[Fundyman]

Anyone knows if it's possible to obtain a license to lend in all 50 states at once vs. each state separately? And if so, what would that fee be? I'm talking in the MCA industry, and for business lending in general. Are those two different types of licenses or the same?

[Sean Cash]

Anyone knows if it's possible to obtain a license to lend in all 50 states at once vs. each state separately? And if so, what would that fee be? I'm talking in the MCA industry, and for business lending in general. Are those two different types of licenses or the same?

There is no such thing as a license to buy future revenues at a discounted price (traditional MCA). Anyone can do it if they do it correctly. Lending is a different story. And there is no "fee" or way to start lending in all 50 states at once. Most companies take years and spend hundreds of thousands or millions on lawyers to try and navigate the national landscape. Better hire some experienced attorneys!

[Fundyman]

Thanks, Sean. In that case, it's strange to see so many MCA companies say they can't do New Mexico, or Washington. I always wonder what's stopping them from doing an MCA in any of the 50 states! So, in other words, if I were to start buying future revenues at a discount, there would be no reason I can't do it in all 50 states. That should include ACH debiting or future receivables on credit card sales, right?

[Sean Cash]

Thanks, Sean. In that case, it's strange to see so many MCA companies say they can't do New Mexico, or Washington. I always wonder what's stopping them from doing an MCA in any of the 50 states! So, in other words, if I were to start buying future revenues at a discount, there would be no reason I can't do it in all 50 states. That should include ACH debiting or future receivables on credit card sales, right?

In just about every state, it might be within bounds of the law to do a traditional MCA, but that won't stop an ambitious law firm from gathering up potential plaintiffs and launching a class action against you. They could make the case that you're violating usury laws or running an unlicensed lending operation. It might not matter if it's true, because you could end up spending tens of millions defending yourself or be forced into a very expensive settlement even if there was no wrongdoing. This has happened over and over again in California. Many MCA companies have just said screw it and won't fund there now, or they took the time and jumped through all the hoops to be a California licensed lender just to not have to worry about the threat.

There is no such thing as an MCA license, but if a state law is strict on lending, a merchant could challenge an MCA company on the legality of their product. You have to be ready for it. It's a cost of doing business. I said previously that anyone can do MCA if they do it correctly. Many don't realize that fixed daily ACH in a revenue purchase transaction can be an extremely slippery slope. The instances where this should be more acceptable is where the merchant has specifically requested to forego a percentage deducted from their daily deposits or where it is not technologically feasible to do on a daily basis. Where it is not technologically feasible to do so, there should be periodic reconciliations conducted whereby the merchant's actual sales are compared against the expected sales and a true-up in one direction or the other takes place (reimburse the merchant for overage collected or debit out the amount that should've been delivered.)

Just calling something a purchase doesn't make it one. It has to shed the risks and nuances of a loan such as a fixed term. If that's being violated, well then I wouldn't want to fund in New Mexico or Washington, or a lot of other states either. Violating New York's usury cap is a felony, which can mean jail time.

I'm not a lawyer, but you should have one (or two or three) lawyers if you want to be a funder in this industry, whether you're doing MCAs or business loans.

[Fundyman]

Sean, I really appreciate you sharing your knowledge and expertise. This can be quite a complicated venture that makes people more prone to simply syndicate instead of dealing with all the legal nonsense that may potentially rise. Thanks for the info.

[Sean Cash]

no problem. And you're right, syndicates certainly have it pretty good!

[Lenders.Marketing]

In just about every state, it might be within bounds of the law to do a traditional MCA, but that won't stop an ambitious law firm from gathering up potential plaintiffs and launching a class action against you. They could make the case that you're violating usury laws or running an unlicensed lending operation. It might not matter if it's true, because you could end up spending tens of millions defending yourself or be forced into a very expensive settlement even if there was no wrongdoing. This has happened over and over again in California. Many MCA companies have just said screw it and won't fund there now, or they took the time and jumped through all the hoops to be a California licensed lender just to not have to worry about the threat.

There is no such thing as an MCA license, but if a state law is strict on lending, a merchant could challenge an MCA company on the legality of their product. You have to be ready for it. It's a cost of doing business. I said previously that anyone can do MCA if they do it correctly. Many don't realize that fixed daily ACH in a revenue purchase transaction can be an extremely slippery slope. The instances where this should be more acceptable is where the merchant has specifically requested to forego a percentage deducted from their daily deposits or where it is not technologically feasible to do on a daily basis. Where it is not technologically feasible to do so, there should be periodic reconciliations conducted whereby the merchant's actual sales are compared against the expected sales and a true-up in one direction or the other takes place (reimburse the merchant for overage collected or debit out the amount that should've been delivered.)

Just calling something a purchase doesn't make it one. It has to shed the risks and nuances of a loan such as a fixed term. If that's being violated, well then I wouldn't want to fund in New Mexico or Washington, or a lot of other states either. Violating New York's usury cap is a felony, which can mean jail time.

I'm not a lawyer, but you should have one (or two or three) lawyers if you want to be a funder in this industry, whether you're doing MCAs or business loans.

I always found it intriguing how an estimated 80% of the MCA World is in The Big Apple and the majority of them choose not to send marketing to NY business owners.

[Al1]

Interesting court decision out of the 2nd circuit court of appeals. It states that the National Bank Act's state usury law preemption provision does not apply to all bank assignees.

It may impact lenders that use national banks to originate their deals in order to avoid having to comply with varying state usury laws. Here's a link to a brief discussion of the case and the decision itself.

http://usurylawblog.com/2015/05/2nd-...ebt-purchaser/

[Fundyman]

I always found it intriguing how an estimated 80% of the MCA World is in The Big Apple and the majority of them choose not to send marketing to NY business owners.

Very true fact indeed, Nick... I wonder if it's due to NYers not having time in general, being so busy you can't get through to them or even get a minute of their time to talk, though many of them so desperately need the working capital...

[Drizzle]

Being that the majority of alternative financing is set up as an advance not as loans, the 50 state lending license is almost a mute point.