David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.
To connect with David, email david@betteraccountingsolutions.com.
Articles by David Roitblat
The Battle Against MCA in Texas
June 12, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
Texas, a state associated with limited government intervention and freedom of business to operate and succeed in a capitalist society, stands at a crossroads.
Governor Greg Abbott has until June 22nd to decide whether to sign House Bill 700 into law—a decision that could fundamentally reshape how small businesses access capital in the Lone Star State. If he signs it, or simply lets the deadline pass without action, this sweeping legislation will take effect on September 1, 2025. The action will potentially cut off vital funding sources for thousands of Texas entrepreneurs, in a direct assault on the merchant cash advance industry that has been a lifeline for the people of his state.
The stakes couldn’t be higher. While supporters frame HB 700 as consumer protection, this bill targets sales-based financing—financial tools that have become lifelines for small businesses shut out of traditional bank lending.
Small business owners know the frustration of walking into a bank and walking out empty-handed all too well. Traditional lenders have tightened their belts, especially for newer businesses, minority-owned enterprises, and companies in industries deemed “risky.” When a restaurant owner needs quick capital to fix a broken freezer, or a contractor requires funds to purchase materials for a big job, they can’t wait weeks for a bank’s approval process. They need solutions now.
That’s where alternatives come in. Revenue-based financing provides capital based on future sales, not credit scores or lengthy financial histories. Yes, they can be more expensive than bank loans—but they’re also available when banks say no.
This financing drives business growth, job creation, and the health of Main Street. When small businesses can access capital quickly, they expand, hire employees, and strengthen their communities.
HB 700 goes far beyond simple disclosure requirements. While transparency is important—and most responsible providers already provide clear terms—this bill creates a regulatory maze that could price many providers out of the Texas market entirely.
The bill imposes sweeping new requirements that will fundamentally change how sales-based financing companies operate in Texas. Companies providing commercial sales-based financing must register with the Office of Consumer Credit Commissioner by December 31, 2026, including both direct providers and brokers, with mandatory annual renewals and fees.
For any financing under $1 million, sales-based financing providers must provide extensive disclosures covering everything from total financing amounts and disbursement details to payment schedules, additional fees, prepayment penalties, and even broker compensation arrangements. The operational restrictions go much deeper, voiding confession of judgment clauses entirely and requiring companies to obtain recipient signatures on all disclosures before finalizing any transaction.
Perhaps most problematic is the prohibition on automatic debiting of recipient accounts unless companies hold a “validly perfected first-priority security interest”—a legal standard that’s nearly impossible to meet in practice and effectively kills the streamlined payment processes that make revenue-based financing work for the funders, and by extension, the merchants.
The Finance Commission of Texas gains broad authority to identify and prohibit “unfair, deceptive, or abusive” practices, though interestingly, they cannot set maximum interest rates or fees. Violations carry steep civil penalties of $10,000 each, and the law applies to any provider offering services to Texas recipients via the Internet, regardless of where the company is physically located. These aren’t minor regulatory adjustments—they represent a complete overhaul that could drive legitimate capital providers out of the Texas market entirely.
This isn’t just bureaucratic red tape. It’s a fundamental misunderstanding of how modern business financing works. Revenue-based financing depends on streamlined payment processes tied to daily sales. Without this mechanism, the entire business model becomes unworkable.
If HB 700 becomes law, the consequences will ripple through Texas’s economy. Small businesses already struggling with inflation, labor shortages, and supply chain disruptions will lose access to flexible financing options. Rural businesses, minority-owned enterprises, and startups will be hit hardest—exactly the businesses Texas should be supporting.
The irony is stark. Texas has built its reputation as a business-friendly state, attracting companies fleeing overregulation in other states. HB 700 threatens to undermine that competitive advantage by making it harder for small businesses to access the capital they need to grow.
