I can get you a term loan or line of credit if you take this smaller, shorter loan…. Once we hit the halfway mark I can refinance your loan to a longer term, lower interest loan…. Just build some history and your problems will go away. Has this happened to you?
Many small business owners have fallen victim to the nonsense peddled to them by Merchant Cash Advance brokers. We call it the "Baloney Playbook." Alternative Loan and Merchant Cash Advances brokers are predators who lure small business owners into awful debt through their use of a playbook of baloney (which is basically just bull***t). Once they have their hooks in the small business owners, they will settle at nothing less until they have small business owners in debt so high that they cannot pay their bills, causing lawsuits, liens, and harm.
At Beacon Client Solutions, we fight against the predatory practices of Alternative Loan and Merchant Cash Advances brokers. This article shares common tactics that brokers use, their implication, and some things we are doing to fight back.
By Thomas Tramaglini, Chief Operations Officer
The Center for MCA Research
The Baloney Playbook.
Regardless of the broker, everyday we see common tactics that brokers use to lure small business owners into alternative loans and cash advances. So, we decided to put together some things that we have included in our work against the MCA industry which is aimed at protecting small business owners from these predatory practices. We call these practices the “baloney playbook.” Obviously, you can substitute the word baloney with other vernaculars.
1. We care about you and your business.
One of the fallacies that small business owners are sold is that MCA brokers care about them. Umm…. No.
MCA brokers are interested in one thing: Making Money!
When MCA brokers get upset that you shopped around on them, or when they tell you stories about you being lied to, or when they share with you how they care, they do not.
Always remember that they are in it for them, and not you. Ever.
2. We can get you a term loan or line of credit by taking a shorter advance.
One of the oldest tricks in the books is that brokers will tell you that they can get you into a longer term (monthly payments) loan or a line of credit if you take an initial cash advance.
No Merchant Cash Advance company will ever give you a long-term loan or a line of credit if you take an advance.
There is a reason that you are not going to qualify for an SBA loan or a long-term loan. Most of those attributes that would qualify you for those loans may not even be in your control. However, no loan or line of credit has a requirement to take a cash advance to qualify.
One of the most common things we see is that the client will have taken a cash advance to access better funding and
3. Brokers sell you the world and it’s a “good deal.”
Regardless of the prospective client, to get a business owner to take a merchant cash advance, they will sell the small business owner the world. That is, brokers will make promises, painting a road which is aimed at the ultimate product for the prospect.
The only issue is that most small business owners will never get to the yellow brick road.
Most small business owners need years in business, with a host of different attributes, to get a loan from a bank or the SBA. Many banks ask for collateral to back loans. They ask for financials and tax returns that demonstrate years of profit. Banks pretty much want a sure thing when it comes to giving loans.
We estimate that less than .001% of small businesses in the country can get a bank loan. Whether the number is smaller or larger, it’s clear that it’s hard.
So, brokers will sell you the world. They will paint the picture that you are getting a great deal with this loan or advance. Remember, when payback is 30 or more cents on the dollar, its never a good deal.
4. You need to build history.
One of the consistent things that brokers use with small business owners is that you need to build history to get a better deal. This is one of the tricks that brokers will use to get the small business owners to take a high interest MCA.
MCA companies do not care about history. MCA companies have their boxes (how long they will go, rates, etc.) and that is it. So, taking on one or more MCAs may have some history built with a funder, however, they will make a ton off of you and so will the broker. The more they discount your deal, the less they will make… which does not happen.
So, building history will never give you more than just more advances.
5. We are direct lenders, so you get a better deal.
Brokers are not direct lenders. And MCA companies technically are not lenders as well. MCA companies are purchasers of future receivables. There is nothing direct about lending. When MCA companies fund you, they are just hedging off your bank statements that you will 1) pay them for their purchase and 2) make it long enough for their investors to get paid back fast enough. The more they can make off of the business owner, the better.
Brokers are the middleman, and they are there to make money off the small business owner. Period. You can aim to cut the brokers out, but that is usually a long process, and it is hard to find an MCA company who will charge you less than what brokers would add. And really, even if you find one, how is 25% or more good for your business? Few industries have the profit margins needed to make MCAs work.
6. We will help you build your business credit.
Business credit is the business’ ability to pay bills (reporting to the bureaus) like personal credit. Therefore, business owners aim to avoid a personal guarantee on the funds that they receive and hope to get better lending products for their business. So, obviously when small business owners are told they can build their business credit with a merchant cash advance it strikes a chord with them.
Some Merchant Cash Advance and alternative loan companies have tried to report over the years but they have not been successful or have not followed through for multiple reasons.
For a Merchant Cash Advance or alternative loan company to report to a business credit bureau, they must have the technology and the volume which the credit bureaus require. For instance, Dun and Bradstreet, the most prestigious business credit bureau, requires a minimum of 500 monthly submissions to report client history. Experian and Equifax also have volume requirements. Few MCA companies are large enough to have the volume needed by organizations such as Dun and Bradstreet.
Also, each organization also requires you to have specific software to report to their bureaus, which MCA companies do not have. Remember, these are MCA companies and not banks. They are not going to invest massive amounts of money or effort into reporting to business credit bureaus.
Finally, there is a cost to report to the credit bureaus. Most MCA companies do not believe that they have a long enough term outlook for their clients, who usually are in and out of MCAs one way or another in a few months and it is not worth the investment.
7. We can get you more money if you need it by stacking (taking more than one advance).
When small business owners need money and they do not qualify for the amount they need, brokers turn to stacking.
Stacking is when brokers give more than one (sometimes many) cash advances to one small business owner within a day or so of each MCA. Brokers make stacking an art and are clear with the small business owners who they stack, they do not want the MCA companies to know they are getting more than one cash advance. And because funding reviews are faster than the banks, unless the broker has a massive delay between fundings, as long as the business owner does not tell the MCA company on the funding call that they are taking more than one advance, it is very hard for the MCA company to know that it is being stacked.
We have written extensively about the concept of stacking and the consequences of doing so as a small business owner.
Stacking is never a good option for small business owners. Ever.
One is never enough.
Remember, once you have taken on an MCA for a broker, you are “on their books.” What this means is that they will continue to work to refinance you (reup) or add more MCAs to your portfolio.
Simply, they do this to make more money and you are a target they have already shaped. One MCA is never enough.
The dumb brokers put things in writing. Ask for it. Save it.
Most brokers are not the sharpest knives in the drawer. They will text you, email you, and send you messages which you can use against them when you are run into the ground.
Save it all.
We have built a history of holding brokers accountable for their lies and nonsense. In fact, we have also worked with MCA companies who despise many of these baloney concepts.
If you have been a victim of the antics written above, please save the evidence and let us know. We want to help. You may or may not still be subject to your cash advance agreement but in the end, you will have ammunition to fight back.
So What?
The team at Beacon Client Solutions regularly works with clients who have been taken advantage of by MCA companies. Specifically, those business owners who have been burned.
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.
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