MCA Agents: Choose Your Partners Carefully!

Over the past two months American Finance Solutions has seen a large increase in quality agents signing up to be partners. We screen all of our potential agents to make sure that there is a good fit. Specifically with ethics, aptitude and ease of doing business with. After chatting with the owner of the agency signing up it seems that most have a horror story about a previous MCA provider or worse yet were a sub-agent to an agent that was signed up merchant cash advance company.

Generally the story always revolves around payment of commissions or processing residuals. If a MCA funder is going under the quickest way to conserve cash flow is too stop paying commissions, that’s a no brainer. The company can simply exercise its clause in the contract to adjust commissions at any time without notice. However, this is also the fastest way to decimate the very individuals and companies that bring the business through the front door. I just don’t get it, not a smart short- or long-term business decision.

Make sure that you are partnering up with a solid industry player that has a proven track record, hopefully three or more years. If so, the funding company has made it through the past 18 months of rough times and is here to stay. Residuals income builds quickly with most agents earning in the mid- to high- four figures monthly just on MCA residuals (that’s not even taking into consideration the merchant processing residuals).

The second, most popular gripe involves the MCA company renewing a contract with a client the day after the renewal clause in the agent’s contract expires. For example, most contracts say that the agent will earn renewal commissions if the business enters into a new contract within three months after previous contract expiring. Funny how some MCA companies start underwriting the renewal in the final hours of the third month and wire the funds for the contract on the day after the three months. Then low and behold the processing changes from the agent’s merchant processor to some other one.

The worst stories involve those where an sub-agent relationship has happened. The funding company pays the commissions to the registered agent, their fiduciary duty is done. Then the sub-agent has difficulty in collecting from the registered agent. Why not sign up directly with the funding company, you’ll make as much or nearly as much and have a direct relationship that you can count on.

To summarize, when evaluating a new funding source to place your deals make sure you do your due diligence. Sure high-upfront and high-residual commissions sound great, but anyone offering these will not be around in a few months, the economics just don’t make sense. Or they’ll do your deals, but all of them will be at a lower commission structure in order to get approval.

Specifically ask the following:

1. What is the track record of the merchant cash advance company? Hopefully 36 months or more

2. Is the merchant cash advance company a licensed lender? If so, they made financial and operation commitment to be held accountable and will easily survive potential industry regulation.

3. What is the merchant cash advance company’s funding source? Hopefully institutional (i.e. a traditional bank or factor bank; not a hedge fund!)

4. Who do you partner with for credit card processing? (Make sure its strong industry players that will pay your processing residuals and have an ethical track record.)

5. Ask for other agent referrals? (If they will not give you these, there’s a reason!)