The voices of actual small business owners have been largely absent from this debate. Many don’t even know this legislation exists, despite its potential impact on their operations. Those who are aware express frustration that lawmakers are making decisions about their financing options without understanding their real-world needs.
Governor Abbott faces a clear choice. He can sign legislation that will likely drive responsible funders out of Texas, or he can recognize that small businesses need access to diverse financing options.
The goal should be protecting businesses from truly predatory practices while preserving their ability to access capital when traditional banks won’t help. That requires nuanced policy, not broad restrictions that treat all alternative finance providers as predators.
The battle against MCA regulation in Texas isn’t really about merchant cash advances—it’s about whether Texas will remain a place where small businesses can find the capital they need to thrive. Governor Abbott’s decision will determine not just the fate of HB 700, but the future of small business financing in Texas.
The countdown has begun. Texas small businesses are watching and waiting.
Turning Connections into Opportunities After Broker Fair 2025
May 27, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
“You never know who you’re going to meet.”
That’s the reason I continue to go to Broker Fair.
Once again, the merchant cash advance community showed up in full force this past Sunday and Monday. This year’s Broker Fair felt particularly energized. The sessions were packed, the conversations were substantive, and the networking opportunities were abundant.
As I watched hundreds of industry professionals network across the venue, I couldn’t help but reflect on my journey from skeptic to evangelist when it comes to these industry gatherings. As the founder of Better Accounting Solutions, I’ve now attended Broker Fair for years, and each time I walk away with renewed conviction that these events are not just beneficial—they’re essential for anyone serious about growing in this industry.
The real value of Broker Fair doesn’t end when the last panel concludes or when you check out of your hotel. In fact, the days and weeks following the event might be the most critical period for turning those brief conversations into meaningful business relationships.
Many of us left Tribeca 360 with pockets full of business cards and phones loaded with new contacts. Now comes the crucial part: following up. I’ve learned through experience that a simple “Great meeting you” email within 48 hours makes all the difference between a forgotten handshake and a productive business connection.
At this year’s event, I reconnected with clients who have become friends, met potential new partners, and had enlightening conversations with industry figures I’ve long admired.
One particular conversation with a broker could potentially open doors to a new service offering at Better Accounting Solutions. Another led to me introducing a potential syndicator to a funder, while other meetings inspired me to explore different angles to the business I hadn’t thought of before. These opportunities wouldn’t have materialized if I’d stayed back at the office, convinced that keeping my head down was more productive than engaging with the community.
Following Up Effectively
Having attended many of these events over the years, I’ve developed a system for effective follow-up:
- Act quickly: Send personalized follow-up emails within 48 hours while the conversation is still fresh.
- Be specific: Reference something unique about your conversation to jog their memory.
- Provide value first: Share an article, resource, or introduction that might help them before asking for anything in return.
- Suggest a concrete next step: Whether it’s a virtual coffee, lunch meeting, or specific business proposal, don’t leave the relationship hanging.
- Connect online: Add your new contacts on LinkedIn with a personalized connection request.
By doing this, Better Accounting Solutions has secured multiple major clients directly from connections made at Broker Fair over the years. The ROI isn’t always immediate, but the long-term value of being present, being known, and being engaged in the community is immeasurable.
“NETWORKING IS REAL WORK…”
This bears repeating. The conversations you have, the relationships you build, and the insights you gain at events like Broker Fair are as much a part of building your business as the hours you spend at your desk.
For those who missed this year’s event, I strongly encourage marking your calendars for next year. And for those who attended but haven’t yet followed up on those promising conversations—what are you waiting for? The window of opportunity is open right now.
Better Accounting Solutions was proud to partner with Broker Fair once again this year, not just as a business strategy but as a testament to our belief in the power of community in this industry. The connections made and strengthened at these events have been instrumental in our growth as leaders in specialized accounting for the merchant cash advance industry.
How to Prepare for Outside Syndicators
April 29, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.
To connect with David, email david@betteraccountingsolutions.com.
