[Chambo]

In case anyone is wondering if history repeats itself, this was the 2008 version of Bloomberg articles about how MCAs are bad, except it was in Forbes, not Businessweek. https://www.forbes.com/2008/01/31/ca...l#222b8dc125f0

The same thing happened. Politicians rallied around protecting businesses from "predatory lenders" as you can see from an example of a resolution passed below. By 2009, when the bottom of the economy dropped out and all credit completely froze, MCA companies went from being demonized as vampires to "fintech" pioneers who were keeping small businesses alive.

COJs were not in use then, but the point is the same. Terrible article comes out, politicians act outraged, then it becomes evident that there is no alternative and so everyone goes back to acknowledging that nobody else is going to offer financing to these businesses, especially not banks.

Feels like deja vu.

The U.S. Conference of Mayors
76th Annual Meeting
June 20-24, 2008
Miami
2008 ADOPTED RESOLUTIONS

PROTECTING MAIN STREET SMALL BUSINESS OWNERS FROM PREDATORY LENDERS

WHEREAS, America’s 26.8 million small businesses are the engine of the U.S. economy, employing half of all private-sector employees, representing 99.7% of all employers, and responsible for 45% of net new jobs generated annually in the last decade;and

WHEREAS, eight million of these small businesses pursue financing each year throughout the United States; and

WHEREAS, 65% of these eight million (5.2 million) are unable to secure traditional bank loans or lines of credit; and

WHEREAS, as a result, many small businesses use family money, personal credit cards or personal loans and approximately 35%have relied on home-equity loans to finance their businesses;and

WHEREAS, the recent turmoil in both the housing and credit markets has caused banks to tighten their lending criteria and consequently, credit opportunities to small business owners have been significantly reduced; and

WHEREAS, a perfect storm has emerged across the United States, leaving many small businesses, including millions throughout the main streets of our cities and towns, struggling to access the capital they need to sustain and grow their businesses; and

WHEREAS, predatory lenders have emerged to exploit the current credit environment and increasing cash flow needs of small businesses and are selling usurious products known as merchant cash advances (MCA), which are advances on a business’s future credit card receivables (aka “factoring of future credit card sales”); and

WHEREAS, merchant cash advances are not loans and do not have to follow state or federal lending regulations, and feature over 85% approval rates and imputed annual percentage rates as high as 200%, and in addition to these egregious rates, require daily deductions of 18-25% of the small business’s credit card sales -significantly more than a business can afford; and

WHEREAS, merchant cash advance companies have already lent approximately $2 billion at egregious rates and have been quoted in leading main stream media publications such as Forbes, Business Week, Dallas Morning News, and American Banker claiming that their new originations have increased 75% in the first half of 2008; and

WHEREAS, America’s cities need strong Main Street businesses to continue to have a stable tax base, safe streets and a vibrant commercial center, and

WHEREAS, as with payday lenders and predatory lenders in the home mortgage community, Mayors need to take a leadership role to scrutinize predatory merchant cash advance companies, educate small business owners of the dangers posed by these firms, and increase awareness and promotion of alternative, more affordable funding sources to support this vital segment of our economy;and

WHEREAS, the mayor in each of our cities can protect our small businesses by promoting and advising small business owners to ask and have answered five simple questions before agreeing to accept any type of financing from a non-traditional provider:

a.
Is the financing product a regulated loan?
b.
What is the total interest paid and how does that cost translate into an Annual Percentage Rate (APR)?
c.
What is the payment amount?
d.
What is the payment frequency?
e.
Exactly how long will it take to repay the loan?

NOW THEREFORE, BE IT RESOLVED, that The U.S. Conference of Mayors strongly supports small businesses and the independent business owners located in our cities and will protect them from predatory lenders offering exploitive merchant cash advances;and

BE IT FURTHER RESOLVED, that the mayor in each of our cities shall educate Main Street business owners and the small business community of the dangers of merchant cash advances and promote to them alternative lending sources that are more affordable;and

BE IT FURTHER RESOLVED, that to protect the general health and viability of their small business communities, cities should investigate whether they can effectively regulate or ban merchant cash advances.

Sean, as you can remember, it was tight....but again, there weren't COJs freezing all of a merchants receivables, stopping them from doing business.

If COJs aren't curtailed, there will be screaming and crying (rightly or wrongly), and John Q public will listen, as will politicians.