In the first part of this 2-part article, we discussed ways in which Merchant Cash Advance brokers scam small business owners that lead to small business owners being in the unpromised land of MCA default, a cesspool that no one wants to ever be in. In this article (Part II), we discuss several ways in which small business owners can fight back against MCA brokers who severely hurt their businesses and lives for their own benefit. We also discuss some things our firm is doing to hold brokers accountable.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
Brokers are predators.
Brokers are predators. Defined, predators are people who ruthlessly exploit others. And, those who have taken one or more merchant cash advances (MCAs) have likely been exploited by the feats of their work.
Brokers excel in procedures such as stacking, refinancing MCAs for a “better deal”, extra fees which are not part of the MCA, and more. If you miss your payments before the claw back period, they will likely try to get you more funding or will harass you until you continue to make your payments. Either way, brokers will do anything and everything they can to capitalize off of the small business owner’s needs.
Expose MCA Broker Exploits.
Unfortunately, most of the time, brokers go without being held accountable. Brokers fall between the cracks because small business owners and most MCA companies do not hold brokers accountable in any way.
Brokers need to be held accountable in every way for their actions. Our firm highly suggests that both small business owners and MCA companies expose the actions of brokers to hold them accountable for their actions.
That is, brokers who practice actions such as extra fees, stacking, and lying to small business owners should be exposed and held accountable by both small business owners and MCA companies. If one does not expose what brokers do, they will continue to get away with their actions hurting both small business owners and MCA companies.
Fundkite v. First Point Funding: A Guide.
While our firm does not celebrate the actions of any MCA company, we do believe that credit should be given when it is due.
One rare case where an MCA company has held an ISO accountable is AKF, Inc. dba Fundkite v. First Point Funding, LLC and James Raymond Powers, Jr. On August 22nd, 2023 Fundkite sued First Point in Nassau County Supreme Court due to their actions on at least 6 advances which they brokered to Fundkite and the clients defaulted. Specifically, (1) Direct Tooling Solutions Inc., (2) The Old Stone Church of New Hope, LLC / Oldestone Church of New Hope, LLC d/b/a Oldestone Steakhouse/ Oldestone New Hope/ OSC New Hope, (3) Angleton Roadhouse Inc d/b/a Angleton Roadhouse / Roadhouse Bar, (4) Another Level Health, Inc., (5) Innovator Designs Inc., and (6) Bel Air Shells Inc. all defaulted because Fundkite claimed that First Point had advised and assisted those merchants to enter into subsequent revenue purchase agreements with other funders.
Obviously, those subsequent fundings never came to fruition causing the clients to default.
What is quite interesting is that in this lawsuit is the supporting evidence provided with the complaint which clearly documents the tactics of the brokers to push funding with a road map to a subsequent funding as part of a program.
While we do not support MCA companies and find that many are not honest and predatory, Fundkite is a prime example where they exposed the tactics of a broker who was hurting both the MCA company and the Small Business Owner whereas accountability was being sought.
What is also interesting in this case is that of the 6 examples where Fundkite is claiming they have had defaults because of the actions of the broker, the MCA company and its attorney (Mestechkin Law Group, P.C.) has sued each of the client who defaulted because of the broker (allegedly) used UCC to recover funds from 4 of the clients (arbitration awarding the funds frozen), 1 client is still litigating the case, and 1 has its lawsuit pending. Two of the lawsuits show stacking by the same broker and same MCA companies (Fundkite and Highland Hill Capital) which is not present in the lawsuit.
Beware: No deal is ever good in MCA land.
If something smells bad, it usually is bad.
You cannot sugar coat a Merchant Cash Advance where payback is 40% or more. And you cannot put lipstick on a pig that has daily payments. If you have a broker who is selling you snake oil, keep the offer and use that offer to hold the broker accountable.
Put and Get Everything in Writing.
In Fundkite v. First Point Funding, the MCA company had in writing the broker’s words and actions so that they could hold the broker accountable.
Regardless of any company or product, the rule of thumb is to ALWAYS, get in writing what is being offered to you. If you do not have specifically what you want, then do not move forward. Believe us, if one MCA company will fund you, another one will as well. Getting things in writing allows the small business owner to protect themselves when something verbal does not.
Ask the MCA company about the plan.
In most cases, one of the final steps to securing a term loan or Merchant Cash Advance is the funding call. On the funding call, the MCA company will go over the agreement and answer questions that the client has.
Ask the MCA company about what is being promised. MCA companies hate it when brokers go around the truth or use gimmicks to get the client funding. MCA companies should be asked questions by the client so the client has confirmation of what will be occurring.
It is also a common tactic for brokers to tell the client things like “tell the MCA company the funds are being used for expansion” or “do not tell the MCA company” are clear signs that brokers are taking advantage of you.
Make sure all costs are disclosed.
One of the most common things that brokers have been doing over the years is charging an extra fee outside the regular cash advances. These extra fees can range as high as 15% higher than the MCA factor rates. In some states such as Virgina and California, new laws provide some relief for disclosures to be part of the funding process.
However, these fees are alive and well. If you are charged a broker fee or additional service fee, run. Even if you do not pay the fee or sign the additional paperwork, you will still receive your advance if you want it.
Hire a Firm Who Goes After Brokers, Not You.
Debt settlement companies who do not care have several things in common. These companies want to collect your funds and do nothing but tell you they are waiting for you to have a certain amount of money in escrow before they negotiate for you. Using this strategy can have a very detrimental effect on people and their business. For instance, one of the biggest issues that small business owners have who default on MCAs other than legal action is the use of UCC against them by the MCA companies and their collections firms/attorneys. Good settlement companies understand this issue and work proactively.
There are few firms that care about clients. Our firm is one firm that understands this context and aims to go after brokers.
The consultants at Beacon Client Solutions seek clients who want to hold brokers accountable. If you are a small business owner and you have been taken advantage of by a 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 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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