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Why You Specifically Need An MCA Accountant for Your MCA Business

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 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.

Consumer Debt Collection Protections to Apply to Commercial Debts in California

SB1286 is on its way to the California governor’s desk. In the era of state-based commercial finance legislation this bill stands out for its unique focus on the collections process.

“Existing law, the Rosenthal Fair Debt Collection Practices Act (RFDCPA), prohibits debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and requires debtors to act fairly in entering into and honoring those debts,” the bill’s authors wrote. “This bill would recast those provisions to expand the scope of those provisions to additionally prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of covered commercial debts…”

In a CounselorLibrary BizFinLaw Alert, Hudson Cook attorneys Kate Fisher and Bob Gage, wrote of it:

What would this bill mean for you if you provide financing to California businesses? First, don’t assume that the law won’t apply to you just because you originated a debt. The RFDCPA, unlike most debt collection laws, applies to a person collecting its own debt in its own name. Second, be aware that the bill defines “covered commercial credit transaction” broadly enough that any business that owes you money, regardless of the form of the transaction, might have rights under the RFDCPA if the original amount financed or lease amount was $500,000 or less. If you determine (or your lawyer tells you) that some debts owed to you might be covered if the bill goes into effect, then you’ll need to see what new obligations the law imposes on you.

Read the full language of the law here.

DailyFunder Adds Real Estate Lending Forum

DailyFunder, the largest online community of small business finance professionals in the US, has added a real estate lending subforum to its platform. The new category marks the first time any category has been added to the platform in more than a decade. Unsecured business lending and merchant cash advances have for a long time dominated the user content.

According to the site, financing secured by real estate has experienced rising organic interest over time to the point where it warrants separation.

“It has become obvious over time that more and more real estate financing deals are being pitched in the Deal Bin so we have decided to make an entire category just for that,” the site said. “We can use this [new real estate lending] subforum for posting relevant deals or discussions. We have tried to move over a bunch of related posts so that they’re viewable in one place here but it’s hard to go through so many as this forum has racked up nearly 185,000 posts overall so we obviously didn’t hit them all.”

The category description says “Commercial, residential, hard money, mortgages, raw land, refis, cash out, construction, and all real estate lending” and it can be used to discuss the business or to post deals looking for lenders. It is completely free to use the DailyFunder forum. Users only need to register to post. Brokers and lenders rely on it every day. As of last public report, the site was garnering 2 million annual page views in 2021.

Funding Circle UK Now Simpler, Leaner After Selling US Arm

Funding Circle published its first financial statements since divesting its US business. The international small business lender’s primary market had always been the UK. In its latest shareholder presentation, Funding Circle explained that 92% of its income comes from fees.

Specifically:
53% transaction fees
27% servicing fees
12% drawdown fees

Overall, the company’s financial picture was pretty good for the first half, generating £79.9M in revenue and a small profit (before tax). The company should be well on its way to continued profitability given its plan to reduce headcount by 120 while focusing more on management layers and productivity, a plan which includes generative AI tools. One slide explains that it is now a “simpler, leaner and profitable business.”

Funding Circle pioneered peer-to-peer lending in the small business finance market. iBusiness Funding, a subsidiary of Ready Capital is the company that acquired its US business.

North Mill Announces $404 Million Term Securitization

SEPTEMBER 3, 2024, NORWALK, CT – North Mill Equipment Finance LLC (“NMEF”), a leading independent commercial equipment lender located in Norwalk, Connecticut, announced the closing of its eighth asset backed securitization (ABS), NMEF Funding 2024-A (“NMEF 2024-A”). The $404 million transaction is NMEF’s first ABS transaction this year, bringing the total ABS proceeds raised by NMEF since inception to $2.3 billion. NMEF 2024-A features a strong, diversified collateral pool resulting from NMEF’s recent adjustments to its pricing and risk framework.

“The interest in the NMEF shelf continues to grow. We received 45 orders from 32 unique investors, including 12 first time buyers, that drove demand to a ~3.5x oversubscribed level and allowed for continued tightening of spreads from launch to pricing,” said NMEF’s President and Chief Operating Officer, Mark Bonanno.

Mitch Tobak, NMEF’s VP of Corporate Development added, “NMEF was proud to present a strong collateral pool to investors, with a balanced mix that no longer contains long-haul trucking within the top five equipment types, along with the highest weighted average FICO of any NMEF issuance to date. Transportation collateral represents less than a third of the total pool, a testament to NMEF’s ability to originate profitable paper in a variety of industries. We are grateful for the continued support of our referral partner network and the ~14K active borrowers they have referred to NMEF.”

About NMEF

NMEF originates and services small to mid-ticket equipment leases and loans, ranging from $15,000 to $2,500,000 in value. A broker-centric private lender, the company accepts A – C credit qualities and finances transactions for many asset categories including construction, transportation, vocational, medical, manufacturing, printing, franchise, renovation, janitorial and material handling equipment. NMEF is majority owned by an affiliate of InterVest Capital Partners. The company’s headquarters are in Norwalk, CT, with regional offices in Irvine, CA, and Voorhees NJ. For more information, visit www.nmef.com. One of NMEF’s controlled affiliates, BriteCap Financial LLC, is a leading non-bank lender providing small businesses with fast, convenient financing alternatives such as working capital loans since 2003 from offices in North Hollywood, CA and Las Vegas, NV. For more information, visit www.britecap.com.

