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CapFront Flashcards

1
Q

Five Core Customers
(Types of businesses)

A

Contractors
Logistics
Retail
Hospitality
Manufacturers

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2
Q

Primary reason Why business work with us?

A

We work with business owners who are not able to secure traditional financing through their bank.

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3
Q

Criteria for businesses to work with us

A
  1. Don’t have excellent credit
  2. 1-5 years in business
  3. Gross revenue < $5MM
  4. Need funds quickly
  5. Do not want to provide a lot of documentation
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4
Q

A, B, C, D Paper Lenders:

A

A is our best lender- in terms of rate, term, $ offered, prepayment offered….D is the worst

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5
Q

Add On

A

When a lender offers additional funds structured as a new contract with a new payment. The lender is basically stacking themself.

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6
Q

Points

A

The % of the loan amount that CapFront earns on a brokered loan. For example a $50k loan with 10 points, CapFront earns $5000 commission, gross margin (GM) or revenue

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7
Q

Datamerch

A

A bad merchant database. Many lenders use this when they underwrite

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8
Q

Double Funded

A

Funding two loans at the same time without either lender knowing. This is a frowned upon practice. (DO NOT DO THIS!!)

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9
Q

Double Interest

A

-> When an existing loan balance is refinanced into a new loan, interest is charged on not only the new capital but also on the remaining balance. Some lenders waive this remaining interest and don’t charge double interest when they refinance
->in many cases its in the business owners best interest to take an additional loan instead of refinancing because of double interest.

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10
Q

Exclusivity
(And when does it happen in the process?)

A

-> When only one broker has access to an offer from a lender.
-> Some lenders block other brokers out upon submission, approval, the contracts being sent, or the contracts being signed.

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11
Q

Factor Rate

A

-> The factor rate is a percentage of the loan amount that you need to pay to repay the loan.
-> For example, if you get a $50,000 loan with a factor rate of 1.10, you need to pay 110 percent of the amount you borrowed — $55,000 — to pay the loan off.

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12
Q

First Blood

A

-> If a lender is “first blood”, this means that multiple brokers can get the same offer.
-> Most of the time, other brokers are only locked out of the deal once contracts are signed by the merchant.

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13
Q

Net Rule

A

-> The amount of the loan amount that the lender requires the merchant to receive into his/her business bank account in the
event of a loan payoff occurring as a part of the contract.
-> For example, if a lender has a “50% net rule” and requires a merchant trying to secure a loan with them to pay off their $50,000 outstanding balance, the loan amount would need to be at least $100,000: $50,000 to payoff the outstanding balance and $50,000 (50% of $100,000) into the merchant’s business bank account.

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14
Q

Over Leveraged

A

The merchants total loan payments are too high to offer additional funding.

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15
Q

Position

A

Lien position - usually referred to in order of collectability. For example 1st position, 2nd position etc. Different lenders will fund based on their ability to take a certain position.

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16
Q

Prepayment Discount:
(How does it work?)

A

If the merchant is able to pay the loan off early in a lump sum the merchant might be eligible for a discount

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17
Q

Renewals:

A

Refinancing of an existing loan balance by the same lender. CapFront also refers to existing customers as renewals.

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18
Q

Remittance %:

A

-> The total loan payments as a percentage of monthly revenue. ( “remit” for short)
-> For example a lender might not want to do a deal with over a 20% remit which means that if their payment would cause the total payment to exceed 20% of the business owners monthly revenue they won’t do the deal.

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19
Q

Stacking:

A

Having more than one loan

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20
Q

Syndication overview, upsides for Capfront & Clients and how do fees work?

A

-> Investing or participating in a portion of our broker loans without CapFront originating the loan. This helps us get more competitive rates and terms for our merchants. It is also a major revenue source for CapFront.
-> Employees have the opportunity to syndicate without a management fee (outside investors pay a management fee).

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21
Q

True Up:

A

If monthly payment on MCA exceeds remittance %, the MCA borrower has the right to send bank statements to the MCA
lender and request a temporary reduction in payments to reflect their recent revenue trends.

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22
Q

Products we Offer

A
  1. MCA (Merchant Cash Advance)
  2. Lines of Credit
  3. Term Loans
  4. SBA Loans
  5. Equipment Financing
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23
Q

What is an MCA?

