Stacking is a practice where small business owners are usually helped by brokers to access more cash for their business than they are approved for by taking multiple advances (positions) at the same time (or close in proximity). This practice is loved by brokers, hated by MCA companies, and harmful to small business owners. This article explores several issues around the “art” of stacking.
By Thomas Tramaglini, Chief Operations Officer
What is Stacking?
In the Merchant Cash Industry, the term “stacking” is used to describe when a business takes out multiple cash advances at the same time or adds another MCA after the small business owner has received an MCA. MCA companies and anyone in the industry refers to each MCA or loan (if there is a loan in the portfolio) as a position. Therefore, when a business has a Merchant Cash Advance and wants another one, it is considered a second position to the first MCA or loan. Each additional MCA is considered another position.
When Do Small Business Owners or Brokers Turn to Stacking?
Small Business Owners and Brokers turn to stacking when the MCA companies are not able to provide enough cash upon the MCA company’s offer. For instance, if a broker were to submit three months of business bank statements to an MCA company, and based on the small business’s revenue the MCA company offers to buy $35,000 of future receivables and the small business owner needs $50,000, the small business owner may take an additional MCA for $15,000 to arrive at the amount needed.
Hence, this “stacking” is a way to arrive at a higher amount of money. And, while stacking can be complicated and discouraged by the MCA company, brokers LOVE stacking because the more money that a small business owner takes, the more the broker makes. Any decent broker can stack positions for a small business owner using some easy and simple coordination. We call this the art of stacking, and brokers are skilled in adding positions to client’s portfolio all the time.
However, when a small business owner stacks MCA positions, it’s usually a bad move and leads to default.
MCA Companies Discourage Stacking
MCA companies provide a small business owner or MCA broker a quote based on their business financials, usually supported by bank statements and tax returns. The quote that is provided outlines their terms of what they believe the small business owner will be able to afford. When a broker stacks behind the MCA company’s MCA and the MCA company is in the dark, it’s bad for all parties. In most cases, MCA companies are under the belief that they are the only ones giving the small business money.
Incentive for Brokers to Stack Their Clients
Such broker practices are not only harmful to the MCA company who is working in good faith with the broker, but harmful to the small business. Most brokers have contract agreements with the MCA companies outlawing such practices, but few are ever caught. Brokers live under loose controls and have little incentive to be honest. In fact, most brokers only care if the small business owner makes 1 month of payments, as once their 30 days is passed the MCA company cannot claw back funds (unless their ISO agreement suggests otherwise).
As we have outlined in other articles (see here), we believe brokers are predators and the lowest form of vermin out there. Few MCA brokers are licensed, few care about a business owner, and the more money they get a small business owner to take the more money they make. If a brokerage makes 10 points on a $50,000 merchant cash advance, that is a $5,000 paycheck. If the brokerage can get the business owner to take 2 $50,000 MCAs their payday could be another $5,000, which is not bad for one deal.
Predators.
Predators are defined as follows: A person who ruthlessly exploits others. A predator is someone who takes advantage of someone else who is either weak and/or being vulnerable.
Few Small Business Owners Can Handle Stacking
When a small business owner stacks multiple MCA positions at once, it’s harmful and most small business owners do not get the gist of what they are getting themselves into.
A MCA company has a good example of what can happen:
For example, let’s say you’ve been advanced $10,000 with an agreed payback amount of $14,000 at $200 a day. But now the same sales person who helped you get that money says your business qualifies for another $10,000 with an agreed payback amount of $12,000 at $150 a day repayment. This would bring your total daily payments from $200 to $350 a day now, putting further strain on your cash flow and available daily balances. It’s a slippery slope from there as business owners will often times continue to take out further advances each time the advanced amount runs out without regard to how much they are paying. We’ve seen scenarios of merchants who have taken out over 10 simultaneous advances, paying back well over $2,000 a day!
Few small business owners can handle double what they were offered or posed to pay. In some cases, when 3 or 4 MCAs are stacked at the same time, it’s a matter of days before the small business owner defaults.
What to do….
If you are a small business owner and have stacked multiple merchant cash advances, and you cannot pay the MCA company back, you will likely face UCC freezes and lawsuits.
Contact us today so we can help you protect your business and your personal wealth.
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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