There’s a clear gap of knowledge in our industry, and how merchant cash advance businesses need to prepare themselves to receive outside money in investment or syndication.
Whether you’re seeking your first institutional investment or scaling to eight-figure funding rounds, the preparation required isn’t just about having good portfolio performance—it’s about having the financial infrastructure responsible investors need to see before forking over money to you. Not knowing how to prepare that for them can cost you months of delays or even kill promising funding opportunities entirely.
I’ve seen too many MCA shops operating under a misconception. They believe that the impressive Google Sheets presentation showing their advance volume, daily collection rates, and merchant performance will be sufficient when courting serious investors.
Sometimes that’s enough. When you’re looking to raise money from friends and family, you have flexibility. These investors typically accept basic performance reports showing advance volume and collection rates, might not request detailed merchant-level financials, and generally won’t demand formal audits. Basic spreadsheets might suffice at this stage when you’re raising up to about $1 million in capital to fund your advances.
The financial documentation requirements escalate dramatically when you need more than that.
Once you move beyond self-funding or friends and family money into the realm of raising $5-10 million or more, investors won’t accept your homegrown reporting systems or month-end bundle accounting—they want audited financials and proper transaction-level documentation.
Sophisticated syndicators expect a professional CRM system tracking all merchant relationships, detailed default modeling, GAAP-compliant accounting systems that properly account for income recognition on merchant advances, and as investment amounts increase, audited financials become non-negotiable.
Auditors don’t accept shortcuts in the MCA space. They require transaction-level detail with recognized income on each advance, estimated defaults by cohort, and precise documentation of collection performance. They’re specifically looking for attempts to bundle or obscure individual merchant performance – a common practice in some MCA shops that raises immediate concerns with institutional investors.
Here’s what most MCA operators don’t realize: Getting your books audit-ready isn’t a quick fix. It’s a process that can take several months to update historical advance and collection records, 3-4 months for a first-time audit (always longer than subsequent audits), and additional time for any remediation of collection documentation. In total, you’re looking at potentially 9-12 months from financial disarray to audited statements. That’s an eternity in the fast-moving MCA world when a funding opportunity appears.
If you even think you might seek significant outside capital within the next year, start preparing now. Implement proper merchant tracking systems immediately. Ensure all bookkeeping follows GAAP principles for advance recognition. Consider getting audited financials before you need them.
Yes, this requires upfront investment, but put it in perspective: If you’re raising $5 million to fund your advance portfolio (often just the starting point), the cost of proper financial infrastructure is minimal compared to the capital you’ll secure and the acceleration in your timeline.
The most successful capital raises in the MCA industry aren’t just about having a great portfolio performance – they’re about being ready when opportunity knocks. Don’t be the MCA provider explaining to eager investors why they need to wait a year while you get your advance and collection records in order. The most valuable asset in fundraising isn’t just your merchant performance – it’s being prepared to prove it immediately.
Why MCA Companies Need Syndicators
March 21, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
The merchant cash advance (MCA) business is all about balance—managing risk while keeping capital flowing.
Many funders hesitate to bring in outside capital, especially if they already have a line of credit. The thinking goes: “If I have my own money, why should I split the profits?” But that perspective overlooks the key benefits syndication brings—not just in terms of capital but also risk mitigation and overall profitability.
The biggest advantage of working with syndicators is the ability to do more deals while spreading out risk. The more deals you fund, the more you diversify, which naturally increases your stability. If you’re advancing your own money, you’re taking on 100% of the risk. But with syndicators, that exposure is shared. Even if you already have a line of credit, using syndication means you’re not tying up all your liquidity in a few high-risk advances. Instead, you’re spreading your capital across more opportunities, reducing the chances of any single deal tanking your portfolio.