A

-> A MCA is a purchase of a business’ future sales at a discount, using those sales to repay the advance (plus fees).
-> MCA offers are generated based on a business’ expected revenue and while payments can be fixed or variable, they are based on an agreed upon percentage of daily sales.

24
Q

MCA - What is the Credit/Debit repayment period?

A

Unlike other types of business loans, MCAs don’t have typical repayment terms. Repayment periods are based on sales and can range anywhere from 3 to 18 months; the higher the credit card sales, the faster the advance is repaid.

25
Q

MCA Repayment - Fixed withdrawals from a bank account (ACH)

A
  • > MCA providers can also withdraw funds directly from a business bank account.
    -> In this case, fixed repayments are typically made daily or weekly from the account regardless of how much is earned in sales, and the fixed repayment amount is determined based on an estimate of
    monthly revenue.
26
Q

MCA - Fixed ACH - How long are payments and what type of business is it best for?

A

-> This type of MCA repayment structure allows for a calculation of exactly how long it will take to pay the advance back based on the amount borrowed
-> Can be better suited for businesses that don’t rely heavily on debit and credit cards sales.

27
Q

MCA - Is there a personal Guarantee and collateral? Is there a lien and if yes on what?

A

-> In many cases, MCAs do not
have a true personal guarantee and are not tied to any specific collateral
-> There is usually just a UCC blanket lien on general business assets

28
Q

MCA Defaults and Recourse:

A

-> if the business is no longer generating enough revenue nor has the cash flow to repay the advance, or closes the business, MCA funders have limited to no recourse.
-> When borrowers act in “bad faith” and stop repayment but are proven able to repay the debt, the MCA funder may have legal recourse.

29
Q

MCA - if retailer wants 20K to buy new inventory and the factor rate is 1.18. How much do they need to repay?

A

$23,600

20K x 1.18 = 23,600

30
Q

MCA - The business makes 30K in revenue per month and the lender agreesfor them to pay 15% of the CC revenue to pay back the loan…
A. In a 30 day month, how much does the business owner make per day?
B. How much does the business owner pay back per day?
C. If they got a loan for 30K, with a factor rate of 1.10 - what is the amount that needs to be repaid?
D. How many days will it take to repay to total loan?

A

A. $1000 per day (30K/30)
B. $150 per day (15% of 1000)
C. Total loan is $33,000 (30K x 1.1)
D. 33K/$150 = 220 days (around 3.7 months)

31
Q

MCA - Pro’s

A

-> Fast approval, can fund in 24 hours
-> Flexible requirements. Businesses with credit issues, start ups, previous financial issues,
-> Collateral. Typically don’t require physical collateral
-> Repayment based on your sales. Based on your sale so adjust as your biz makes money or less. (eg if cyclical pay more when business doing well and less when not making as much)

32
Q

MCA - Cons -
1. How expensive are they compared to other financing?
2. How do traditional loan’s APR compare to MCA’s?
3. What drives higher costs?
4. Why is it hard to compare them to other types of financing?

A
  1. One of the most expensive forms of financing
  2. Line of credit or business loan APR range from 9 to 99%, MCA’s can be as high as 350%.
  3. Higher depending on rev, size, fees, time to repay.
  4. Factor rates make it more difficult to provide APR.
33
Q

MCA - Cons - Debt and repaying issues? And financing issues?

A

-> Frequent repayment, high costs and debt cycle danger that can be hard to break
-> Since repayment is taking from sales, they can seriously impact businesses cash flow.
-> Are then usually not able to get any other type of financing made it hard.

34
Q

MCA - Cons - Penalties?
1. Are they smaller, similar or larger than other forms of lending?
2. Can you reduce fees and costs by paying it off? And does paying loan off early help?

A
  1. Large prepayment penalties.
  2. Since you technically have to repay a fixed amount of fees no matter what, while you can save on interest by repaying early, the amount saved is usually insignificant, unlike traditional amortizing loans.
35
Q

MCA - two main contracts issues ?

A

-> Confusing contracts. Historically been criticized for agreements that are unclear and hard to understand. Getting a bit better.
-> Typically don’t provide APR so hard to compare to other financing because it’s hard to get APR with the factor rate.

36
Q

MCA - regulation ?

A

-> No federal regulation.
-> MCAs are regulated by the Uniform Commercial Code in each state.
-> Has often led businesses to fall victim to predatory companies that use misleading marketing and sales tactics,

37
Q

Unsecured Line of Credit - what is it ?

