So far in 2024, just in New York Merchant Cash Advance companies filed nearly 5,000 lawsuits against small business owners. We also continue to see MCA companies have filed nearly 4 times that number of UCC actions against small business owners. So what? When the MCA companies come after small businesses, small businesses need to defend themselves. There are typically two places where small business owners turn for help. 1) Attorneys and 2) MCA settlement companies.
Regardless of who a small business decides to turn to, some MCA settlement companies attempt to scam small business owners. This article highlights 10 common scams that MCA settlement companies use to con small business owners.
By Thomas Tramaglini, Chief Operations Officer
Partner, Center for MCA Research
Small business owners lay their lives on the line for their companies. Small business owners work hard to make sound decisions, be effective in their industry, and turn a profit. When small business owners need financing for whatever reason, loans from banks are hard to come by and instead they turn to fast funding in the form of a merchant cash advance. Merchant Cash Advances are advances of future sales (receivables) with high fees (not interest) and short payback periods. Further, sources such as the United States Department of Justice suggest that default rates on MCAs may be as high as 50%.
Who helps small businesses with MCA issues? MCA settlement companies do. Good MCA settlement companies care about the client; they are accessible all the time; they are ethical; they tell the truth.
Some MCA settlement companies will scam small business owners because they violate the principles of what good settlement companies do (as listed above). We know because we work with many small business owners who were scammed and end up helping small business owners who want help and do not want to be scammed.
This article provides direct ways in which MCA settlement companies who are scammers scam small business owners.
Scams that MCA Settlement Companies Use (explained in detail below)
Settlement Company Offers Massive Discount.
MCA settlement company does nothing and just makes stuff up.
MCA settlement company does not verify debt from MCA company(ies).
Retainers (10%-15% of enrolled debt) for Fees Other Than Attorney.
Default so you can get sued and settle for less (Tortious Interference).
“We do not negotiate until you have your settlement account 20% paid in."
MCA settlement company claims to have a network of hundreds of attorneys nationwide.
Minimum performance standards listed as part of their agreement.
A quote from settlement company was provided but the settlement company never reviewed your MCA agreements.
The settlement never reviewed current and potential UCC actions against you and your business.
Explained: 10 Scams that MCA settlement companies use on small business owners who need help.
1. Scam: Settlement Company Offers Massive Discount
“We can save you 60% from what you owe the MCA company….” Or we save each client on average between 60% and 85% of what they would owe.
This is a scam. Most MCA companies never would settle for this amount or even close, unless some superior crafted strategy was utilized, and it worked.
Can you get discounted settlements? Yes. But let’s get serious… anyone who owes them money would never settle for 20% unless they had to. Not that we have not settled MCA companies for $0.20 on the dollar, we just never use it as a tool to scam a client.
When the client is told that they would settle for 60% and 85% less than they owe before even onboarding the client, it’s a scam.
Some of the companies will send copies of redacted lawsuit settlement offers as proof of their settlements. Everyone should be wary of these examples as it’s rare to see an 85% discount.
We also have uploaded several examples of what some MCA companies send potential clients as examples of their work. However, there is no actual proof that any of the docs attached and the settlement agreements on settlement companies’ websites are real.
2. Scam: MCA settlement company does nothing and just makes stuff up.
MCA settlement companies absolutely make stuff up just to get the small business owner’s account. For instance, we have had dozens of clients who have been scammed by the MCA settlement companies by being sold a list of goods but never falling through on it. In fact, their performance is more passive than anything.
Many settlement companies will onboard the client and either have the client do all of the work or do nothing. This behavior exposes the client to UCC freezes, lawsuits and further litigation, as well as harassment of vendors, employees, and family.
If you are promised the world, it better happen. The rule of thumb to avoid this scam is to get everything which is supposed to be done in writing!
3. Scam: MCA settlement company does not verify debt from MCA company(ies).
Perhaps one of the most important things that an MCA settlement company should do when onboarding a client is accessing accurate information from the creditors for how much the small business owner owes to the MCA companies. The scam is that the settlement company will either ask the client how much they owe or just assume what the client owes the MCA company. This results in quotes which are not accurate or much lower than what is owed, and once negotiations begin two things happen: 1) the bulk of any settlement funds encumbered in a settlement account are going to be depleted and 2) the program payments will go up substantially causing you to no longer afford what your program costs.
Either way, professional companies reach out to creditors to begin understanding an accurate account of what the client allegedly owes. Such actions are important in keeping litigation from occurring or if current litigation exists, making things harder.
4. Scam: MCA company requires a 10% - 15% retainer fee (for nothing).
Some debt settlement companies charge an initial retainer fee for nothing.
A retainer fee is that – a retainer fee for expenses. However, what are the fees used for? Any debt settlement firm that charges a retainer fee should outline what those fees are used for. For instance, Beacon Client Solutions might charge a retainer fee for an attorney. However, that retainer fee is spelled out in full in the agreement.
If a debt settlement company wants 10% or 15% for a retainer, they are likely just pocketing the money. Rule of thumb is that an attorney would never charge 10%-15% of enrolled debt for the retainer costs and its usually around $2,000 - $5,000 total. We have see bogus retainer costs in agreements which do not specify what the costs cover.
