:18.210 action is for yourself. And so the sooner you do those things 14:18.210 --> 14:20.550 from the beginning, have them all lined up, the better. That's 14:20.550 --> 14:23.340 the the very long answer to your simple question. 14:23.850 --> 14:27.390 Johny Fernandez: All right, so simple question number two, what 14:27.390 --> 14:30.030 is the difference between secured and unsecured? 14:31.440 --> 14:32.220 Sean Murray: Okay so what did. 14:32.280 --> 14:33.360 Johny Fernandez: Two sentences, go. 14:33.750 --> 14:37.830 Sean Murray: Two, two? Okay, yeah, two sentences. All right. 14:38.340 --> 14:40.140 What are the differences difference, what is the 14:40.140 --> 14:44.610 difference between secured and unsecured if it's a secured 14:44.850 --> 14:50.010 loan, or line of credit, that means that the loan is actually 14:50.430 --> 14:54.120 secured by an asset. So if you if the borrower defaults on the 14:54.120 --> 14:59.160 loan, that asset serves as you know kind of protection they can 14:59.160 --> 15:04.530 go and repossess that asset to get paid back, right, and it's 15:04.530 --> 15:09.930 against that very specific thing. An unsecured loan is one 15:09.930 --> 15:12.840 and when, it's not backed by anything essentially backed by 15:12.840 --> 15:15.810 the full faith and credit of the borrower. And if the borrower 15:15.810 --> 15:19.350 doesn't pay back, well, there's not anything specific that the 15:19.350 --> 15:22.380 lender can go and pursue kind of like a credit card as a good 15:22.380 --> 15:25.770 example of what's unsecured, they can hurt your credit. Yeah. 15:25.800 --> 15:28.650 They can send you angry letters you want I mean, they can 15:28.650 --> 15:32.220 pursue, they can pursue you, but they can't come and repossess 15:32.250 --> 15:36.060 something specific. Whereas if it's a secured loan, they can go 15:36.060 --> 15:38.400 and say, you know, this was secured against this piece of 15:38.400 --> 15:41.730 equipment or this property, whatever and go and repossess 15:41.730 --> 15:41.910 it. 15:42.300 --> 15:46.560 Johny Fernandez: Awesome. Next question, what is a clawback? 15:48.270 --> 15:52.890 Sean Murray: What is a clawback? A clawback is when the funder or 15:52.890 --> 15:56.940 lender takes back the commission it gave to the broker there, I 15:56.940 --> 15:59.610 don't know if this is where it came from. But there in my in my 15:59.610 --> 16:04.410 imagination. I picture like a claw, a claw coming in, clawing 16:04.410 --> 16:07.320 back the commission. They're literally clawing it back. 16:07.590 --> 16:10.380 Johny Fernandez: Remember that Jim Carrey Movie? The claw. 16:12.180 --> 16:13.560 Sean Murray: I don't, yeah. I don't know. I don't remember 16:13.560 --> 16:14.280 that one. But. 16:15.600 --> 16:17.940 Johny Fernandez: Well he's a lawyer, and he's his dad and the 16:17.940 --> 16:18.540 claw. 16:18.690 --> 16:21.420 Sean Murray: I don't I don't remember that. What year was 16:21.420 --> 16:21.750 that? 16:22.020 --> 16:24.630 Johny Fernandez: 1994, 1995 with Jim Carrey. Oh, man, what's that 16:24.630 --> 16:24.990 movie called? 16:24.990 --> 16:25.770 We're going way back. 16:25.800 --> 16:28.290 I know. Not way back. It's like 20 years ago. 16:28.740 --> 16:29.550 Sean Murray: Wait were you born yet? 16:29.550 --> 16:32.610 Johny Fernandez: I was born. I was alive. I was born. I was 16:32.610 --> 16:36.360 going to school. Anyways. 