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Education

COVID-19 demands Economic indicators are dismal

Recently, the United States disclosed that the second quar-
changes for MCA ter GDP dropped by nearly 10 percent, representing one of
the biggest contractions in U.S. history. Things look pretty
servicing bleak right now. Indeed, the world of business is ugly right
now —especially If you are in the financing world.

Make no mistake about it, entrepreneurs all over the Unit-
ed States are terrified about what’s going to happen to
their financial future as well as what’s going to happen to
the businesses they have saved up for, worked so hard to
build, and invested so significantly into already.

The initial CARES Act and the generous PPP program
helped to keep businesses afloat through these particu-
larly dark times, but we are running out of funding pack-
ages, and Congress doesn’t look like it is going to be able
to deliver another actionable plan to fix our economy any-
time soon. Financing companies that work specifically
with small business owners—especially companies that
deal in merchant cash advances (MCAs)—are particularly
nervous about how things are going to shake out moving
forward.

Not only are small business owners being squeezed left
and right when it comes to keeping their businesses afloat,
By Chad Otar but consumers are also being pinched as well—many of
Lending Valley Inc. them operating under state implemented stay-at-home
orders that have shut down nonessential operations, cut-
he COVID-19 pandemic's impact on our econ- ting off significant revenue streams for MCA companies
omy has been devastating. Forty-three percent that were depending on that cash flow to keep themselves
of all businesses have temporarily closed across afloat.
T the United States, with nearly 70 percent of
owners of those businesses unsure if they’ll ever be able to MCA companies are looking around at the situation
open their doors again—even after lockdown orders have at hand and aren’t in love with the writing on the wall.
been lifted. On top of that, the financial fragility of small Nobody could have anticipated a global pandemic of
businesses across the United States has never been more this magnitude wiping out the greatest U.S. economy in
obvious. recent history, as is evidenced by the fact that a lot of these

Small businesses are hurting MCA companies do not have language in their contracts
that specifically addresses global pandemics or major
Nearly half of all business owners with monthly expenses emergencies like this.
of $10,000 or more report they have only enough cash on
hand to last two or three weeks before needing to take On top of that, MCA contracts require merchants to pay
advantage of financing. Even then, they may not be able to back the financing that they have leveraged with the
make things work. receipts that they are bringing in as part of their day-to-
day sales. But because of the pandemic and the lockdown
Seventy-five percent of all small business owners reported orders, many of these businesses aren’t bringing in any
they had only enough cash on hand to keep their doors new receipts. That means there’s nothing MCA companies
open for two months or less, and almost 75 percent of can leverage to bring cash into their own operations.
all small business owners are afraid that if things don’t MCA servicing is changing
change for the better dramatically, they won’t be in busi-
ness by the time January 2021 rolls around. For these reasons (and many others) MCA companies
absolutely must begin to take steps that go beyond
We are getting into some dangerous waters here when it traditional reconciliation procedures to make sure they
comes to the world of small business—but this economic are protected as small businesses in the same way that
downturn has had a huge impact on our national econo- the small businesses they helped with MCA financing are
my, too. protected.

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