Have you ever had an MCA contract signed for an amount only to have that reduced near the finish line by the funder?
If you are a broker having any decent length of time in this business then most likely you have experienced this type of reprice. You certainly must have been given reasons for the reprice but have you considered whether this was just circumstances on an individual deal or an overall plan by the funder as a consistent business practice to ‘bait and switch’ on contracted amounts?
This isn't going to apply to most repricing situations to be clear. But there are several funders that have in the past been accused of a bait and switch both publicly and privately and have changed their business practices.
They get down to the last steps in the funding process then spring reasons for a reprice to where it’s very difficult for the merchant or broker to find other options to get funding in a timely manner. That’s when the merchant may feel desperate enough to take the terms even if they are not favorable for the business. Some Direct Funders will use this as a way to get higher returns on their capital whether or not its crossing ethical and legal boundaries.
To my knowledge nothing has ever come to a legal conclusion in court which demonstrates how difficult it is to prove these things once a sufficient reason for reducing the offer amount has been given. Yet it continues.
To this day I still see where a broker puts on social media they have an offer or contract for $150,000, for example, but by the time they post their Instagram or LinkedIn ‘Funded Deal’ post, that dollar amount has been reduced to $100,000. People don't ask much beyond that once they've seen the final dollar amount was a high amount, however, there are many things going on behind the scenes that most are not privy to.
Most funders will give valid reasons for a reprice by saying the bank logins show a lower amount of sales for the month to date, the merchant interview didn't go well, other stips didn’t match expectations, or several other reasons for them too legitimately reduce their exposure because of the increased risk.
An underwriter will tell you that with new information the deal can change depending on many risk factors. For the funder to protect themselves sometimes they will even increase the factor rate and/or reduce the term.
Any broker should make sure the repriced factor rate and term still make sense for the merchant given the change from the original offer. Brokers should question whether the increased risk is properly attributed to the reality of the merchant’s situation. Where the bait and switch is successful is when the merchant or broker has essentially no other option but to go with the offer or not get funded.
Now it’s no secret that many if not most brokers in these instances just want their commission so they will push the deal more often than not. What will separate the brokers that have long-term success is looking after their merchant’s best interest before just getting the quick buck on that one deal. So if you let the merchant take a bad deal and they have difficulties paying back, then you may lose that client forever which means no renewals.
So to all the brokers new or experienced, just look out for reprices whenever working with new funders or even ones that you have worked with for a long period of time. If reprices are constantly happening or on a specific deal that reprice doesn't make sense, be sure to question it until you get a satisfactory explanation. No one should be falling victim to bait and switch tactics in any situation.