5. Scam: Default so you can get sued and settle for less (Tortious Interference).
In many cases, debt settlement companies call UCC leads or random small business owners who have Merchant Cash Advances and they tell small business owners that if they enter their program, they will be protected, will settle their debt for much less than what they owe, and have nothing to worry about.
We see this as tortious interference and subject to legal action on many levels. Currently, there have been some lenders like SBFS (Rapid) who have sued companies like Corporate Client Services for their actions, for which this case is quite strong. In Small Business Financial Solutions, LLC v. Corporate Client Services, LLC, the case was dismissed because the venue which the lawsuit was filed in was not deemed appropriate for the case. It can be assumed that SBFS will file in Maryland of a more local venue and have better luck.
Forcing the client to get sued is a common tactic by debt settlement companies and if you are told to default, understand your business and you personally will likely be sued, you may end up with a judgement, or have your assets frozen.
6. Scam: Company does not negotiate until they have your settlement account at 20%
Many MCA debt settlement companies have clauses in their contracts which suggest that they will not negotiate until you have paid 20% of the total settlement account has been paid. For instance, this comes directly from a Corporate Client Services Contract:
A. Settlement Offers: We have structured the payments into your Settlement Account to reflect an estimated settlement amount of _____ of the enrolled debt, as enumerated in the attached Schedule of Enrolled Debts. We will usually, however, begin making negotiated settlement offers to your creditors only after the accrued funds in your settlement account exceeds 20% of each debt.
We cannot stress enough that it is not good practice to have a strategy like this for every industry and every business, as the MCA companies will easily use UCC and other tactics to force you into submission. In fact, any debt settlement company who has a model like this and charges you should be disbanded and forfeited.
7. Scam: The MCA Settlement Company Has a Network of Hundreds of Attorneys Nationwide…
This is just foolish. Even the largest law firms do not have “hundreds” of attorneys nationwide. And no MCA Settlement (or any company) has hundreds of attorneys nationwide. And a good attorneys are worth their weight in gold.
For example, Shore Financial Solutions has this on their website:
“What happens if a creditor files a lawsuit?
Shore Financial Soluitons (Typo on Shore’s website) has an Attorney Network of 500+ local attorneys that handle all legal motions, as well as aid in the negotiations of your debts.”
Most of these attorneys will file an answer for a lawsuit if the business owner is sued but it’s not going to do much. When a summary judgement or some motion is forced by the MCA company, or you need a negotiator, I would not want one of the network attorneys who just push paper at your service.
Most good attorneys charge $400-$500 per hour. Our attorneys work for less but not much less. Networks like the “Sunshine Network” have (in our opinion) copy and paste attorneys which you pay $100 per month.
To the layperson it seems like a good idea. However, given the serious nature of a lawsuit, I would not want one of these attorneys representing anyone. This is not to say that some attorneys in the network are not good. However, what we are saying that no attorney would charge $100 per month to defend someone in any serious manner.
This is a scam.
8. Scam: The Settlement Company has a Minimum Performance Standard in their Agreement
Some MCA settlement companies have minimum performance standard, or the small business owner may get some of their money back or receive a lower cost program.
Be careful – Given the factors that go into settlement, there is no way humanly possible that a settlement company could seriously provide a minimum standard of performance.
Most settlement companies also have clauses that say if you get sued, they do not have to follow the minimum standard. However, if the tactic is to get you to get sued by cutting off the MCA company from getting paid back, then you are basically forgoing the standard of performance and when the agreement from the settlement company estimates settling at 43% of your enrolled debt, they are let off the hook because you are getting sued – oldest trick in the book.
9. Scam: You Received a Quote and The Settlement Company Did Not Review Your MCA Agreements
Many MCA settlement companies will give you a quote without even reviewing your MCA agreements. If this happens, RUN!
MCA agreements have a ton of valuable information which an experienced MCA settlement team will tell you drives the work that the settlement companies will be doing. Many of the MCA providers out there will want to wait for months to negotiate with the MCA companies. While there can be merits associated with waiting, it surely does not mean that there should be no communication. Some small businesses will get crumbled by UCC lines and notifications and it will be too late if this happens.
10. Scam: The MCA Settlement Company Does Not Discuss UCC with you
One of the most prevalent and successful ways an MCA company can recoup their funds is to use the Uniform Commercial Code (UCC). We have written about this extensively and shared those articles are on our website.
A UCC filing or lien are used by lenders and MCA companies to announce their rights to collateral, liens, or a secured interest. In the context of a Merchant Cash Advance, MCA companies will secure your receivables as a form of collateral using the Universal Commercial Code.
A UCC is nothing more than a legal form filed with the state Secretary of State (SOS) that announces that the lender or MCA provider has a secured lien on the business. Such actions allow the lender or MCA provider to seize and foreclose on the collateral or funds if the small business owner fails to pay what is due.
If the MCA settlement company does not review their strategy to handle UCC actions, it is usually a sign that either they do not know what they are doing or do not care about the client.
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.
When you get an MCA settlement agreement, you can use these scams as a benchmark for reviewing the agreement. Obviously, Beacon Client Solutions does not prescribe any of these scams. In fact, if you have been scammed we will take you on as a client and help you rid of any of the scams you have had from other MCA settlement companies.
False Settlement Docs from Settlement Companies
Contact Beacon Client Solutions to better understand your situation and how we can help you.
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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