Merchant Cash Advance brokers are predatory in nature and seek their prey: small business owners who need funding.
While our company helps small business owners deal with unreasonable Merchant Cash Advances, we are also the only small business support organization who also works with our attorneys and the authorities to hold brokers accountable for their behavior. On countless occasions, MCA brokers use all sorts of scams to get funding for their clients which are harmful to small businesses and the Merchant Cash Advance company who is funding them. This article reports on several common things which brokers do that cause adverse actions to the small business owner and their business, as well as providing our corporation avenues to hold brokers accountable.
By Thomas Tramaglini, Chief Operations Officer
MCA brokers are willing to do anything they can to get their deals funded.
Every day, our small business advisors meet small business owners who have been scammed by Merchant Cash Advance (MCA) brokers. MCA brokers are traditionally independent contractors who call/email/text hundreds of small business owners each day trying to secure funding for their business. Because MCA brokers only get paid if the small business owner gets funded, MCA brokers are willing to do anything to and for small business owners so they can get their deal funded.
Small business owners are vulnerable prey to fall for the oldest tricks in the book.
MCA brokers tend to use the same tricks which have worked for them over the years. Scamming is usually an easy game for the brokers because small business owners are vulnerable. That is, small business owners need capital and have a hard time accessing capital for their businesses. In fact, according to the SBA, in 2021, while there were over 32 million small businesses only around 12,000 small businesses were able to access an SBA 7(a) loan. This pretty much means that it’s easier to get stuck by lightning than get an SBA loan for your small business.
When small business owners are vulnerable to, they become susceptible to schemes which will eventually hard small businesses and small business owners. The following schemes (and they are schemes) are ways that brokers prey on small business owners.
Scheme 1: If you take this deal, you will get a line of credit or term loan.
Look – Merchant Cash Advances are expensive; Ridiculously expensive. And, in a similar way to parents coercing their children to take their medicine, brokers coerce small business owners into taking ridiculously bad deals that the small business owner does not want to make.
However, in order to get the low interest line of credit or multi-year term loan, brokers will blatantly tell the small business owners that if they take the cash advance, they will either qualify or be approved for the financing they want.
This is a scam as those low-interest or long-term programs do not exist for most small business owner; Ever.
Scheme 2: Build some payment history for better deals.
One of the oldest ways that small business owners are coerced into Merchant Cash Advances is by being told that they need to “build history” with the lender before they can get into a term loan or line of credit. First, MCA companies are not lenders and building history is a scam to just get an MCA company to provide the small business owner more money over time, meaning paying more over time. MCA companies do not really care about history of payment, other than just giving the small business owner more money. MCA companies care about things like deposits, revenue, and strong credit. Those things provide better deals than history.
This is a scam as building history means nothing compared to good credit or revenue.
Scheme 3: Refinancing the MCA will save you money and you will get a better rate or longer term.
Once the business owner has been halfway through the advance, they are usually given the chance to renew or refinance their program. However, MCA companies have their box and they usually do not vary much from their original deal. For instance, Everest Business Funding, one of the more reputable MCA companies, usually will not go longer than 8 months on their programs. Most of their deals are around 6 months in length. Building history with them might give you a point or two better rate, of an extremely high factor rate already. However, if you are renewing your position and they are consolidating your payment into the new payment you are likely paying interest on interest (or factor on factor) and being ripped off. Or you will pay the same rate and the broker will take the difference in his or her share.
This is a scam as renewing only usually makes someone pay interest on interest or (if the MCA company eats their fees) it just puts someone in the hole for a longer period.
Scheme 4: You cannot get approved for the amount you need… so you take two or more advances at the same time.
When MCA companies do not approve the client for how much they are approved for, brokers will turn to stacking for the small business owner. Stacking is basically providing more than 1 merchant cash advance at the same time from more than 1 MCA company.
Stacking is hurtful because while MCA companies provide unreasonable factor rates and unfair payback periods, they price the Merchant Cash Advance so the business owner can hopefully pay back their funds. MCA companies do not want the broker to stack on them, so they do things like bank login and check data clearinghouses like CLEAR for protection. Yet, stacking is not hard. We have written extensively about how easy and how harmful stacking is. However, no broker explains how doubling or tripling the MCA will hurt cash flow. In fact, over 80% of our clients who have stacked at one point have had negative outcomes.
This is a scam as stacking only hurts the business owner and most who stack are encouraged to take the funds because they need them, but they cannot pay back the funds.
Scheme 5: Additional Broker Fees.
Brokers make A LOT on each deal. Some brokers may charge the client (sometimes without even telling the client) several hundred or thousands of dollars beyond the regular commission. And while some states are adding disclosure laws, most brokers just go around the laws intended on protecting the client.
One of the biggest reasons why brokers may charge additional fees (beyond just to make money) is that they may believe that the client will not make enough payments before defaulting and as protection to their commission, the broker will charge an extra fee, so they at least get paid on the deal before having their commission taken back.
Frankly, MCA brokers make 10% or more of the total MCA as commission. Charging an additional fee is gouging and should never be done. Furthermore, most MCA companies do not want MCA brokers to charge these fees as it adds to the risk associated with payback ability.
This is a scam as broker fees beyond what the MCA company are charging are not necessary or required.
Scheme 6: Augmenting business bank statements.
When a broker sees bank statements which are not going to get the client where they need to be in order to get funding, there are brokers out there who will use their Adobe skills to change the business bank statements. Although many times the MCA companies are successful in finding these manipulated bank statements, sometimes
they are not.
The crazy part is that every broker application requires the business owner to sign off on
the accuracy of the information provided. Yet, the broker changing the bank statements can expose the business owner to crimes such as wire fraud or just general fraud, falsifying documents, and more. All the broker has to do is say the business owner did it.
This is a scam as manipulating bank statements is illegal and just hurts the business owner.
Scheme 7: We can save you money.
Brokers make money by the small business owner taking a Merchant Cash Advance. No MCA broker tries to save the client money ever because they would then make less money or no money at all. Brokers will try all sorts of different angles on telling you that you are saving money, but you are not.
This is a scam as anytime a broker says that they are saving the business owner money it’s not usually true. The rule of thumb is that if you are a small business owner looking for money and you want an MCA, go right to the MCA company.
Beacon Holds Brokers Accountable
For years, we have been working with our attorneys to hold brokers accountable for their actions. Too many times, brokers of merchant cash advances will tell small business owners or take actions without permission that makes them more money but hurts the small business.
If you are a small business and have been put in a bad place by a broker, contact us immediately.
Contact Beacon Client Solutions to better understand your situation and how we can help you.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Master’s and Doctorates in Organizational Leadership from Rutgers University, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All our work is connected to those who are legally certified to give such advice. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.
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