Merchant cash advances (MCAs) can seem like a lifeline for businesses in need of quick funding. However, not all MCA brokers operate with integrity, and some can leave your business in worse financial shape than before. If you suspect that you’ve been scammed by an MCA broker, it’s crucial to act quickly and take the right steps to protect your business.
Identifying MCA Broker Scams
As a business owner, it’s crucial to protect yourself and your business from scams. The MCA industry is already dubious, with predatory practices common among these companies. However, some brokers are outright scammers.
Common Red Flags
In some cases, MCA scammers end up ripping you off. In others, they’re not even legitimate businesses, and only posing as MCA brokers. Being aware of these warning signs can help prevent you from falling victim to MCA scams:
- Aggressive sales tactics: Brokers who pressure you into quick decisions or refuse to clearly explain terms are untrustworthy.
- Unrealistic promises: Be cautious if the broker promises guaranteed approvals, extremely low fees, or terms that seem too good to be true — they are.
- Lack of transparency: Avoid brokers who don’t provide clear, written terms upfront or who dodge your questions about rates and fees.
- Upfront fees: Legitimate MCA brokers typically do not require substantial upfront payments to process your application.
- Poor online reputation: Numerous negative reviews, complaints on platforms like the Better Business Bureau, or lack of online presence can signal a potential scammer.
Typical Scam Tactics
Here are several typical scam tactics fraudulent MCA brokers commonly use:
- Bait-and-switch: Offering initially attractive terms or rates, only to significantly alter the terms at the last moment when the business owner is ready to sign.
- Hidden fees: Embedding additional charges or fees deep within complicated contractual language, which often go unnoticed until after signing.
- Guaranteed approval promises: Claiming to offer guaranteed approvals regardless of credit history or business finances, which legitimate lenders would never promise.
- High-pressure sales tactics: Using aggressive or urgent language to push business owners into making fast decisions without fully understanding the terms or consequences.
- Fake affiliations or credentials: Misrepresenting relationships with reputable banks or organizations to gain trust.
- Identity theft: Requesting unnecessary sensitive financial and personal information under false pretenses.
- Unauthorized ACH withdrawals: Gaining account access under misleading agreements and initiating unauthorized automatic withdrawals.
- Misleading advertising: Promoting unrealistically low factor rates, flexible repayment terms, or overly simplified qualification criteria.
Being aware of these common tactics can help you recognize potential fraud and protect your business from MCA scams.
What to do if You’ve Been Scammed
If you’ve been scammed by an MCA broker, acting quickly can help minimize the damage. Follow these steps as soon as possible:
1. Document Everything
Your first step should be to gather and organize all contracts, emails, text messages, voicemails, and transaction records. If possible, document any conversations you’ve had with the MCA broker, including dates, times, and involved parties.
2. Contact Your Bank
Inform your bank immediately about any unauthorized transactions or suspicious activity. Consider freezing your accounts temporarily or placing limits on withdrawals to prevent further fraud.
3. Report the Fraud
File a complaint with the Federal Trade Commission (FTC). You may also want to report the issue to your state’s Attorney General’s office.
Additionally, you should submit a complaint to the Better Business Bureau (BBB) to alert other businesses and prevent future potential customers from falling into the same trap.
4. Consult Legal Counsel
Contact an attorney experienced in handling merchant cash advance cases or business law. Legal counsel can help assess your options, potentially including pursuing damages or negotiating debt relief.
5. Alert Law Enforcement
Significant financial fraud should always be reported to local law enforcement. Provide authorities with as much detailed information as you can to aid in their investigation.
Impact of MCA Broker Fraud on Businesses
Merchant Cash Advance (MCA) broker fraud can have severe and lasting consequences for businesses:
Financial Loss
The most obvious consequence of MCA broker fraud is the loss of financial resources due to hidden fees, unauthorized withdrawals, or misleading repayment terms. You may also face an increased debt burden from inflated costs, interest, and penalties.
Damaged Credit
Unauthorized or excessive withdrawals may cause missed payments, negatively impacting your credit score. This can make future financing difficult or expensive.
Disruption to Your Business’s Operations
The time and resources needed to resolve fraud issues pull your focus away from day-to-day operations, which could lead to less overall productivity. Cash flow disruptions can also impact payroll, inventory management, and other essential business activities.
Legal Complications
You could face lawsuits resulting from disputes or default caused by fraud. Legal expenses and other penalties could further strain your financial stability.
Harm to You Reputation
Even if you were the one scammed, public association with fraudulent activities can tarnish your business’s image among customers, suppliers, and financial institutions.
How to Protect Your Business from MCA Scams
Here are proactive steps you can take to protect your business from Merchant Cash Advance (MCA) scams:
- Research MCA Brokers thoroughly: Verify broker credentials and licenses, check reviews on trusted platforms like BBB and Trustpilot, and be sure to confirm a broker’s licencing.
- Beware of red flags: Avoid brokers that pressure you to sign immediately or offer deals that sound too good to be true. Additionally, steer clear of brokers who request substantial upfront fees or hesitate to provide clear written agreements.
- Read and understand contracts carefully: Ensure you fully understand the repayment terms, fees, penalties, and rates involved in an MCA. You may want to consult an MCA attorney if any terms are unclear or confusing.
- Secure sensitive information: Share sensitive business and personal information only with verified, trusted parties. You should have well-documented internal policies to protect your financial data.
- Regularly monitor your accounts: Keep close track of financial accounts and statements to quickly spot unauthorized transactions. It can be helpful to set up account alerts for suspicious activities.
Call Tayne Law for MCA Fraud Help
If you’re on the fence about hiring legal help, contact us for a no-obligation phone consultation to review your MCA matters. Tayne Law has assisted business owners and individuals with their debt problems for over 20 years. We can assess your situation and answer your questions about how our services could benefit you. All conversations are confidential, and we never share your information or outsource any aspect of our services. So call us at (866) 890-7337 or fill out our short contact form.