Syndication also creates a financial buffer through fees that MCA companies collect upfront. Syndicators don’t just bring in money; they pay to participate in your deals. Typically, they compensate the funder in one of four ways: paying an upfront fee (usually 3-5% of the RTR or 5-7% of the principal), paying part of the fee upfront and the rest as the deal is repaid, covering a portion of the origination fee, or splitting the profits at the end of the deal. These fees give MCA companies immediate cash flow, which helps offset risk before repayment even begins.
Consider this: if you fund a $100,000 deal and syndicators take on 50% of it while paying a 4% fee, you’ve immediately reduced your exposure. You’re technically in for only 48% of the deal, not 50%, because that fee cushions your position. On a larger scale, this compounds into significant risk reduction. If your default rate is 15% and syndication lowers your risk by just 5%, that’s a major improvement. A 10% default rate instead of 15% can be the difference between profitability and loss.
Origination fees further sweeten the deal. Some MCA companies split origination fees with syndicators, while others keep the entire portion from the syndicator’s investment. For example, in a $200,000 advance where the syndicator puts in $100,000, a 10% origination fee would total $20,000. If the funder keeps the entire 10% from the syndicator’s portion, that’s $10,000 of instant income—reducing risk right away. This means that even before payments start coming in, the MCA company is in a stronger position.
Profit-sharing models also offer advantages, particularly for MCA companies that want to keep more control over the deal structure. In these setups, syndicators don’t pay an upfront fee but instead share in the profits at the end. This allows funders to leverage external capital while still maintaining higher margins on successful advances. Some models even combine a profit split with an upfront syndication fee, offering the best of both worlds—immediate cash flow and long-term upside.
The bottom line is simple: syndication makes MCA portfolios stronger. It adds a layer of protection, reduces risk, increases deal volume, and injects capital upfront. A stronger, more diversified portfolio leads to more stability and, ultimately, higher long-term earnings.
For any MCA company serious about growth and sustainability, working with syndicators isn’t just an option—it’s a necessity. Overlooking these benefits in the name of not wanting to share profits shows a short-term mindset that may cost more in the future.
Are You Calculating Defaults Wrong?
January 22, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
As we dive into tax season, it’s crucial for those involved in the merchant cash advance (MCA) industry to have a solid grasp of how to account for defaults. The way defaults are measured can significantly influence financial reporting and tax obligations, so understanding the different perspectives is essential.
There are several ways to evaluate defaults in the MCA industry, each offering different benefits depending on the context.
One common approach is the Right-to-Receive (RTR) perspective, which looks at the difference between the total payback amount agreed upon in a deal and what has actually been repaid.
For example, if a business secures $100,000 with a payback obligation of $150,000, and it repays $135,000, then there’s a remaining $15,000 that constitutes a default—a 10% shortfall from what was expected. This method is excellent for highlighting the gap between expected and actual returns, making it a valuable tool for financial modeling and long-term forecasting.
However, while the RTR method is strong for assessing contractual obligations, it can sometimes feel a bit too rigid. It often overlooks the real-world dynamics of cash flow and the impact of fees, which can give a skewed picture of a deal’s financial health.
Another method is the cash perspective. The approach simplifies things by focusing on whether the initial funding amount has been recovered. Using the same example, if the client repays $135,000, there’s no default recorded since the principal has been recovered. But if only $75,000 is paid back, that’s a 25% default based on the original funding. This approach is particularly handy for tax reporting because it zeroes in on principal recovery without complicating the picture with profit margins.
While straightforward, the cash perspective has its drawbacks. It tends to gloss over important details like origination fees and the overall financial implications of the repayment agreement, which can lead to an incomplete understanding of the deal.
Next, we have the wire perspective, which considers the actual amount transferred to the client after any deductions, such as origination fees. For instance, if a client gets $100,000 but pays a 10% origination fee, they effectively receive $90,000. If they then repay $75,000, the default is calculated based on the wired amount, leading to a 16.66% default rate. This perspective is particularly useful in syndication agreements, where understanding profitability post-fees is crucial.
