Small business owners who need funding have few options and are vulnerable prey for Brokers who relentlessly will attempt to get business owners to take on Merchant Cash Advances. In reality, most Merchant Cash Advance Brokers are unregulated liars who will stop at nothing to make money off of you and your business. This article provides an overview of many of the tricks that MCA Brokers use to take advantage of small business owners.
By Thomas Tramaglini, Chief Operations Officer
Predators.
Predators are defined as follows: A person who ruthlessly exploits others. A predator is someone who takes advantage of someone else who is either weak and/or being vulnerable.
Small Business Owners – Vulnerable and in need of what Brokers can get them.
MCA Brokers: Predators and then some.
While some small business owners are not weak, most small business owners are seen as vulnerable to brokers. That is, they are seen as easy prey to sell to because Brokers can get what most small business owners are not able to access: Money.
The MCA Industry.
In 2020, according to the US Small Business Association (SBA) there were over 32 million businesses in the United States and the US Census Bureau and it was reported that nearly 10 million new businesses were started during the years 2020 and 2021. In the same year (2020), the SBA also reported that over 50% of all small businesses have borrowed money in the past 5 years.
Yet, most small businesses are not able to access quality capital or loans, and instead they turn to alternative funding programs. One of the most prevalent funding sources is the Merchant Cash Advance. When Small Business Owners take a MCA, the small business owner sells their future sales (at a discount) to another company and pays the future sales back over a short given amount of time. MCAs are high risk, easy to get, and in most cases, similar to going to a loan shark.
And, each day hundreds of thousands of small business owners are called, texted, or emailed by brokers who hope to get small business owners to sell their future receivables to MCA companies. Even if the smallest percentage of small business owners get funding, it’s a success because of how much brokers can make. In most cases, the brokerage makes 10% to 15% on every MCA.
What Brokers Want to Know?
Brokers want the following information from each business owner in order to place the business owner in one of the MCA companies in their brokerage’s portfolio. Most of the MCA companies want the following information:
Common questions to small business owners…
o What is your (Gross) monthly revenue?
o What is your average daily balance in your business bank account?
o How many deposits do you make each month?
o What is your credit score?
o Have you ever filed for bankruptcy or had any judgements or liens against you?
o Do you have other Advances (positions)
From this information, the brokerage will ask the client to complete an application, ultimately sending the completed application and three months of business bank statements to the Merchant Cash Advance company for “underwriting.”
Five things that Brokers DO NOT want you to know.
1) Brokers have ZERO to do with your terms.
MCA Brokers are just that. Brokers. They call you; they collect your bank statements; your application; and in some cases, business documents and tax returns; then they send those items to the MCA companies. The MCA companies use whatever criteria to buy the small business owner’s receivables, returning an offer to the brokerage. Brokers in turn work to sell and close the Merchant Cash Advance.
What to do: Get every offer in writing and save all communications from your broker.
2) They are not direct lenders.
Brokers claim to be direct lenders, but they are not lenders in any way. Giving the sense of “cutting out the middleman” by being direct is one of their older tricks in the book. Brokers are not direct in any way, and they are paid more if your advance is more expensive.
If an MCA broker tells you that they are a direct lender, you should check them out, or at least go to an MCA company directly as you are about to get taken advantage of.
What to do: Be conscious of who you are dealing with, and what you are dealing with so when it comes time to get an advance, you are not paying way more than you have to.
3) MCA Lenders are not lenders.
In essence, MCA companies are not lenders in any way. MCA companies benefit from being unregulated because they do not provide loans. Instead, these companies buy future receivables at a substantial discount and then allow the business owner to deliver those future receivables over time. Also, because MCA companies are not lenders, they do not have to fall under the same guidelines that lenders do if you have trouble paying back a loan.
What to do: If an MCA broker uses language about lending etc., get it in writing as if you ever have an issue, you may be able to use it against the MCA company.
4) Brokers are paid A LOT on your deal.
An MCA brokerage is never out to help the small business owner. In fact, the more a small business owner pays, the more money the broker makes. Most MCAs are between 25% and 50% “interest” (which is not interest). Brokers (on average) make between 5% and 15% on Advances and they get paid immediately.
What to do: Two things’ brokers will never do – 1) save you money and 2) look out for you. They do not care if you go out of business unless you immediately default. Most MCA lenders have agreements with brokers which outline a timeline for when a merchant defaults they would have to pay back their commission.
5) If you have trouble paying back your Advance, they will want you to take more money.
Brokers make more money when you take more money. That is, they use all sorts of schemes to get you to take more money. For instance, they will tell you that if you take this initial amount, you will build “credit” or “history” and you will next get a better deal. The broker will then try to stack you or give you another advance, making more money for themselves. The bottom line is that once a small business owner begins taking on more advances, or more money, they are bound for trouble.
What to do: Once you get started, brokers will keep you taking more so they make more. What to do… stay within your means, and if possible do not take on more MCA debt.
6) Stacking
Stacking is when a small business owner takes more than one advance at a time, or consecutively. This can occur for a host of reasons, as most small businesses do not get the amount they are looking for when seeking an advance. It is commonplace for brokers to stack small business owners with multiple advances. And in most cases the MCA companies do not know they are being stacked on. The outcome is usually never good for a small business.
What to do: Do not stack; ever.
7) They Lie. A Lot.
The bottom line is that MCA brokers are not licensed in any way. They are not regulated. If you are or have dealt with a broker, the chance of you being lied to is highly likely. They will tell you anything to get the deal done.
What to do: Get everything in writing. Period. Brokers are liars and they will stop at nothing until you take their advances or go out of business.
No Accountability.
Few brokers are ever held accountable for their antics. It is critical for small business owners to keep a record of everything that they receive when working on securing a Merchant Cash Advance.
The Team at Beacon Client Solutions works to hold brokers accountable by working with our attorneys to defend our clients civilly, especially when a client is being sued.
If you have been taken advantage of by an MCA broker, contact us today.
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 Masters 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 of our work is connected to those who are legally certified to give such advise. 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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