When small business owners miss payments or default on merchant cash advances or alternative loans they continually look for so called "consolidation" loans or more funding which will delay the inevitability of default, UCC liens, and even lawsuits. However, the funding industry continues to evolve in protecting themselves by using databases which report who slow pays, defaults, and more.
So, if You Have Had an Issue Paying Back Your Term Loan, Line of Credit, or Merchant Cash Advance you have probably been blacklisted and sending brokers who tell you they can help you your bank statements will only share your personal information around and likely lead to damaging of your credit score.
In this article, we describe some of the ways that MCA and alternative loan companies are defending themselves against people who have hard a hard time paying their unreasonable terms. Further, we discuss things that business owners should do to protect themselves from brokers once they have defaulted.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
Can The Past Haunt Small Business Owners When They Need Money?
The simple answer is YES.
In the olden days of the Merchant Cash Advance and term loans (2008-2020), there were always lenders who did not have the tools to do enough background on companies or small business owners and lenders would fund those who had bad payment performances in the past.
Today, merchant cash advance and alternative loan companies use several different tools that prevent funding those who have had issues paying back loans, lines of credit, and merchant cash advances.
One Strike and You Are Out
All in all, most lenders use one or more of the tools listed below to protect themselves. What this means is that if you have any issues with any payback, you will not get funded again. Period.
Harsher Than Bankruptcy
Small business owners who default or settle on loans, lines of credit, and merchant cash advances find themselves on a blacklist. Most lenders do not want to lend to those who have had issues with borrowing. In fact, the small business owner is permanently rejected by most lenders. If lenders decide to take a chance on the small business, the factor rates or interest can go as high as 60%.
On the other hand, filing for bankruptcy puts you in a bind for a bit. However, in most cases internet and alternative lenders will fund the small business owner if they do not have liens that are excessive. Some lenders have waiting time of up to 2 years before they will lend to the business.
Overall, this demonstrates that being on a borrowing blacklist is worse than having a bankruptcy.
What are the tools?
Founded in 2015, DataMerch.com is a popular tool for online and alternative lenders. Lenders who belong to DataMerch.com upload their lending experiences ultimately painting a picture of many small businesses who have taken loans and merchant cash advances with their companies. Recently, DataMerch.com reported that they now have over 50,000 records on file.
Why is this important? DataMerch.com provides lenders a robust database so they can better inform their approval process. These records provide categorical data such as suspicious activity, slow payers, split payers, and COVID-19 Hardships. Lenders can also find out if small businesses have taken on recent or defaulted funding that might not appear in a business’ bank statements. Regardless, small business owners should know that lenders are not stupid and if you have had issues with your MCAs or loans, you will probably have some issues taking another loan or MCA.
From our knowledge, here are the lenders who use DataMerch:
4 Pillar Funding | 501 Advance | 60 Day Capital | Ace Funding | Advantage Capital Funding | AJ Equity | Alternative Funding Group | American Stimulus Funding Group | Arsenal Funding | Avanza Capital | Balboa Capital | Bank of Cardiff | Biz2Credit | BlueSky Advance | Breakout Capital Finance | Business Capital Providers | Business Fund Corp | ByzFunder | CAN Capital | Capital Stack / E-Prodigy | Capybara Capital | CashFund | Cashium | Central Diligence Group | CFG Merchant Solutions | Channel Partners | Circadian Funding | CMS Funding | Coast Funding | Cooper Asset | Corporate Development Group | Credibly | Diamond Advances | Dynamic Capital | Edge Capital | E Financial tree | Elevation Capital | Eminent Funding |Enova ( OnDeck - The Business Backers - Headway Capital ) | Everest Business Funding | Expansion Capital Group | Express Capital Funding | Family Business Funding | FAVO Funding | First Down Funding | Flexibility Capital | Fora Financial | Formula Funding | Forward Financing | Fox Business Funding | Fundamental Capital | Funders App(24 Capital) | Fund GGC | Fundfi Merchant Funding | FundKite | Fund So Fast | GCap Holding LLC | Gemini Funding Group | General Merchant Funding | Backd | Global Funding Experts | Go Cap Advance | Good Funding LLC | Greenbox Capital | Green Note Capital Partners | Greenwich Capital Management | GRP Funding | Harper Advance | Highland Hill Capital | IBEX Funding Group | Imperial Advance | In Advance Capital | IOU Financial | Ironwood Finance | Irwin Funding | JRG Funding | Kalamata Capital Group | Kodiak Funding | Legend Advance Funding | Lendbug | Lendflow | Lendora | Lendr | LG Funding | Libertas Funding | Liberty Capital Management | Liberty Funding | Liquidbee | Mckenzie Capital | MD Capital | Meged Funding Group | Merchant Advance | Merchant Cash Group | Merchant Refi | Millstone Funding | Monera Capital Group | Mulligan Funding | National Funding | Novac Equities | PAC Western Financial | Parkview Advance | Paz Funding Source | PIRS Capital | Premium Merchant Funding | Progressive Equity Partners | Quicksilver Capital | Radium² Capital Inc | RBR Global | RDM Capital Funding | Reliable Fast Cash | Reliant Funding | Savent Financial | SCA Funding Solutions | Select Funding | Silverline Funding | Skyfi Capital Partners | Small Business Funding | SOS Capital | Spartan Capital Group | Specialty Capital | Sprout Funding | Super Fast Capital | The Fundworks | The LCF Group | Thor Capital Group | Torro | Unlimited Bucks | Velocity Group USA | Vertex Funding Group | VitalCap Fund | Vivian Capital Group | Vox Funding | Wellen Capital | Westfair Holdings Group | Westwood Funding | Wide Merchant Group | World Global | Wynwood Capital Group | Yarrow Financial | Yes Lender | YM Ventures | Zahav Asset Management
