By the time most business owners start reading reviews of MCA debt relief companies, they are already in trouble. Usually they’ve taken out several merchant cash advances (known as “stacking”) and are falling behind on their repayments. Debt relief companies target these business owners under the labels of “debt consolidation” or “business debt experts” and promise to “reduce” or “eliminate” their MCA repayment obligations. It can be tricky to know what to read, what to trust. What follows is how to read those reviews, and how to tell the ones that mean something from the ones that don’t.
An MCA is a lump sum advance in exchange for a specified amount of future receivables. Funders determine the advance amount based on the previous few months of a company’s bank statements. The cash usually gets deposited into the company’s bank account within 24 hours. Payment of the advance takes place daily or weekly. MCAs are especially prevalent among those businesses banks won’t make loans to, such as cannabis companies, or companies that need to finish projects, like plumbing, electrical or HVAC companies. MCAs are repaid out of receivables. That’s all fine and dandy. Until it’s not. Merchant cash advances have grown in popularity, and as they have, so has the number of companies that claim to know how to negotiate the terms of an MCA on behalf of the owner.
Now imagine you open a review site and see a glowing review for a debt relief company telling how they “sliced” an owner’s payments “in half” after 30 days. If you are a business owner under pressure from your funders, it sounds exactly like what you’re looking for. But a review like that says nothing about a successful negotiation. To see why, you have to know what the program consists of: you, the business owner, stopping all payments to the funders and paying the relief company a reduced monthly payment, which is held in what the company calls a “pseudo escrow account.” Once that account builds up to a certain amount, they begin negotiating on your behalf. In other words, you are breaching the contract with your funders and praying that they’ll cut you a deal.
If they agree to a settlement for less than the full balance, you and the funders end up happy. If they won’t negotiate, there’s usually a lawsuit for breach of contract on the horizon. Imagine, now, that the owner has been paying the relief company rather than the MCA funder for six months or more and still finds himself with a lawsuit in his hand and no relief in sight. Because instead of paying the funders, he’s been paying the relief company all along. Now not only is he on the hook for all the future receivables under the original MCA, he’s also out all the money he spent on the relief company. It’s a mess.
To address this problem, debt relief companies now offer “legal representation” from third parties to “defend” the business owner. These attorneys submit very generic pleadings and discovery responses with absolutely no case specific factual content. Boilerplate defenses to a legal complaint are usually unsuccessful and the business owner is left owing the funder the entire amount, plus costs and attorney’s fees, plus default and NSF fees. The reviews rarely tell you that.
When Evaluating a Review
So go back to that review. The owner saying, “they cut my payment in half in month one,” is not claiming a settlement. It is a description of stopping payments to the MCAs. On to the generic sales pitches: “compassionate”, “great staff”, “low monthly payments” mean nothing. And watch out for the same language repeated over and over again. Different customers rarely describe their experience in identical words. Look for reviews that go into detail about whether the funder actually settled, whether there was a lawsuit, what the lawyer did, what the relief company ultimately ended up costing you. When evaluating a review, ask yourself what actually happened and what it cost the reviewer. Timing matters too. The relief company does not start negotiating until the money in that pseudo-escrow account reaches a certain amount, so a review written while the account is still filling up will not reflect a deal the funder agreed to because the relief company hasn’t had a chance to negotiate yet.
It helps to see two reviews side by side. The first reads something like this: “The staff was extremely compassionate, knowledgeable, helpful and understanding during my initial consultation. They offer very competitive rates, and the staff was extremely understanding and compassionate.” That review says nothing. It is totally generic, there is nothing in it to explain what actually took place. Now compare one like this: “So unfortunately I’ve been sued and honestly I’m not happy about this. They feel I should settle and I don’t think they pushed hard enough to fight my case.” Whoa, that’s another story entirely. It’s probably fair to give more weight to the review that describes the funder suing you.
With a short five-star review, there is no way to tell, just from the review, whether the funder actually settled. So be careful of giving too much weight to positive reviews that are short and say nothing about the funder. Prioritize the negative reviews, and especially those reviews that end with “and then a lawsuit for breach of contract was filed against me.” Watch out for the “free lawyer” review. Unless the lawyer is presenting a factual case specific response, the reviewer got nothing out of his “free” lawyer.
This, of course, is not to say that you should listen exclusively to the negative reviews. Not every five-star review is fake, and when a funder agrees to settle for less, things generally work out. But the reviews have to tell the whole story - not just the first two weeks of it. Keep in mind, too, that just because someone else settled their MCAs doesn’t mean you will have the same result. Perhaps funders won’t negotiate with your debt relief company. Before you sign up, ask the relief company: what happens if a funder refuses to negotiate? How does the relief company protect you from owing the full amount? If a review sounds too good to be true, it probably is. Ultimately, unless you have a basic understanding of how merchant cash advances work, you are taking a risk by signing up with a debt relief company. Make sure you fully understand your MCA agreement, and are prepared to consult experienced legal counsel before signing up for any program.