16:36.480 --> 16:37.890 Sean Murray: All right. All right. Yeah just to get back to 16:37.890 --> 16:41.340 your question, so what is a clawback? A clawback is when a 16:41.340 --> 16:45.510 lender or funder claws back the commission, and they they're 16:45.510 --> 16:50.040 doing that because they have a stipulation in their contract 16:50.040 --> 16:53.280 that allows them to take that commission back or claw it back, 16:53.610 --> 16:57.210 if the deal defaults within a certain amount of time. So if 16:57.210 --> 16:59.790 you're a broker, you broker this deal you get paid the 16:59.790 --> 17:01.800 commission, you're like, awesome, you know, this is 17:01.800 --> 17:05.100 great, I rule. And then the next day, that merchant turns around 17:05.100 --> 17:07.920 and you know, runs off with the money or or, you know, goes out 17:07.920 --> 17:11.790 of business suddenly, within like 24 hours, that can be 17:11.790 --> 17:14.310 considered a material breach of the agreement that results in a 17:14.310 --> 17:17.820 clawback in which that lender or funder says, hold on, something 17:17.820 --> 17:19.560 went wrong here from the beginning, this wasn't a 17:19.560 --> 17:22.230 legitimate deal. We have the right to now clawback the 17:22.230 --> 17:23.940 commission it defaulted too quick. 17:24.359 --> 17:26.819 Johny Fernandez: All right. Next question is what is what is a 17:26.819 --> 17:27.809 payoff letter? 17:29.310 --> 17:34.050 Sean Murray: A payoff letter is a letter that a merchant gets 17:34.050 --> 17:40.110 from its funder or lender that details the outstanding balance. 17:40.710 --> 17:44.910 And the amount that would need to be paid to be paid off, so 17:44.910 --> 17:48.300 the payoff letter is how much is required to pay it off. 17:48.660 --> 17:51.450 Johny Fernandez: Cool. What is a zero balance letter? 17:52.770 --> 17:55.530 Sean Murray: What is a zero balance letter? A zero balance 17:55.530 --> 17:58.380 letter is essentially a payoff letter in which the balance is 17:58.380 --> 18:01.710 actually already zero, that formally states that there is no 18:01.710 --> 18:03.840 balance it's something that another lender or funder might 18:03.840 --> 18:07.170 want to see, to be 100% certain that there's no outstanding 18:07.200 --> 18:09.960 obligation with a competitor, they might say, we need the zero 18:09.960 --> 18:12.900 balance letter in order to move forward on the deal. 18:13.500 --> 18:14.820 Johny Fernandez: What are stips? 18:15.750 --> 18:18.990 Sean Murray: What are stips? So stips is really just short for 18:18.990 --> 18:22.500 stipulations. Basically, it's the it's the it's the 18:22.500 --> 18:25.710 documentation that will be required to close the deal. 18:26.070 --> 18:29.190 Oftentimes, in the small business finance industry, a 18:29.190 --> 18:31.050 merchant will be expected to provide some level of 18:31.050 --> 18:34.530 documentation upfront to get a pre approval, and then they need 18:34.530 --> 18:38.670 the stips to walk them through the end, close and get funded. 18:39.180 --> 18:41.100 Johny Fernandez: Awesome. What is a renewal? 18:41.880 --> 18:45.750 Sean Murray: What is a renewal? A renewal is just additional 18:45.750 --> 18:51.000 funds. So if you're a lender or a funder and your merchant, or 18:51.000 --> 18:55.290 customer needs additional funds, and they haven't satisfied the 18:55.290 --> 18:58.200 current outstanding obligation, you just renew them by giving 18:58.200 --> 18:59.280 them additional funds. 18:59.670 --> 19:00.810 Johny Fernandez: What is a true up? 19:02.490 --> 19:07.170 Sean Murray: A true up? Okay, good question. What is a true 19:07.170 --> 19:12.660 up? So a true up, in the circumstance, I'm assuming in 19:12.660 --> 19:15.660 the context of which I'm assuming it was asked is a true 19:15.660 --> 19:19.560 up is this would be probably part of a merchant cash advance 19:19.950 --> 19:25.170 deal. And in a merchant cash advance, payments are supposed 19:25.170 --> 19:29.010 to be collected in accordance with the revenue that a merchant 19:29.040 --> 19:31.470 generates. So there are some companies that will debit out a 19:31.470 --> 19:36.360 fixed amount per day. And that's supposed to be tied to how much 19:36.360 --> 19:38.820 they're actually doing in revenue, is based on a 19:38.820 --> 19:43.020 projection. Now, let's say that the merchants revenue doubled. 