A

-> An unsecured business line of credit functions almost like a business credit card.
-> You have a credit line from which you can draw funds at any time.
-> If you’re carrying a balance, you’ll have a minimum payment. You only pay interest on the portions that you borrow.
-> This can be a “revolving” line of credit

38
Q

Line of Credit Pro’s - there are 5 main ones

A
  1. Only pay on what you draw
  2. Draw funds immediately
  3. Less than perfect credit scores accepted
  4. Use for a variety of purposes
  5. Unsecured lines available
39
Q

What are the 5 main con’s to lines of Credit

A
  1. Limited credit line amount
  2. It might require collateral*
  3. Might require a personal guarantee*
  4. Higher interest rates with bad personal credit
  5. Unsecured lines of credit come with higher rates
40
Q

Term Loans - How does it work? What is the payment schedule and what is the interest rate setup?

A

-> A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms.
-> Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule with either a fixed or
floating interest rate.

41
Q

Term Loans - used for what and why they are liked?

A

-> Term loans are commonly used by small businesses to purchase fixed assets, such as equipment or a new
building.
-> Borrowers prefer term loans because they offer more flexibility and lower interest rates.
-> Term loans are the cheapest due to their low fixed interest rates and longer term. They offer the highest borrowing amounts as well.

42
Q

Term Loans - what is the importance of good credit? How do short/intermediate and long term loans vary ?

A

-> Credit score is by far the most important requirement for term loans. If the merchant has poor credit history, all the world’s revenue probably won’t help them get approved
-> Short and intermediate-term loans may require balloon payments while long-term facilities come with fixed
payments.

43
Q

Equipment Financing - how does it work and examples?

A

-> It uses the equipment you’re buying to secure the loan. The equipment becomes
collateral, meaning the lender can seize the asset if you fail to repay what you borrow.
-> Examples: Computers, Office furniture, vehicles for commercial use, Machinery, Commercial kitchen equipment, HVAC units, Phone systems, Printers and copiers, Medical equipment, Industrial equipment

44
Q

Equipment Financing
1. Is there a guarantee needed?
2. What are the terms usually?
3. Is it fixed or variable?
4. Any down payment required?

A
  1. You may need to, but not required
  2. 3 to 10 years
  3. Usually fixed
  4. Usually 10-20%. The more down, the better the terms.
45
Q

Equipment Financing - what info and docs are needed for an approval?

A

● Need your business credit score
● Need your personal credit score
● Ask how long you’ve been in business (usually need 1 year plus)
● Need business profit and loss statement
● The value of the equipment you want to purchase

46
Q

Equipment Financing - if they have bad credit can they get financing?

A

Yes. It’s possible to find lenders willing to work with business owners with bad credit and limited time in business.

47
Q

Equipment Financing - what other costs are there besides interest payments?

A

-> loan fees like: origination fees, late fees, or prepayment penalties
-> so be sure to read the fine print to know what you’ll
potentially pay.

48
Q

MCA:
1. Interest rate, term range, payment frequency and time to close?
2. Minimums: rev, credit, time in business, documents?

A

-> Highlights: 18%-65% over 6-24 months on a daily or weekly payment, can close within 24 hours
-> Minimums
- Minimum Revenue: $5K/month
- Minimum Credit Score: 500 FICO
- Minimum Time in Business: 3 Months
- Minimum Documentation for Submission: 4 months of most recent business bank statements

49
Q

Line of Credit:
1. Interest rate, term range, payment frequency and time to close?
2. Minimums: rev, credit, time in business, documents?

A

-> Highlights: 12%-72%/Year or 1%-4%/month over 12-36 months on weekly and monthly payments, fully revolving and only pay for what you use, can close in 24 hours
-> Minimums:
- Minimum Revenue: $50K/Year or $5K/month
- Minimum Credit Score: 560 FICO (620 preferred)
- Time in Business: 6 months (2 years preferred)
- Minimum Documentation for Submission: 4 months of most recent business bank statements

50
Q

Term Loans:
1. Interest rate, term range, payment frequency and time to close?
2. Minimums: rev, credit, time in business, documents?

