Most small business owners who get MCAs do so through a convincing salesperson and not by internet searches. Entrepreneurs are more likely to submit a merchant cash advance application because a jolly salesperson visited their store and talked them into a deal— most of which are high-interest and short-term.
Online lending marketed offline
While MCAs are popular as an online lending product, much of the sales of these funding solutions occur offline where merchant cash advance brokers call and visit the entrepreneur. Most funding companies that offer MCAs use these independent sales agents (ISOs) to get to financially needy entrepreneurs.
Even the agents sometimes experience crises of conscience talking a business owner into a contract well aware of the exorbitant interest rates and tight repayment schedules that may threaten a business’s cash flow, according to James Shepherd of CC Sales Pro. The company educates ISOs and earns referral fees for MCA sales with National Funding. Shepherd says the main reason agents fail to make sales is, “they don’t feel right about it.”
Blame it on the commission-driven model
For agents, one sale could lead to a large commission, says Shepherd. Being the link between a $20,000 merchant cash advance can mean a commission to the tune of $2,200.
Critics say this commission-driven pay model is responsible for the high pricing of the MCA product even comparing it to the mortgage meltdown that was heated up by similar practices. A June report by the U.S. Financial Stability Oversight Council raised the same concerns: “In business models in which intermediaries take fees for organizing for new loans but do not earn an interest in the loans they arrange have sometimes encouraged intermediaries to assess and examine loan products less scrupulously.”
“Simplifying” the completion of deal for Brokers
Again, it seems like the well’s always running low for the MCA industry – lending companies are always thirsty for more customers, and the agents to reach out to them. They are trying to fund all industries/businesses. In their efforts to attract more brokers, they go to the extent of coining slogans like: “Gotta Fund ’Em All”; “We are simplifying the funding process!”; “Are you set to roll with MCA’s biggest ballers? We Fund the Unbankable: Send us your DECLINED & HIGH-RISK MCA Deals.”
So, when should one take an MCA?
Shepherd advises merchants to use MCAs to take advantage of opportunities and not as a solution to solve their financial problems.
“If you seek an MCA to fix problems — like making payroll or fixing cash flow— you’re only throwing fuel on the fire,” says Shepherd.
Author Bio: Electronic payments expert Blair Thomas is the co-founder of high risk payment processing company eMerchantBroker. He’s just as passionate about his business as he is with traveling and spending time with his dog Cooper.