They Offered to Reduce My MCA Payments. I Played Along.

It started when I got a cold text that said my merchant cash advances could be reduced by 80%. I didn’t have any advances but was intrigued by the audacity of the offer. REDUCE THEM BY EIGHTY PERCENT!

“Ok,” I thought to myself, “I’ll bite to see where this goes.”

I replied and was assigned a rep via text who introduced himself by name, Mark.

I told Mark I believed his offer to be a scam and sent him a link to an article (that was literally on deBanked) in which someone making similar offers had been arrested by the FBI. I was 100% confident that he would disappear but he was undeterred.

“Those were shady companies,” Mark said, assuring me he had nothing to do with them. I wondered if Mark had caught on to who I was because he seemed eager to convince me he was legit. He told me that I’d still have to pay my advances in full but that he would just get the payments for them reduced. That seemed unusually tame compared to what I’d heard about these type of encounters with “debt relief” companies but Mark kept talking.

By signing up with them I’d be assigned a lawyer who would have “leverage” over my MCA provider due to them likely being in default on their own contract. He explained that they were always in breach for failing to reduce the daily payments (a likely reference to reconciliation clauses). Mark’s fee for helping me take advantage of this, the cost of which was not mentioned, would be included in my new regular payments they’d negotiate for me.

Just as I was beginning to realize that I’d be on the hook for paying them for their service on top of apparently still paying my advances, the messages over texts stopped, and he tried to only continue the conversation by phone, which I avoided.

From there robocalls hit my phone 4-5x per day as they attempted to reel me back in until they eventually tried texts again. When they did the offer had changed from them being able to reduce my payments by 80% to only 50%. Weird. Nevertheless, I wanted to get back to where we had left off, finding out the cost of this service, of which I now learned included legal representation by an attorney and a separate case manager. It sounded like it would be very expensive for me and I let him know my concerns. If Mark had known who he was actually speaking to before, the attempt to play it off now had been forgotten.

“Our program is not designed to cost you any additional money,” Mark said. “We go after unpaid fees and interest. You will never have to pay us out of pocket.”

And so that was the pitch, wordplay designed to make it appear the service was free and I would never have to pay them.

The website they referred me to included obviously fake testimonials with stock photos. They were “Trusted”, “Approved” and had been seen on various TV networks. It promises to stop withdrawals from funding companies and that their “in-house licensed attorneys” based in Florida and New York will take care of everything. The 7 month old website, which lists no business address, also claims the team has a decade of experience while the legal entity itself does not appear to exist, at least not in all the states I checked.

As I attempted to track down anything about this company I could find, a breakthrough led me to an address in Miami, which as fate would have it was home to another debt relief company targeting businesses with merchant cash advances. The website is similar. They are “Trusted”, “Approved” and seen on TV. They can also improve cash flow by up to 80%. What a coincidence. The owner of this one also has a colorful background with the law. Although I was not able to fully confirm that this company is the alter-ego of the other, I learn that this second company was just sued in April for allegedly absconding with a merchant’s funds it claimed was being used to pay off MCAs. In another instance the debt relief company is suing a merchant for the recovery of over $400,000, the sum of which it claims was its fee for trying to reduce a merchant’s MCA payments. It would seem that such work is not so free after all.

As my phone continues to ring and ring with offers to reduce my MCA payments, I decide to disengage.

“Sean, how many loans do you have?” Mark resumes. “Sean we will reduce your payments by at least 50%, let’s discuss.”

I ignore him. When he tries me again, he tells me he can reduce the payments by 80%. Then again later by 50%. He never tells me why it changes. His last message more than several months later is a return to the same script.

“Sean, Do you have MCAs hurting your cash flow?”

I’m pretty sure that he can’t be trusted. If your sales drop, you should call your funding company to discuss and stay away from shady pitches like this.

Dream Data Services Files Chapter 7 Bankruptcy

Dream Data Services LLC filed a voluntary petition for bankruptcy last week. The New Jersey-based company had claimed to sell MCA leads including Submissions with all of the merchant’s information. Alan Tunit was declared as the sole member of the LLC. Dream Data Services claimed on its petition that it only had assets of between $0 – $50,000 and liabilities of $100,001 – $500,000.

Steve McLaughlin to Speak at B2B Finance Expo

Steve McLaughlin will appear on stage at B2B Finance Expo for a fireside chat. McLaughlin is the Founder and CEO of FT Partners and former senior banker at Goldman Sachs covering FinTech and Financial Services for over 20 years. Steve was recently Ranked #1 on Institutional Investor’s “Most Influential Dealmakers in FinTech” report and named “Investment Banker of the Year” and ranked #1 FinTech Banker in Silicon Valley by The Information. FT Partners was founded in late 2001 and has won “Investment Banking Firm of the Year” four times since 2004.  Steve has personally led and closed hundreds of FinTech M&A, Capital Raise and IPO Advisory transactions. @ftpartners www.ftpartners.com

Greg Smith, a Managing Director for FT Partners, will also be giving a keynote at B2B Finance Expo.

B2B Finance Expo takes place at Wynn, Las Vegas September 23-24. Registration is still available here. The room block has already SOLD OUT.