A

-> Highlights: 7%-15% APR over 6 months to 7 years, can close in 3-5 business days
-> Minimums:
- Minimum Revenue (under $100K): $10K/month
- Minimum Revenue (over $100K): $250K/year or $25K/month
- Minimum Credit Score: 650 FICO
- Minimum Time in Business: 2 Years
- Minimum Documentation (under $100K): 4 months of most recent business bank statements
- Minimum Documentation (over $100K): 2 most recent business tax returns*, 2 most recent personal tax returns, last year and year-to-date P&L & balance
sheet, debt schedule and 6 months of most recent business bank statements
- *If pushback, only ask for 2 most recent business tax returns and 6 most recent months of business bank statements

51
Q

Equipment Financing:
1. Interest rate, term range, payment frequency and time to close?
2. Minimums: rev, credit, time in business, documents?

A

-> Highlights: 7%-50% over 6-72 months on weekly or monthly payments, can close within 48 hours
-> Minimums:
- Minimum Revenue: depends on equipment and industry
- Minimum Credit Score: 600 FICO
- Minimum Time in Business: depends on equipment and industry
- Minimum Documentation for Submission: equipment invoice and credit application (4 months of most recent business bank statements on case-by-case
basis)

52
Q

SBA 7(a) Loan:
1. Interest rate, term range, payment frequency and time to close?
2. Minimums: rev, credit, time in business, documents?

A

-> Highlights: Prime + 1%-6% or 1%-4%/month over 7, 10 or 25 years, can close anywhere from 2 weeks to 2 months depending on 7(a) type
-> Minimums:
- Minimum Revenue: $50K/Year or $5K/month
- Minimum Credit Score: 640 FICO
- Time in Business: 2 years; startups allowed for certain loan types
- Minimum Documentation for Submission: 6 months of most recent business bank statements, 2 most recent business tax returns, most recent personal tax return & year-to-date P&L and balance sheet

53
Q

SBA 7(a) Loans

A

-> a small-business loan issued by a private lender and partially backed by the U.S. Small Business Administration.
-> SBA 7(a) loans are the most common type of SBA loan, and the SBA guaranteed over 57,000 7(a) loans in fiscal year 2023.

54
Q

SBA 7(a) Loans -
1. Why wanted?
2. Qualification easy or hard?
3. What purposes are they used?

A
  1. Low interest and good terms
  2. Tough to qualify for.
  3. variety of purposes, including working capital, business expansions or
    purchasing equipment and supplies.
55
Q

SBA Loan Types - Loan size and application turn around time ?
1. Standard SBA 7(a)
2. SBA 7(a) Small loan
3. Express Loan

A
  1. Max $5 mill, 5-10 days app turn around
  2. Max 500K, 5-10 days app turn around
  3. Max 500K, 36 hour turn around. Only 50% SBA guaranteed.
56
Q

Selling Point to tell clients

TES NISG 5

A
  1. (T) full Transparency - focus on market education, help with bookkeeping/accounting, strategizing long-term
  2. (E) we all have Experience/background in finance/small business…we are not trained salesman!!
  3. (S) we invest in a lot of our partners deals (via syndication) so we get exceptions and make our money on the interest which lowers incentive to charge high commissions which means we have clients best interest at heart…if they default/don’t perform…we don’t perform
  4. (N) No 3rd party fees on majority of products because most fees are totally arbitrary
  5. (I) no double-dipping/double Interest on many 1st position products
  6. (S) only soft credit pulls (does not affect score) except in rare situations….we’ll always ask
  7. (G) graduation/dual track funding to complementary, commercial and/or lower interest products so we can bridge-to-permanent financing programs
  8. (5) 5-star Trustpilot rating and top 10 in most relevant categories
57
Q

Interest rate, term range, payment frequency and time to close for:
1. MCA
2. Line of Credit
3. Term Loans
4. Equipment Financing
5. SBA 7(a)

A
  1. MCA -> interest rates between 18%-65% over 6-24 months on a daily or weekly payment, can close within 24 hours
  2. Line of Credit -> interest rates between 12%-72%/Year or 1%-4%/month, over 12-36 months on weekly and monthly payments, fully revolving and only pay for what you use, can close in 24 hours
  3. Term Loans -> 7%-15% APR over 6 months to 7 years, can close in 3-5 business days
  4. Equiptment Financing -> 7%-50% over 6-72 months on weekly or monthly payments, can close within 48 hours
  5. SBA 7(a) -> Prime + 1%-6% or 1%-4%/month over 7, 10 or 25 years, can close anywhere from 2 weeks to 2 months depending on 7(a) type

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