In the Merchant Cash Advance industry, syndication refers to the pooling of capital in order to provide cash to clients in exchange for a purchase of their business’s future receivables. Naturally, this investment model eliminates the problem of one investor shouldering the total risk of the deal. Rather, risk is shared among all partners in varying degrees proportionate to their individual capital outputs. Syndication is a tool that can allow brokers to grow their ISO by continuously reinvesting their earnings yet keeping their exposure to risk relatively low.
Consulting with a syndication management firm and reinvesting a portion of your monthly commission earnings- as modest or robust as you’d like- is a great way for brokers to start investing in merchant cash advances. By doing your research and partnering with a syndicate manager that you can trust, your syndication experience will be enjoyable, lucrative, and your portfolio will thrive.
3 Keys to Successful Syndication
Making the decision to put some skin in the game and entering a syndication agreement is the easy part. The success or failure of syndication lies in the intelligence, strategy , and credibility of your syndicate manager.
- The performance of a syndication unit relies heavily on the insight and intelligence of the manager, as the manager is typically responsible for identifying promising deals and conducting the proper due diligence required to deem a deal creditworthy. Lazy due diligence and inadequate industry knowledge leads to poor investment decisions which threaten the profitability of the unit.
- Strategic investments and pristine judgement are also crucial determining factors of success. The manager must know when to “go heavy” in a deal and when to proceed with caution, at least until a client proves their repayment reliability. A syndicate manager must also have access to a considerable volume of deal flow so that capital is disbursed throughout many deals, insulating the unit from the adverse impact of a default… An event that is, unfortunately, statistically inevitable.
- Partnering with a manager that has both a proper plan for recouping funds in the event of a client default and the means to execute the plan is positively vital to the success of the syndication unit. Multi-million dollar funds have tanked due to inadequate collections processes. As an investor you not only have the right, but the obligation to ask as many specific questions as possible regarding the collections apparatus of the syndication management firm in which you plan to invest. The decision to trust someone with your money implies that they are capable of more than turning a profit; They must also be capabale of protecting and defending your assets when circumstances are less than ideal.
The Benefits of Syndication
Syndication gives investors the ability to fund merchant cash advances without having to start their own cash advance company. It also gives brokers the freedom to invest in deals they believe in. Underwriters of industry giants are often unwilling or unable to devote the necessary time to conduct exhaustive qualification assessments, (something that is regularly required in the high-risk space). In a world of quick declines at the first sight of a less-than-perfect deal, syndication allows for the possibility of a second look. With the help of syndication, previously declined files are monetized which means less time and money wasted on dead-end origination, more money in your pocket, and more clients receiving the capital they rightfully deserve.