Yet, like the cash perspective, the wire approach may miss the broader financial picture, focusing too narrowly on fees without accounting for total contractual expectations.
Each of these methods has strengths and weaknesses, but a comprehensive understanding of defaults requires a more detailed approach.
The percentage of payback perspective is the solution, calculating defaults based on the total percentage of the expected payback received.
In a scenario where the RTR is $150,000 and $135,000 is repaid, the default is 10% of the total payback amount. This method accounts for historical trends and repayment behaviors, offering valuable insights for portfolio management and financial forecasting. It allows us to estimate defaults based on historic defaults and post a percentage of the payback as the payments come as defaults. By incorporating both RTR obligations and cash flow realities, it balances the limitations of other methods.
For tax purposes, the cash perspective is practical, recognizing defaults as the shortfall between the funded amount and repayments. However, it oversimplifies the complexities of MCA financing by neglecting origination fees and RTR contracts. Similarly, the RTR perspective, while excellent for identifying contractual gaps, can be too rigid for broader financial analyses, as it does not consider upfront deductions or actual cash flow timing.
The percentage of payback perspective addresses these shortcomings, making it the most effective method for evaluating defaults across all scenarios.
A significant advantage of the percentage of payback perspective is its flexibility for financial projections.
Businesses can use past repayment data to estimate default rates across different portfolios, helping them align with long-term profitability goals. This is especially important in the merchant cash advance industry, where repayment patterns can vary widely. It also works well for situations involving origination fees or syndication agreements, ensuring those fees are factored into default calculations. By doing so, it avoids the distortions seen in cash- or RTR-focused analyses and provides clearer reporting for syndication partners on how their investments are performing. Although this approach requires more effort, its ability to offer accurate and nuanced insights makes it essential for MCA companies in today’s complex financial landscape.
This tax season, understand your accounting options, and leverage them to help you kick off an amazing 2025.
Why You Specifically Need An MCA Accountant for Your MCA Business
September 11, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
Doing the books for a merchant cash advance (MCA) business isn’t like doing the books for other types of businesses. That’s something that seems pretty intuitive for those of us in the industry to understand, but often I see many business owners still trying to handle finances themselves or hand it off to a general accountant who isn’t well-versed in the MCA world, which leads to unfortunate messes that require some costly cleanup work. The reality is that while any accountant can keep basic, or even complex financial records, managing the finances of an MCA business requires more than just a surface-level understanding.
Take a situation I encountered recently: a business owner decided to use their regular accountant to handle their books, deciding that the cost of an MCA industry-qualified accountant was too much for him at that point in time. The accountant he picked was a competent elderly gentleman who produced the financials regularly and on time, and things appeared to be going smoothly until his investors realized their syndication income had been reported incorrectly. The accountant, unfamiliar with MCA-specific accounting, treated the income like a standard loan repayment and the business owner hadn’t noticed the misreporting when he passed the report on to his financiers. The investors were confused and frustrated with the mistaken report, and felt like they weren’t getting a clear picture of the company’s financial health and cash flow situation. I was actually able to help him clear up the issue, but the whole mess and subsequent (thankfully temporary) mistrust could have been avoided entirely if the accountant was someone who understood the specifics of the MCA business.
Handling the finances of an MCA business isn’t just about tracking the cash coming in and out. There are particular rules around recognizing income, such as how to deal with syndication fees, manage different types of funding, and correctly categorize income like commissions and fees. It’s also critical to understand how to report income for tax purposes versus what’s required for investor reporting. For example, recognizing income too soon or too late can have a big impact on your cash flow, tax obligations, and even how your business is perceived by others.
I’ve seen businesses try to use standard accounting methods and find themselves with financial statements that don’t accurately reflect their operations. In one case, a company overstated its income because it applied a generic accounting approach. This not only increased their tax burden but also strained their cash flow. They needed someone who understood the nuances of the MCA world to correct these issues, adjust the income recognition methods, and align them with industry standards.
