This may be more info than you need, and -- key detail! -- I have absolutely no idea if this is what happened in Scrip Advantage's case, but there's a real risk for scrip brokers of getting too dependent on credit.
Yes, they have your money. But they also have salaries to pay, rent to pay, electric bills, insurance, shipping for all those orders, a website, marketing materials, yadda, yadda, yadda.
Let's take an example where you order $5,000 of assorted gift certificates and pay them $4600 (8% for you) for those. Depending on the retailer, the broker may only be getting a point or two more from the retailer, making, say, $100 (2%) on your $5000 order. With that $100, the broker has to pay all its bills.
Broker might make 4% for itself on high-% items like pizza. But broker might make only 1% from low-% items like groceries.
As things start flying (and the fall is often when that happens), a broker could be depending on its line of credit to buy even bigger purchases of certificates from retailers (bigger purchases likely mean even bigger discounts for the broker). Plus the fact that the broker just can't take your $190 worth of JC Penney orders and order that from JC Penney. The whole business is predicated on broker making large volume purchases from retailers and then selling the certificates in smaller lots to you.
Having its credit pulled at the wrong time can be a killer for a broker that's operating too close to the edge, with higher expenses, tighter turn-around times (tighter turnarounds = more reliance on the line of credit), higher percentages to the groups, etc.
The scrip broker business is a business with profit margins about as tight as can be imagined. Doesn't take much to send a scrip broker from "making it" and serving groups well to "teetering on the edge".
Tim