19:43.650 --> 19:46.290 And the amount that they the funder or lender collected this 19:46.290 --> 19:49.050 is the funder because it's MCA, the amount that the funder 19:49.050 --> 19:53.580 collected was really tied to what the normal volume would be. 19:53.580 --> 19:57.540 But now they found out that the volume doubled, they technically 19:57.660 --> 20:01.590 would be entitled to take double the money, because that would be 20:01.890 --> 20:05.340 consistent with the revenue that's being generated. And a 20:05.340 --> 20:09.300 merchant could choose to true up the deal by saying please debit 20:09.300 --> 20:12.480 out even more than what you've already taken, so that we're 20:12.480 --> 20:16.410 living up to the, you know, the exact precise arrangement of the 20:16.410 --> 20:19.170 contract. However, on the flip side, and here's where it's most 20:19.170 --> 20:21.660 often talked about, cause most merchants don't want to pay more 20:21.900 --> 20:27.510 sooner is, let's say the the business, the revenue dropped in 20:27.510 --> 20:31.770 half. And the merchant said, you took this amount of money, and 20:31.770 --> 20:34.260 that was supposed to be in relation to this volume of 20:34.260 --> 20:37.260 revenue, but my revenue dropped in half and so now the amount 20:37.260 --> 20:40.890 you took, is technically more than you were supposed to. So 20:40.890 --> 20:44.520 they can true it up by saying, here's what my actual revenue 20:44.520 --> 20:46.770 was, you know, that shows some kind of proof. Here's my bank 20:46.770 --> 20:50.940 statement. And then the funder is supposed to, as long as the 20:50.940 --> 20:54.090 merchant has everything that they're supposed to, the funder 20:54.090 --> 20:57.660 is supposed to refund, the overage that they collected to 20:57.660 --> 21:01.230 be consistent for the collection to have been consistent with the 21:01.230 --> 21:04.530 terms of the actual MCA arrangement and they call that 21:04.590 --> 21:06.780 truing it up or a true up. 21:07.200 --> 21:10.620 Johny Fernandez: Awesome. So really quick, going back to the 21:10.620 --> 21:12.780 clawback the movie was Liar Liar. 21:12.990 --> 21:13.320 Sean Murray: Okay. 21:13.320 --> 21:14.040 Johny Fernandez: With Jim Carrey. 21:14.070 --> 21:14.520 Sean Murray: Okay. 21:14.550 --> 21:18.000 Johny Fernandez: I remember. He goes to his son, he's like the 21:18.000 --> 21:22.950 claw and he does his thing with his son. And, you know, it's a 21:22.950 --> 21:24.300 pretty cool part of the movie. 21:24.690 --> 21:27.000 Sean Murray: We should make that part of a an official course. 21:27.030 --> 21:30.330 Like, for for brokers. What is the clawback and then you have 21:30.330 --> 21:31.650 to watch that movie. 21:31.830 --> 21:33.000 Johny Fernandez: Yeah, or that specific. 21:33.030 --> 21:33.360 Sean Murray: Yeah. 21:33.390 --> 21:34.920 Johny Fernandez: Where it's like the claws is coming to get you. 21:35.790 --> 21:36.600 The claw back. 21:37.110 --> 21:41.370 Sean Murray: I'm thinking of Inspector Gadget. No. Isn't it 21:41.370 --> 21:42.060 doctor claw? 21:42.090 --> 21:42.960 Johny Fernandez: Dr. Claw, yeah. 21:42.990 --> 21:45.510 Sean Murray: That for me, that's when I picture a claw. Well, I 21:45.510 --> 21:47.280 picture it first. Like a crab claw. 21:47.340 --> 21:47.760 Johny Fernandez: Okay. 21:47.910 --> 21:49.920 Sean Murray: Like doing that. And then when it's not a crab 21:49.950 --> 21:54.030 when I hear clawback, I see like Dr. Claw, Inspector Gadget being 21:54.030 --> 21:55.590 like, next time. 22:00.930 --> 22:02.340 Gadget next time. 22:02.370 --> 22:07.680 Johny Fernandez: All right, so in the voice of Dr. Claw. 22:07.710 --> 22:08.100 Sean Murray: Yeah. 22:08.310 --> 22:12.330 Johny Fernandez: We'll see you next time here on deBanked. I'm 22:12.360 --> 22:13.260 Johny Fernandez. 22:13.260 --> 22:14.220 Sean Murray: And I'm Sean Murray. 22:14.340 --> 22:15.210 Johny Fernandez: See you guys next time.