Another challenge everyday CPAs struggle with is keeping up with the constant changes in MCA deals – from advances in different repayment stages to syndication agreements with external investors. Without careful tracking, discrepancies can quickly arise, and they’re often not noticed until they’ve become significant problems. Even for businesses using cash basis reporting because their revenue is under $10 million annually, it’s crucial to handle things correctly. Deferring tax liabilities by timing income recognition can be a smart move, but only if done accurately. Otherwise, there’s a risk of audits or having to pay back taxes with penalties. I’ve helped businesses navigate these tricky waters after they ran into trouble because their previous accountant didn’t know when to use cash basis versus accrual basis reporting.
A good MCA accountant knows how to navigate the specifics of your business. They understand what to watch out for, how to manage the unique aspects of the industry, and how to avoid problems that could end up costing you time, money, or reputation. I’ve seen too many businesses suffer preventable setbacks by either doing it themselves or relying on someone who didn’t have the right knowledge. The cost of hiring an accountant who specializes in MCA is minimal compared to the potential financial losses from mishandled books or compliance errors.
At the end of the day, having an accountant who understands the MCA industry isn’t just a nice-to-have; it’s a necessity. The complexities of this business require a specific set of skills, and working with someone who gets that can help you keep your business running smoothly and avoid unnecessary headaches in the future. Make sure you have the right support in place to protect your business and keep things on the right track.
When $10 Million Was Lost In MCA Deals
August 19, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
In the high-stakes world of merchant cash advances (MCA), trust is a precious commodity, and when that trust is shattered by a longtime partner, the fallout can be catastrophic. Imagine investing tens of millions in what you believe to be a thriving MCA business, only to discover someone you know is siphoning funds through an intricate web of deceit. This isn’t a hypothetical scenario—it’s a grim reality many MCA investors face, and it serves as a stark warning to us all.
Here’s one story from a couple of years back that an industry friend of mine told me:
The betrayal began innocuously enough. The investor trusted the MCA company he was syndicating deals with well, and the owner seemed competent and trustworthy. But beneath this carefully cultivated facade lurked a sinister scheme. This owner had also secretly established his own ISO and collection agency. With access to insider knowledge and an unchecked commission structure, he was in a prime position to execute a brazen and ongoing theft.
The owner submitted deals to his own funding company through his ISO and then funded them with syndication from investors. Then the deals would default. For months, the ISO maintained an exceptional high default rate. When the investor asked the owner what was going on, the owner would express his own puzzlement. He would show his syndicators how deals looked like they were progressing well initially, before they would inevitably crash out and default. Confident that they were backing the right man for the job, the syndicators kept on giving him money. Yet these deals were doomed from the start and designed to fail. By intentionally backing poor investments, he set the stage for his collection agency to step in once the deals inevitably defaulted.
The brilliance—and the horror—of his scheme lay in its simplicity. He manipulated the commission structure, securing an arrangement where he received full commission if a deal stayed active for just over a week. The deals only needed to appear stable for a short period before crumbling. Once the facade of success faded, the deals were swiftly handed over to his collection agency, ensuring he reaped the benefits from every angle.
In effect, he was stealing from his investors and partners in four ways. The first, he was stealing part of their investments before he ever put it into deals, and then of the deals that worked out, he skimmed off as well. The rest he put it into purposefully bad deals- after collecting a quick commission on- and then promptly stole from his own collections firm to top it all off.
As I delved into this case, the warning signs became glaringly apparent. Unusual commission arrangements should have raised immediate red flags. A commission structure that disproportionately rewards short-term success is ripe for exploitation. Moreover, conflicts of interest, like owning related businesses, should never be overlooked. The funder’s ownership of an ISO and a collection agency created an inherent conflict, one that he deftly exploited.
