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CoverStory

MCA 101

Trade publications, regional Atlas recalled that years ago, when Advance Me
had patented cash advance funding, his law firm
and national conferences, and worked with the National Merchants Advance As-
not-for-profit associations reflect sociation, which later became the SBFA. "The as-
sociation successfully challenged the patent, and
the nonbank finance industry's it was nice to see there would not be a monopoly
player in the space," he said.
expansion and maturity. An MCA is always in a business context, Atlas

said, adding that eligible businesses have receiv-
ables coming in on a regular basis. He offered an
example of how MCA works: An MCA provider
panded its reach from MCA to all types of nonbank advances $5,000 to a business owner in return for
finance while remaining focused on educating and $5,500 of future receivables. The merchant promises to pay
empowering merchant level salespeople (MLSs) and that $5,500 by sending a fixed percentage of future receiv-
brokers. ables (40 percent) at agreed-upon intervals until the full
Murray also launched deBanked Connect in 2018, amount is paid.
a regional conference series designed to support
MLSs and brokers in major markets. Noting the If the merchant receives $1,000, $400 goes to the MCA
industry's heavy concentration in the New York provider toward the $5,500, with the remaining $600 kept
metro, South Florida and Southern California areas, by the merchant. If the merchant does well, the MCA is
Murray wanted to reach salespeople where they live paid quickly. If the merchant does poorly, the MCA is paid
and work while giving exhibitors, sponsors and out- slowly. If the merchant goes bankrupt and there are no
of-town attendees the opportunity to meet clients, more receivables, the MCA provider gets nothing. In this
partners and other people they need to see. relationship, if a merchant honestly goes out of business,
there is no recourse, Atlas noted.
• ILPA: The Innovative Lending Platform Associa-
tion, established in 2016, represents online lending "Technically speaking, if you were to construe a cash ad-
and service organizations that serve small and mid- vance as a loan and calculate how much was provided and
size businesses (SMBs). The trade association advo- how much was paid, you might find the rate usurious,"
cates best practices and responsible innovation. The Atlas said. "But MCAs carry more risk. MCA providers
ILPA partnered with the Association for Enterprise hope to earn a healthy return on receivables, but they are
Opportunity to create SMART (Straightforward not like lenders who can argue they must collect the full
Metrics Around Rate and Total Cost) Box, a pricing amount of a loan no matter what."
tool designed to help business owners compare fi-
nance options. Atlas also observed that as MCA has matured, the playing
In a May 15, 2016, interview with Inc. reporter Jer- field has leveled. In some cases, the cost of MCA capital
emy Quittner, Kabbage co-founder Kathryn Petralia approaches the cost of a loan, which means MCA provid-
said Kabbage joined OnDeck and CAN Capital to ers and lenders are increasingly competing for the same
form the ILPA and "tackle the key issue of pricing merchants.
transparency because it hasn't been comprehensive- Transparent disclosures
ly addressed by other trade groups."
• SBFA: The Small Business Finance Association, a Katherine Fisher, partner at Hudson Cook LLP and found-
nonprofit advocacy organization founded in 2016, ing member of the Alternative Finance Bar Association,
aims to improve Main Street business owners' ac- works with a cross-section of nonbank finance companies.
cess to working capital. The SBFA educates policy- SMB owners use financing to make more money, she stat-
makers and regulators about how member compa- ed. They need transparent pricing disclosures to evaluate
nies use technology platforms to bridge the small total cost of capital and benefits of different types of avail-
business capital gap. able financing.
Stephen Denis, executive director of the SBFA, Fisher has seen increased regulatory pressure on MCAs,
served as deputy staff director of the House Com- particularly among brokers who sell MCAs while act-
mittee on Small Business, where he saw the impact ing as settlement companies. Some act in bad faith. They
of emerging technologies on legacy financial ser- "help" SMBs obtain financing, then encourage them to de-
vices. As incoming director in 2016, Denis praised fault and pay debt consolidation. This creates problems for
fintechs for helping SMBs obtain capital and said legitimate brokers, she noted.
the SBFA's mission is to promote best practices and
education and be the voice of alternative financing.
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