Merchant Cash Advance brokers are predators who prey on vulnerable small business owners by using a host of unethical strategies to fund small business owners to the highest amounts, period. Many brokers lure small business owners into cash advances by telling the small business owner they can get them an SBA loan or line of credit.
Magically, the only product that the broker can supply are high fee cash advances.
These advances almost never help the small business owner but pad the broker’s pocket. In this article we discuss how brokers operate to make the most amount of money off each advance, as well as demonstrate examples of how funders allow and encourage brokers to charge the max commission on every deal.
By Thomas Tramaglini, Chief Operations Officer
The Center for MCA Research
What do MCA brokers do?
Merchant Cash Advance brokers are simply sales agents who most frequently call, email, and text small business owners seeking to sell them Merchant Cash Advances.
Most brokers use dialers or just pound the phone daily in an effort to broker the sales of the client’s future receivables, so the small business is funded. Many MCA brokers are skilled in presenting a wonderful funding product, such as a long-term loan in order to get the small business owner(s) to complete their application and send them their bank statements.
Once their “loan” package is complete, these brokers will attempt to find a loan company that will fund the client, but most of the time those efforts come up short and the only option for small businesses is the Cash Advance.
Under the cover of SBA, Bank, Lines of Credit, and Alternative Loans.
Just about every small business owner wants funding which is long term, with monthly payments, and low interest. Brokers are quick to oblige the wants of small business owners with a “yes, we have SBA loans, bank loans, and other loans which are long term.”
The following loan products are regularly offered by MCA brokers:
SBA Loans.
Alternative Loans with Long Terms.
Lines of Credit.
Bank Loans.
Each of these products are sexy because they attract the idea that small business owners can secure these products, when most of the time they cannot.
In fact, the oldest trick in the book is that small business owners almost never qualify, so they are offered cash advances which are couched as loans. Brokers tell their clients that they will be able to refinance their advance in a couple of months, with a longer term and lower rate… many times, the brokers tell the client lies because it sounds good.
And, when the business owners need the funding and need it now, they take the MCA and deal with it later on.
In many cases, they default, causing them to get sued and face UCC actions. The outcomes are quite damaging.
What Brokers Make.
Brokers are paid by the deal. Most brokers work on commission only. Once the small business owner is funded, the commission is generally around 5 – 15% of the total funding amount. If the broker works for a brokerage, then they get a cut from the commission. The more deals the broker gets funded, the more they make.
Just an example to highlight what brokers make.
Let’s say the broker funds a $100,000 cash advance. If they sold the MCA at 15 points commission (15%) the brokerage/broker’s cut is $15,000. Not bad for one deal. Simply, if the MCA broker can sell 5-10 MCAs per month, it’s a nice payday.
Refi/Renewals – a Broker’s Moneymaker.
Brokers will always tell the small business owners they can renew their MCA or refinance their money when they get halfway through their payback.
This practice just adds interest to interest of what is already owed, and the broker makes more and more money, further damaging the small business owner. The broker gets another commission check for their funded MCA renewal which is a bonus to what they have already made.
ALL funders want brokers to sell their products, so they allow high commissions.
Brokers build relationships with funders because they sell their products and get paid. To lure brokers and brokerages to sell their products, the funders want brokers or brokerages to sign up with them and send them deals to fund for a set amount of funds.
Most alternative lenders allow brokers to charge 15-20% of the total funding amount as commission built into the cash advance.
To highlight the funders luring predatory brokers to send them deals and rip off small business owners, we have added several actual recent ads to brokers from funders demonstrating their willingness to allow brokers to charge the max commission to the client.
Example from Kapitus ISO guide - Max Upsell 12%
Example from Lendini ISO guide - Max Upsell 15%
Example from Velocity Capital ISO guide - 15% Max Upsell
Example from Vital Cap Fund ISO guide - 12% Max Upsell
So What?
MCA brokers make a good amount of money by funding their MCAs each month. As demonstrated, not only can brokers prey on small business owners who are in dire straits or in danger of going under, they try every trick in the book to make money.
Specifically, they pedal lies painting a road to great loan products eventually showing the small business owner that they cannot get funded by banks so they eventually get the small business owner to take the cash advance.
Further, as demonstrated, MCA companies lure brokers to charge high rates by allowing them to charge as much as 15-20% of the funding amount in commission.
Such practices are explosive to small business owners and eventually cause the small business to go under and face lawsuits and UCC actions.
Contact Beacon Today
The team at Beacon Client Solutions regularly works with clients who have been taken advantage of by MCA companies.
If you have or are in danger of defaulting on your MCA or loans, contact our firm now. Our firm is experienced and ready to help you remedy the situation.
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.