In today’s economy, even the best of small businesses are having a difficult time acquiring loans. In general, traditional banks don’t offer the small loans that many businesses need. This has created a boom in the merchant cash advance (MCA) industry; loans that can quickly lend small amounts of money to businesses, but can often cost them a great deal in the long run.
The problem is that most business owners resort to merchant cash advances when they have already exhausted most of their options. This makes them vulnerable to terms and conditions that are risky, and loans with extremely high interest rates.
How MCAs Work
If a company is in need of a loan, the MCA will deposit a sum loan in the business’ account within 24 hours. This is usually the only thing that companies focus on; quick cash infusion. However, MCAs seek repayment as quickly as they dish out cash. MCAs collect repayment in one of two ways: credit or daily withdrawals.
With credit, the MCA will take a portion of the business’ credit card sales. If there are no credit card transactions that day, the MCA does not collect payment. With daily withdrawals, the MCA takes an agreed upon figure from the borrower’s account every day. If the borrower does zero sales then the MCA still debits the account. This can push companies who are struggling with sales even deeper into debt, especially since loans are generally expected to be repaid within 90 days, and can have APRs of up to 80%.
Although an MCA is called a loan, it is not subject to the same regulations and consumer protections as other types of loans. There is no central authority for MCAs, instead the industry stresses self-policing. Unfortunately, this philosophy can be a breeding ground for dishonest MCAs and MCA scams. Small businesses deserve the help of experienced, honest merchant funders like 1st American Merchant Funding.
Contact us to obtain a low stress, fast, and fair merchant cash advance.
