In debt-buying, as in clothes shopping, one size does not fit all.
Realizing that it was leaving a portion of the debt buying market uncovered, Flock Finance last month launched a new product which is aimed at smaller portfolio purchases.
The new product offers a new funding and profit-sharing structure that is different from Flock’s core capital product.
Under the new structure, debt buyers provide more capital up front but Flock takes a smaller portion during the profit-sharing portion of the transaction, said Michael Flock, the CEO of Flock Finance.
“One thing customers have said to us with the 50/50 profit sharing is ‘What if it’s a small deal’ and the customer is willing to advance 30% or more,” of the purchase price, Flock said. “Clients are fine with higher fees if they have more upside on the back end. They are going to make more money.”
Under the traditional funding vehicle, debt buyers contribute 15% of the portfolio price and Flock contributes the rest. Once the principal is paid off, there is a 50/50 profit-share on any recovered funds from the portfolio. Under the new structure, debt buyers can contribute up to 30% of the purchase price and keep a higher percentage of the recovered funds once the principal has been paid off. There is an origination fee that applies when utilizing the new structure.
The new structure is aimed at smaller debt buyers, those spending $1 million to $2 million per year on portfolios, compared with larger buyers that spent upwards of $10 million or $15 million, Flock said.
An objective of the new structure is to help smaller debt buyers grow into being able to make larger portfolios purchases. As new categories of debt become available, such as those from online lenders, and rumors of banks returning back to selling portfolios continue to grow, having more liquidity in the marketplace will help it grow.
“Anyone who has survived the last four or five years is doing well,” Flock said. “This is a way of getting customers who don’t spend as much but have more equity.”