In 2020, the team at Beacon Client Solutions, a small business consultancy aimed at helping small business owners tackle their MCA lawsuits and defaults started the first ever research organization which aimed at unpacking the MCA industry, specifically the difficulties that small business owners have with issues surrounding their alternative loans and Merchant Cash Advances.
The Center for MCA Research collects, interprets, and releases data and reports which highlight the industry, their attorneys, and their collections agents in hope to help small business owners. The Center for MCA Research is unparalleled in its efforts to highlight industry trends, bad brokers, scam settlement companies, and more to inform their work in informing how MCA companies and their attorneys can be limited in their actions to hurt America's small businesses.
This report is the first of several which we publicly release our reports which identify and in some cases expose things which are going on in the industry.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
Red Bank, New Jersey: Today the Center for MCA Research is beginning to release data from its 2023 Comprehensive Report on the MCA and Alternative Loan Industry.
Without a doubt, the MCA industry continues to thrive because of the easy access to funding for small business owners. To date the funding rate is well under .0002% of small businesses who were in business to SBA 7A loans delivered in 2023.
One area that we will begin to explore is how these MCA companies have such high default rates, ultimately seeing their clients default and leading to UCC actions and litigation.
Why do we report on these data?
Day in and day out, we want to help small business owners. Few MCA or alternative loan people or organizations every want to help the small business owner. It is what it is.
Who reports on the MCA industry? Nobody. Not until we do. By publishing data and reports on the MCA industry, we aim to expose the good, bad, and ugly associated with the MCA industry and what happens to small business owners each day.
Who are the most litigious companies in the MCA industry?
Our data comes from an exhaustive mining of data which we collect daily from across the nation. This data set is pulled from the New York State Court Database (NYSCEF). In 2023, there were approximately 11,650 lawsuits filed throughout New York. Nationally, there were around 5% more lawsuits filed in states like Utah, Texas, and Arizona. There were also 628 MCA companies in New York who filed at least 1 lawsuit in 2023, demonstrating a rise in the number of litigious MCA companies from 2022 (588).
The more litigious MCA company by far was Last Chance Funding (LCF) with nearly 2,000 lawsuits filed in 2023, of which most were filed in Nassau County, NY. If the courthouse was open LCF would have filed over 5 (5.309) lawsuits per day last year. This is an astounding number. Furthermore, when one reads each lawsuit which is filed, LCF and their attorneys attempt to collect astronomical legal and default fees, as well as penalties through regular order litigation or arbitration.
Prosperum, Vox, Cloudfund, as well as Everest rounded out the top 5 collectively filing 2,618 lawsuits on defaulted small businesses in 2023.
Top 20 Most Litigious MCA or Alternative Loan Companies from 2023.
*These data are only from New York. Nationally, only a fraction of cases are filed in this industry and it is noted that this is not a national sample. However, because of the number of cases which are filed in NY, this list is fully generalizable and accurately describes the industry.
1 - Last Chance Funding (LCF) - (1,938 Lawsuits)
2 - Prosperum Capital Partners LLC dba Arsenal Funding (735 Lawsuits)
3 - Vox Funding (689 Lawsuits)
4 - Cloudfund (Delta Bridge) (625 Lawsuits)
5 - EBF Holdings dba Everest Business Funding (569 Lawsuits)
6 - Itria Ventures (522 Lawsuits)
7 - CFG Merchant Solutions (519 Lawsuits)
8 - Pearl Delta Funding (450 Lawsuits)
9 - Fora Financial (376 Lawsuits)
10 - Fenix Capital Funding (364 Lawsuits)
11 - Byzfunder NY LLC (360 Lawsuits)
12 - Fundamental Capital (Now Nexi) (286 Lawsuits)
13 - Silverline Services (284 Lawsuits)
14 - Bizfund (281 Lawsuits)
15 - Velocity Capital Group (253 Lawsuits)
16 - Revenued (236 Lawsuits)
17 - DMKA LLC (207 Lawsuits)
18 - Fundfi Merchant Funding (189 Lawsuits)
19 - Specialty Capital (187 Lawsuits)
20 - Lendr Online (186 Lawsuits)
Percentage of Lawsuits Filed per County
Where were business owners from who were sued?
State | % | Rank |
TX | 13.07% | 1 |
FL | 12.62% | 2 |
CA | 9.75% | 3 |
NY | 6.11% | 4 |
GA | 5.48% | 5 |
NJ | 3.45% | 6 |
NC | 3.22% | 7 |
IL | 3.03% | 8 |
OH | 2.74% | 9 |
PA | 2.48% | 10 |
AZ | 2.43% | 11 |
MI | 2.35% | 12 |
SC | 2.05% | 13 |
CO | 1.94% | 14 |
LA | 1.84% | 15 |
MD | 1.77% | 16 |
VA | 1.75% | 17 |
TN | 1.72% | 18 |
MA | 1.69% | 19 |
WA | 1.65% | 20 |
Analysis and Implications
Clearly, the MCA industry continues to be accessible to the funding needs of small business owners. However, the number of lawsuits filed continues to be high as compared to the loan industry.
Initial Trends
Here are some initial take aways from our extraction of the data.
1 - Kings County is losing its place as the king.
In the past, most of the MCA lawsuits were filed in Kings County, NY (Brooklyn). We will be releasing data on prevalence of lawsuits in NY counties. With the bottlenecking of the MCA litigation in Brooklyn, more and more lawsuits are being filed in jurisdictions such as Queens, Ontario, and we are seeing a strong migration to Monroe. Obviously, the MCA companies are looking to ensure that their cases can move faster, ultimately helping the MCA companies achieve judgements against small business owners. The future of the MCA litigation space shows that being nimble is important as MCA companies are aiming at burying lawsuits in small counties with less bureaucracy so they can turn around judgements fast.
2 - MCA litigation is a good business to be in if you are in collections or an attorney.
As in the past, the same companies lead in lawsuits against small business owners without much regulation or working together with those who need help. MCA companies continue to push high fees (which they call discounts) and have little patience when the small business owner cannot meet their program, hence they file lawsuits.
The bottom line is that if you default on a lawsuit, you can expect to get sued. Some attorneys for MCA companies file thousands of lawsuits per year, leading to a very lucrative payday for them. From our records, the attorneys and collections firms get on average 15-20% of what is collected so the more they can raise the costs the better for them.
In our opinion, MCA litigation and collections is just as bad as the MCA business.
3 - The science behind MCA funding approvals is awful and worst than handicapping.
With such a high number of lawsuits, one has to think about how people get funded while there is such a high default rate? To us the answer is pretty simple. Taking 3 months of bank statements and hedging whether or not someone will pay back their advance is a pretty risky bet. The amount in deposits or the average daily balances only tell a small story of whether or not the business can actually pay back what it owes. Considering there is such a high default rate (SEC suggests that its higher than 50% - See PAR funding case).
That said, maybe banks have some good ideas which safeguard defaulting. For instance, maybe the reason small businesses cannot secure funding from banks is because the banks use metrics that suggest that the small businesses are not going to pay back what they borrow.
From our experiences, few MCA companies understand things like balance sheets, as well as how to look at servicing debt, including other liabilities.
In recent years government and private businesses have tried to attack the MCA and alternative loan industry for having excessive interest rates as couched by fees and in every case they have lost. Perhaps the government should instead focus on setting standards for lending which could control borrowing or default rates more successfully.
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 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.