Small Business Administration Prohibits Lending to MLMs

    Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

    I was sent this document by a friend and professional in the MLM space yesterday. It’s a portion of a federal regulation that outlines the ineligible businesses for SBA loans. The bill prohibits lending to:

    “Businesses Selling Through a Pyramid Plan.”

    It further states, “Pyramid or multilevel sales distribution plans are not eligible for SBA assistance.” (see below)

    This is another example of an organization, in this case the federal government, that associates legitimate network marketing with pyramid schemes. PayPal and Facebook are other organizations that come to mind. As I’ve written in the past, since there’s an ocean of gray in the networking space separating good companies from bad, it’s led to an increase of illegal exploitation of the model by opportunistic owners. Simply put, it’s difficult to distinguish the good companies from the pyramid schemes, which is leading the government and companies alike to associate all MLMs with pyramid schemes.

    I’ve written an article in the past titled “Pyramid Schemes: Saving the network marketing industry by defining the gray.” The article has been viewed over 7,000 times. In an effort to help sanitize the negative perception created by pyramid schemes, the article calls for more clarity in the space. I’ve also attempt to pass an anti-pyramid scheme bill in Tennessee to create guideposts to distinguish good companies from bad ones. The DSA killed the bill. The DSA exists primarily as a lobbying organization committed to preserving the confusion in the space, which makes it easier for pyramid schemes to thrive, in my opinion. They act more like a labor union. They need more leadership, less “strength in numbers.” Given their influence, they can dramatically increase their impact if someone would step up, be honest with the issues and lead. If the DSA’s model legislation would pass, it would literally be legal for a company to sell $1,000 shots of lemonade (assuming there’s a return policy). It would be incredibly harmful for the space. But I digress.

    Unfortunately, since it’s difficult to distinguish good companies from bad ones, more people are throwing in the towel and associating pyramid schemes with legitimate MLMs. In a conversation with Facebook’s compliance attorney a few months ago, he explained why they ban the promotion of MLMs in their Terms of Service. He said if they narrowed the provision and simply prohibited the promotion of “pyramid schemes,” they’d be required to prove if a company was a pyramid, which would be close to impossible. It all boiled down to the confusion. Have you ever tried to advertise a site on facebook with the words “MLM” or “network marketing” on the landing page? Did it get banned? Mine did. The gray needs to be clarified, not obfuscated, lest the negative perception grow in size and lead the FTC to step in and clarify it for us, which would be a disaster.

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      Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.