12 Mar Bad Practices are Bad PR for MCA Brokers.
As Wall Street is becoming more and more interested in the alternative lending game, the merchant cash advance industry is looking to clean up its image as much as possible.
Loan brokers have gotten a bad rep. Although there are many good and honest brokers who truly do have their client’s best interests at heart, there are also a fair amount of bad eggs whose shady business practices have damaged the entire industry’s reputation.
The two most prevalent bad practices are:
Stacking deals: This is the practice of entering into a cash advance transaction or loan knowing that the merchant already has one or more open cash advances or loans with a competitor. While stacking isn’t inherently bad if the merchant has the cash flow to cover both loans, it can often lead to a situation where the merchant is driven into a debt loop, getting one advance to pay off another advance.
Falsifying Merchant Application Info: This is the practice of a broker altering merchant information (such as a landlord statement) to make a deal look more attractive to a funding company in order to close the deal and get their commission. This not only hurts the funding company’s bottom line, who just made a loan based on false information, but it also hurts the merchant, who might not have the ability to pay back the advance and therefore should have been denied.
So what can brokers, and the industry as a whole, do to put an end to these practices, and root out the bad eggs?
The only solution is communication and transparency. While nobody expects competing companies to share business, they should share information that will help others avoid those brokers in the habit of doing bad business. Not only to help industry peers evade costly missteps, but to hold accountable those who set our entire industry back,, so that we collectively can begin to move forward.