Hello, and happy Sunday, friends! I hope your weekends have been rejuvenating! Over the past couple of weeks I’ve had several interesting conversations with members of this community about developments in the industry and what they mean for stakeholders. A theme that continually comes up is this: firms who call themselves RBF, but that are closer in structure and funding approach to merchant cash advance (MCA) are confusing entrepreneurs and threatening to harm the reputation of RBF broadly. (Note the dangers articulated in the linked article - these are the things we’ve talked about and that I’ve written about before – the potential for a debt spiral, the quick access to capital making it difficult to understand actual costs and conditions, etc.).

I remember having this conversation with people at the Alternative Capital Summit in January 2020, so this is not a new issue. I have long been concerned about potential backlash from entrepreneurs who take MCA debt disguised as RBF and then have a bad experience or outcome (e.g., “I took this funding that called itself RBF, I got a small amount of money, then I paid 20% of my daily Stripe collections for 12 months, and the money didn’t help me grow because I had to pay it back so fast…and the APR was 60+%!”). That experience can sour a CEO’s opinion on RBF and cause damage to the industry’s reputation. Remember, CEOs share with each other and they aren’t shy when they feel like they got a bad deal. Word travels fast.

Across my recent conversations with you all, a new concern is emerging: that entrepreneur who had a bad experience - and any that has a bad outcome with something calling itself RBF but isn’t - will extend past word of mouth and create regulatory issues for traditional RBF lenders and funding platforms. That is, regulators love cracking down on things they see as dangerous to entrepreneurs. There is already some interest in California and New York to investigate MCA lenders and their practices and costs. I think that’s great. But there’s a problem: many of the MCA lenders out there call themselves RBF, and regulators are going to have a hard time understanding the difference between the two. 

I don’t want to be Chicken Little, but I am picking up on a growing sense of alarm on this point among this community, so I think it’s a threat we ought to pay close attention to. I’ll devote some attention to this and share some ideas on what we can do going forward. 

In the meantime, let me know if you agree or disagree, and if you have any ideas on what we should do (or shouldn’t do), feel free to share them!