NYS Court System
One place that online and alternative lenders check for issues with loans, MCAs or just other issues which might be a red flag for borrowers is the New York State Unified Court System (New York State Courts Electronic Filing). This website yields a host of legal cases from New York State but importantly, most alternative lenders are in New York so anytime there is a default, and a lender files a Judgement, that Judgement is listed.
If you are a small business owner and default on a loan or merchant cash advance and you are served with a lawsuit or received a judgement, it will likely be listed here because most lenders are located in NY. The good news is that you can satisfy your Judgement which will be listed on the site after doing so. The bad news is that once you have a Judgement listed on this website it becomes very difficult to ever get funding for your business ever again. In some ways, have a Judgement posted on this site can be worse than a bankruptcy.
Would you like to see if you have anything listed? https://iapps.courts.state.ny.us/ is the link that used to access the files.
Clearinghouses
Online and alternative lenders use different clearinghouses who curate a multitude of data. From publicly reported data to credit records, these datasets provide a robust amount of information about potential borrowers and businesses. There are a few clearinghouses our there (others like Chex Systems) but here are a few that we know are commonly used.
LexisNexis
LexisNexis provides business research and risk management services to various industries. These include lenders, insurance companies, vendors and more. These companies use LexisNexis to verify personal and business credit history (PayNet does this too), public records (PACER), and application history. And they use LexisNexis to assess risk on applicants. Inaccurate information, data which doesn’t match your application, or negative items in your LexisNexis report can have a drastic negative impact on your business. This is especially true during the application process.
Business owners can request a copy of their LexisNexis report and decrease the probability of surprises during the application process. Click Here to Request Your Report
Few options exist if you have had a poor payment history.
If you have negative payment history and cannot get small business funding, there are a few options which one might explore. However, these options are few and far between.
Personal Loans
Collateralized Loans
Business Credit Funding
In a previous article, I covered what business credit is. Business credit is the establishment, building, and maintaining of a successful borrowing and payment of credit on goods and services. Business credit is established under the business’ Employee Identification Number (EIN) and is not associated with the business owner’s social security number.
As long as you have good credit and have established business credit, you can get business funding on your EIN number. There are term loans, lines of credit, and credit cards that can be used when small business lenders refuse to loan money to your business because you had an issue at one time.
Three things you should NOT do if you default on a merchant cash advance or alternative loan
1 - Give brokers your bank statements or more information.
When you give brokers your social security number or your bank statements they will surely shop your file to just about everyone they can in hoping they can get an approval for their customer.
However, the issue is that you likely have been blacklisted, and certainly only likely damaging your credit. Nobody is going to fund someone who is having issues paying their merchant cash advances.
Never give brokers your information, especially once you have defaulted.
2 - Give MCA companies your bank statements or more information.
Sometimes, MCA companies will attempt to collect your bank statements to "see" if you can refinance your advance, or others. Realistically, the MCA company knows that you are in or close to default and they are likely only interested at that point to use your statements to identify your payers. That is, when the MCA company or alternative loan company receives your statements, they will use the vendors or customers you have as their targets when they file a UCC lien (and restrain your accounts etc.) against your business.
3 - Put yourself deeper into debt.
Regardless of the small business owner, the advance or loan company just wants to get their money. And in many cases, the broker also may be losing his or her commission. Any of these people want you to pay them. They will do whatever they can to put you deeper in debt. They will do things like tell you to refinance your mortgage, take a home equity loan, sell of assets, and more.
Any of these things can be done later if a bankruptcy trustee or the court tells you to do so. However, many things that you have are protected by laws and it is not reasonable for you to just go deeper into debt just to pay the cash advance company or broker.
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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