Another alarming sign was the pattern of poor-performing deals. Consistently funding bad deals isn’t just bad luck; it’s a symptom of deeper issues. High turnover in collections, especially when tied to the same individual, is another glaring indicator. A deeper investigation into these patterns could have unearthed the fraud much sooner.
To identify potential issues with your own ISOs, run a report over a three-month period detailing the total dollar amount and number of deals funded by each ISO. Compare these figures to the defaults from each ISO. If the percentage of defaults from an ISO significantly exceeds their contribution to your portfolio, it indicates a potential problem. Additionally, track the recovery rate from your collection firm; less than 25% recovery may signal issues with the contracts, merchants, or the collection firm itself. Conduct periodic audits to ensure that funded merchants are legitimate and not misrepresented.
Preventing such betrayal demands vigilance and a multi-faceted approach. Background checks should be thorough and updated regularly to catch any emerging conflicts of interest. Transparent and standardized commission policies are essential, avoiding complex arrangements that can be manipulated. Regular audits and monitoring can serve as an early warning system. Advanced analytics and an industry CRM such as Orgmeter or MCA Track can detect irregular patterns, flagging potential issues before they escalate. Beyond the technical measures, fostering a culture of honesty and transparency is vital, and employees should be trained to recognize and report suspicious activities.
This true story of betrayal within this company serves as a dramatic reminder of the dangers lurking within our businesses. Trust, once broken, is difficult to rebuild. By remaining vigilant and proactive, we can protect our companies from those who seek to exploit our trust for their gain. With the right measures, we can safeguard our investments and ensure the integrity of our industry.
How The PPP Reporting Oversight Harms MCA Companies
July 18, 2024David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
deBanked’s recent story covering the news about how the Small Business Administration (SBA) failed to report many Paycheck Protection Program (PPP) loan charge-offs to credit agencies is a major concern for merchant cash advance companies.
As the deBanked article explained, a new report from the Office of the Inspector General (OIG) found that the SBA did not report 37% of PPP loan charge-offs, and missed deadlines 97% of the time. The OIG report stated that the SBA’s automated system was supposed to report these loans, but it did not always work correctly. As a result, many delinquent borrowers could still get new loans because their bad debt wasn’t reported. The report also pointed out that a large portion of early PPP loan charge-offs were linked to potential fraud, which makes the lack of reporting even more serious.
This oversight could cause real problems for our industry. As an accountant working with MCA companies for over a decade, I understand firsthand how important accurate credit reporting is for making sound and fully informed decisions on which merchants our clients choose to invest in and help advance.
For MCA companies, this incomplete reporting leaves a critical gap in the information that funders rely on. Without accurate credit information, it’s harder to assess the risk of advancing capital to any particular merchant, which can lead to higher chances of defaults and financial losses when you don’t have a complete history that includes any times they’d skipped payments or defaulted. The missing data from the SBA means MCA companies might unknowingly fund high-risk businesses, which ultimately harms the cash advance company itself.
To work through this situation, funders need to take stock of how they evaluate prospective merchants to work with.
First, it’s important to do thorough background checks using multiple sources of information. Relying on just one credit report isn’t enough, especially now that we know there might be gaps. Cross-referencing data from various sources will provide a more complete picture of a merchant’s credit history.
We can also require merchants to provide more documentation and financial information before approving funding deals, removing a complete reliance on credit reporting agencies that have now proven themselves fallible. Pairing up the complete history that they provide along with their credit reports, and continuous tracking of the deal on a strong internal MCA CRM that lets you know of any hiccups, is a proactive approach that helps in making informed funding decisions.
It’s vital to develop strong risk management strategies. This might include setting stricter funding criteria, diversifying the types of businesses we lend to, and keeping enough reserves to cover potential losses. By being cautious and prepared, we can protect our companies from the financial risks posed by incomplete credit reporting, and eliminate our over reliance on that one source of information.
Let’s use this opportunity to ensure we are making the best funding decisions possible, and continue to have healthy companies built on stable foundations.
