Leeches: Predatory Alternative Loan Brokers Will Suck Small Business Owners Dry Until They Take Everything.

Small business owners are often easy targets for alternative loan brokers who frequently make promises they do not fulfill, without facing repercussions for the damage they cause. Many clients have recounted being told they would obtain term funding, lines of credit, and other financial products simply by "building some history."

We have exposed how small business owners have been misled by merchant cash advance brokers in the "Baloney Playbook." In Baloney Playbook, we highlight how brokers of alternative loans and merchant cash advances are predatory figures who trap small business owners in overwhelming debt through deceptive tactics. Once they capture the business owners, they relentlessly pursue them until they are overwhelmed by insurmountable debt, resulting in legal troubles, liens, and financial devastation.

At Beacon Client Solutions, we actively fight against the predatory tactics used by brokers of alternative loans and merchant cash advances. This article explores some of the common strategies employed by these brokers, their effects, and our efforts to counteract them.

By Thomas Tramaglini, Chief Operations Officer

The Center for MCA Research

thomas@beaconclientsolutions.com 

About Thomas Tramaglini

How most alternative loan brokers work.

No matter the broker, we notice common strategies used daily to lure small business owners into choosing alternative loans and cash advances. Thus, we've compiled a list of tactics we've used in our efforts against the MCA industry, aiming to protect small business owners from these exploitative methods. We call these strategies the "baloney playbook," though you might use different terms interchangeably.

1. We prioritize you and your business.

Small business owners are often led to believe that MCA brokers have their best interests in mind. However, the reality is that MCA brokers are focused solely on their own financial gain. When MCA brokers express disappointment because you explored other options or try to convince you of their sincerity, remember that their main motivation is self-serving and not in your favor.

2.     By obtaining a shorter advance, we can provide you with a term loan or line of credit.

Brokers often promise the possibility of securing a longer-term loan or a line of credit by first opting for a cash advance. However, in reality, Merchant Cash Advance companies do not offer such extended financial solutions as part of their services.

If you're ineligible for an SBA loan or a long-term loan, it's often due to factors beyond your control. It's crucial to understand that obtaining a loan or line of credit doesn't require accepting a cash advance beforehand.

Brokers might use various tactics to persuade you to accept the funding to ensure their compensation.

3.       Brokers portray the world as a "great opportunity."

Brokers, aiming to convince business owners to choose a merchant cash advance, often make grand promises, painting an appealing picture of a path leading to the client's desired outcome, regardless of the potential client.

The difficulty is that most small business owners will not achieve this desired goal.

To obtain a loan from a bank or the SBA, most small business owners need a long business history and various specific qualifications. Banks usually require collateral for loan security, along with financial documents and tax records that demonstrate consistent profitability over the years. Essentially, banks look for a low-risk situation before approving loans.

We estimate that less than .001% of small businesses nationwide qualify for a bank loan. Regardless of the exact percentage, it is clear that the process is extremely difficult.

Thus, brokers will present an attractive offer, depicting the loan or advance as a great opportunity. However, it's crucial to remember that if the repayment amounts to 30 cents or more on the dollar, it is never a favorable deal.

4.       You need to build history.

A common tactic used by brokers when dealing with small business owners is stressing the importance of building a history to secure a better deal. This is a strategy employed by brokers to encourage small business owners to choose a high-interest Merchant Cash Advance (MCA).

Merchant Cash Advance (MCA) companies do not focus on a business's history. They operate based on predetermined criteria (like duration, rates, etc.). Therefore, while taking one or more MCAs might establish a history with a funder, both the MCA company and the broker can profit significantly from the arrangement. The greater the discount on the deal, the lower their profits, which is unlikely to happen.

So, building history will only lead to more advances.

5.       We are direct lenders, so you get a better deal.

Brokers and MCA companies do not directly lend money. MCA companies act as purchasers of future receivables, using your bank statements to ensure repayment and quick returns for their investors. Their main goal is to maximize profits from the business owner.

Brokers serve as intermediaries aiming to profit from small business owners. Eliminating brokers can be a lengthy process, and finding an MCA company with lower charges is challenging. Even if such a company is found, high fees, such as 25% or more, may not be beneficial for your business. Only a few industries have the profit margins necessary to benefit from MCAs.

6.       We will assist you in building your business credit.

Business credit is akin to personal credit, reflecting a business's ability to pay its obligations. Business owners typically aim to avoid providing personal guarantees for funds and seek better lending options for their enterprises. Thus, the opportunity to establish business credit through a merchant cash advance is appealing to many small business owners.

Over the years, several Merchant Cash Advance and alternative loan companies have tried to report to credit bureaus but have encountered obstacles and often failed to complete the process for various reasons.

To report to a business credit bureau, a Merchant Cash Advance or alternative loan company must have the appropriate technology and meet the credit bureaus' volume requirements. For instance, Dun and Bradstreet, a well-respected business credit bureau, requires a minimum of 500 monthly submissions to report client history. Experian and Equifax also have their own volume standards. However, only a few MCA companies meet the scale needed by organizations like Dun and Bradstreet.

Additionally, each bureau requires specific software for reporting, which most MCA companies lack. It's important to note that these companies are not banks and are unlikely to make significant investments in reporting to business credit bureaus.

Finally, there is a cost associated with reporting to credit bureaus. Most MCA companies do not see a long-term relationship with their clients, who generally engage with MCAs for short durations, making the investment seem unjustified.

7.       We can provide you with additional funds if needed by stacking (taking more than one advance).

When small business owners need more funding than they qualify for, brokers use stacking.

Stacking involves brokers offering multiple cash advances to a single small business owner shortly after each MCA. Brokers execute stacking carefully, ensuring business owners understand the importance of discretion to prevent MCA companies from noticing multiple advances. Due to the rapid funding process compared to banks, unless there is a significant delay between fundings, it is difficult for MCA companies to detect stacking unless the business owner reveals it during the funding call.

We have thoroughly discussed the concept of stacking and its effects on small business owners.

Stacking should never be considered a viable option for small business owners under any circumstances.

One merchant cash advance is never enough.

Remember that when you sign up for an MCA through a broker, you become part of their client base. This means they will continue to try to refinance your current MCA or offer you more MCAs.

Their main goal is to boost their profits, and you are already seen as a potential customer. In their view, having just one MCA is not enough.

The less savvy brokers document everything. Ask for it. Keep it.

Many brokers are not very smart. They will reach out to you via text, email, and messages, providing material that can be used against them later.

Keep a record of everything.

We have a history of holding brokers accountable for their dishonesty and nonsense. We have even worked with MCA companies who share our dislike for these false notions.

If you have experienced the behaviors mentioned above, please save the evidence and let us know. We are here to help you. You might still be bound by your cash advance agreement, but you will have the tools to fight back eventually.

So What?

The team at Beacon Client Solutions frequently collaborates with clients who have been exploited by MCA companies, particularly those business owners who have been mistreated.

The solution is simple.  Get Help.  Now.

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.