Brokers need to be held accountable for screwing small business owners and few care enough to do it. MCA brokers will do anything and say anything to get a small business owner to take a merchant cash advance. In fact, while the MCA brokers promise small business owners the promised land, they are taking most small business owners into the unpromised land, a cesspool that no one wants to ever be in.
This 2 part article provides insight on the lies that brokers use to sell merchant cash advances and what some like Beacon Client Solutions are doing to combat the damage that these brokers cause.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
Lies.
Most Merchant Cash Advance (MCA) Predators (brokers) will do anything they can to get a small business owner to take an MCA. However, every broker deals with one big problem: Merchant Cash Advances are not a “good deal” …ever.
The truth is that MCAs are awful in most ways and what makes them attractive to a small business owner is that it is statistically easier to get struck by lightning than see a small business in America secure funding that is a good deal. Basically, for many it’s the only way to get funding for their business.
And while most small business owners know that what they are doing is not good, it is the predatory brokers who sell lies to get a small business owner funded.
The MCA Broker: AKA the MCA Predator
Not to belabor the topic, but we have written extensively about the predatory behaviors of MCA brokers who will go at any means possible to make money off of small business owners.
What is an MCA broker/predator?
MCA brokers/predators call/email/text hundreds of small business owners each day to attempt to sell the small business owner a Merchant Cash Advance(s).
To the broker and the brokerage, the more money and the more MCAs result in more money for the broker. These brokers usually commission only independent contractors or employees of a brokerage which is unregulated and ruthless in their exploits to take advantage of the small business owners.
5 Lies that Predators Sell to Screw Small Business Owners
1. Take the advance and we will then consolidate it into a long term, low interest loan.
One of the most frequent ways that a Merchant Cash Advance broker gets a small business owner to take an MCA is by telling the small business owner that they would be getting a low interest, long term loan if they took an advance.
This is absolutely a lie. In fact, no long-term loan waits for the small business owner. The broker gets paid for their advance and the small business owner must deal with paying back the merchant cash advance, which most have a hard time paying back, and many clients’ default.
Anyone in the industry should know that every MCA company has their box of what they do. For instance, MCA companies like Everest may go out for as long as 7 or 8 months on rare deals. However, they will never turn your advance into a long-term loan. Ever.
Furthermore, few small businesses can qualify for small business loans which are long term. And if a small business cannot qualify for a small business loan from the beginning, they are not going to qualify if they take an advance. In fact, when most banks see MCAs in the business owner’s portfolio, they run because it increases the risk of default many times.
If a broker offers a long-term loan if you take an advance first, it’s a lie. Do not take the bait because it’s never going to come.
2. Stacking.
Many times, a small business owner needs or wants more money than the MCA company will approve them for. So, brokers will be creative and stack the small business owner. Stacking is the art (which we have written about) securing and funding two or more merchant cash advances for the small business owner at the same time. Statistically, nearly 50% of our clients who require assistance with their MCA debt have been stacked previously.
While it can help the small business owner get more money, MCA companies give advances with payback terms which they think the business owner can pay back. However, doubling or tripling the payment or more can be lethal.
3. Building History
“To get long term loan, you need to build history with the MCA company.”
While some companies will look to build history with a small business owner, no MCA company will exceed their box of funding and payback and in most cases the rate will never be better. History may increase an approval or amount borrowed, but building history will not yield a long-term loan, low interest rate, or anything which a broker sells.
Moreover, most MCA companies are never going to give loans in any way. MCA companies do not give loans, they sell advances, which are a purchase of future receivables. For MCA companies to sell loans to small businesses, they would need to do so by registering with the government, and adhering to government regulation and laws which are specific to loans. Most MCA companies do not have the resources or infrastructure to get approval to give loans. Further, why would an MCA company, who sees 150% payback in 3-6 months want to be regulated and subject to federal oversight?
4. The renewal/refinance will get you into a longer term and sharper rate.
The MCA company has its box. In most cases, the longer term may be a few days and the sharper rate might be a point or two.
Overall, brokers will lie about great rates and longer term at the renewal. The bottom line is that for most MCA companies they want the business owner to keep paying. Period. The more that they take, the more they pay, the more they make. This is pretty much clockwork for the MCA company.
Few MCA companies will eliminate any factor points due to the MCA company for renewal. In fact, those that don’t want more money and again extend their term to make more.
The dirty fact is that when an MCA company renews or “refinances” your MCA, even if at a lower rate, you are basically paying double the payback for the money you had borrowed. For instance, if you took $10,000 and had a payback of $14,990, and halfway ($7,495) they renewed your MCA, your new balance might be $22,485 ($14,990+$7,495). Now you have a higher payment, which is basically paying back double the original money you borrowed.
This suggests that your margins need to be at least 100% or more to make the payments. We highly discourage the practice of renewal and believe that this is one of the biggest factors that leads to defaults on MCAs.
5. Send me your statements and complete my application and I will get you an approval.
Most MCA companies require 3 months of business bank statements and a broker application to get an approval on an advance. Brokers will say anything to small business owners to get them to complete their application and send their bank statements.
The business owner will tell the broker several things like, “do not run my credit”, “are you a direct lender”, and “I do not want this sent all over the place”.
Brokers laugh when small business owners say things like this because most just act like they are throwing pasta against the wall to see if some sticks.
When a small business owner sends their bank statements to a broker they need to understand the following.
They are giving the broker permission to do all the above-mentioned and more.
Regardless of what brokers say to the small business owner, they will send the application to everywhere they can to get the most approvals they can. The MCA company will run their credit regardless of a hard pull or soft pull. Soft pulls can be found on data warehouses like CLEAR which many MCA companies pull. The MCA companies can see who has run credit soft or hard.
Further, MCA companies belong to repositories like DataMerch which is a database where MCA companies can see what other companies have received the application for the small business owner.
Finally, the MCA application contains personal information, such as contact information and social security numbers which most definitely will be shared with others.
The bottom line is that most brokers do not know if one will get approved for an MCA. By using a broker, sending statements and an application pretty much guarantees harassment, sales calls, as well as the reality that your personal information will be visible everywhere.
The bottom line: Predatory MCA brokers are liars.
Do any of the things that have been amplified in this article sound familiar? Overall, brokers of MCAs will use whatever means that they can to get a small business owner take an MCA. Lying is their bread and butter. Therefore, be aware of all brokers and the damage that they cause.
Part II
Part II of this article will highlight what has and can be done to combat brokers who lie to small business owners.
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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