Roglieri Discusses Merchant Cash Advances With Inc
CCTG CEO and founder, Kris Roglieri, was recently tapped by Inc.com to discuss how the competition in alternative business lending has created a paradox.
The business of providing merchant cash advances to small business owners has been gaining ground over the past seven years as one of the most prevalent small business financing solutions out there. These short-term funding solutions can sometimes be more expensive depending on your business and financials, but have become overwhelmingly popular among business owners in need of capital quickly and choose to avoid going to traditional banks.
Throughout the past seven years, more and more alternative lenders are hopping on to assist with funding these businesses, most of which are backed with unlimited capital resources from Wall Street investment banks and private investors. This has brought upon a fierce competition within the merchant cash advance industry.
With so many lenders joining this lucrative market, Inc sat down with CCTG CEO and founder, Kris Roglieri, to discuss this growing trend and to review the positives and negatives of this lending option.
In short, the positive aspect of the increase in competition will help business owners by subsequently lowering the rates of these types of business loans. Roglieri stated the following
“Business owners will always find lower rates and more flexible terms and this is great for merchants who can afford the scheduled payment terms and use this money to properly grow their business.”
The downside to this is that lenders are getting more carefree with their underwriting practices and are approving loans that they probably shouldn’t. The issue with this is that this level of competition has created a lending bubble that is about to burst.
In order to understand why there is a lending bubble, Roglieri says you must first understand the state of the market.
“In the beginning, there were only a handful of lenders that offered these loans. As the demand increased, the number of lenders increased as well. Now, lenders are flooding the market. They are giving loans to people who would not have been approved a year ago, and lenders that refuse to do so are being left behind,” claims Roglieri.
“By lending money to businesses with bad credit or low revenue, lenders are opening themselves up to potential default, and this is killing the Merchant Cash Advance business.”
As bad as this situation is, he says it’s made even worse with stacking, which is when a business owner gets 3, 4 or even 5 merchant cash advances from multiple lenders and is unable to pay back these loans as it cuts into their current cash flow. This practice of stacking has hit the MCA industry hard and has created two distinct issues within the market.
- The business receives more capital than it can pay back with multiple loans.
- The original lender receives the brunt of this chaos, because due to the stacking they are most likely the last lender to get back their money.
This is an issue because the initial lender that made a legitimate loan suffers as the the business’ profits are pulled in multiple directions to make payments and in most situations those businesses fail and have to declare bankruptcy.
These types of business practices are beginning to be seen and as some greedy lenders try to make a quick buck, eventually regulations will need to be put in place to control this industry and regulate how these types of financing solutions can be conducted. This will ultimately hurt the industry and affect business owners searching for capital. Trust will be lost and businesses will have fewer options to keep their business afloat.
Read the full article here – Competition in Alternative Business Lending Creates Paradox