Addressing Misconceptions in the MCA Business

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frustratedNew to the MCA business? Think you got it figured out? Let’s visit some of the stranger beliefs and misconceptions I’ve encountered over the last year. (Not legal advice as I am not an attorney).

My broker/funding company’s legal address as recorded with the Secretary of State or courts is my personal information and no one is allowed to know it or share it on the internet.

False. The business address you place on file with governmental authorities or courts is generally available to the public. If you opt to use your home address as your business address, just know that it will be open to everyone to see and share. Additionally, starting Jan 1. 2024, any broker soliciting merchants that reside in Florida will have to take the additional measure of including their official business address in their marketing to the merchant. So no, you are not entitled to complete anonymity.

I can fund in all 50 states!

But can you though? If you offer loans, there are a number of state laws that govern the legality of that. If you offer MCAs, there are states like Virginia for which you are required to be registered by law (applies to both funders and brokers). There are penalties for not following the laws.

I don’t need any fancy systems to be a funder

Well you’re going to need something. In the not too distant future you will be required to comply with 888 pages of regulations governing how you can collect merchant data all while having to report the details of every single application you looked at in addition to every single deal you declined or funded to the federal government. You also have to explain the rationale for your decision in every instance. This includes MCA and yes it’s a law not a proposal. I hope you’re ready.

MCA is legal so I don’t need to worry about anything

There are legal precedents that guide what can or can’t be done with regards to the purchase of future receivables. Generally speaking (and please consult with an attorney), one’s right to collect is not absolute. See this recent case, for example.

I sent some deals out to some shady funders who have gone MIA and no longer take my calls. The funder is to blame and is bad

Most brokers who cry foul about no-name fly-by-night funders that offered swift approvals and high commissions only to be ghosted are quick to share that they were swindled out of a potential commission. No one likes to suffer through that. However, consider the legal risk now posed to yourself and your client with the information you’ve passed on. In a recent criminal case, an ISO managing merchant documents is alleged to have stolen their identities and obtained dozens of business loans in their names. So ask yourself on a scale of 1 – 10, how confident are you in the person/company you’re passing a merchant’s deal docs to that they will comply with all state and federal laws? Your commission might not be the only thing they steal and that creates legal hazard for you. For what it’s worth, he’s a good guy isn’t a great standard when it comes to legal due diligence.

As always, please consult a qualified attorney. If you are being solicited by a funder that has not sought any legal advice at all and is instead operating by the seat of their pants because they heard this was a good business, you should probably move on to someone else.

Last modified: October 18, 2023
Sean Murray

Category: merchant cash advance

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