It is an attractive offer at first. If you’re business is strapped for cash, there is a way you can be approved for thousands of dollars of funding within 24 hours, even with poor credit. It’s called a Merchant Case Advance. This industry has grown dramatically over the last decade. You probably find these offers in your junk mail every day. Although these offers sound like a loan, Merchant Case Advances are not considered “loans.” Rather, they involve the purchase and sale of a business’s future income.
This is a legitimate service but with very few advantages, and here are five reasons why you might want to leave these offers in your Junk Folder:
These interest rates can hit the triple-digit! MCAs use a flat fee system and may make these interest rates hard to see. It is uncommon for a cash advance APR to fall below 35% and not unusual to see one above 100%. If you read the fine print, you will find that most MCAs don’t provide incentives for paying off your fee early, in fact, if you pay an MCA off early, there is a fee for that.
- Daily payments
The funding company avoids risk by automatically collecting payments every business day from your daily card-based sales and debit from your business account.
If you find yourself searching for an MCA, you should be prepared for what an MCA will do to your daily, weekly or monthly revenue stream. Daily, automatic payments to the lender can create even more strain on your finances.
- No upfront details
Most of these companies do not lay all the cards out on the table. MCAs are essentially, very high-interest loans. Websites and emails offering MCAs do their best to draw you in worry-free, offering fast money, a quick and simple application process and the promise that you can be approved with bad credit. But what is not upfront and apparent are the requirements, product name, term and rate specifics, or even a financial calculator.
A lot of our clients caught in MCA nightmares have told us their lack of awareness and knowledge about the MCA terms was directly related to their current MCA debt issue.
- Other red flags:
- With most cash advance contracts, you are unable to switch credit card processors. This means that if you are dissatisfied with your credit card processor, you are stuck with them until the advance is repaid.
- Be careful, if you ask customers to pay in cash in order to avoid a percentage of your sales going to the MCA firm this is considered a “breach of contract” and could result in litigation.
- There are better options: American Finasco and here is an example
- A trucking company had two MERCHANT CASH ADVANCE loans they couldn’t pay. They hired another debt settlement company and paid $10,000 in fees with no results to show for it. The trucking company hired American Finasco to replace our ineffective competitor. We again bought the client time, used our attorney network to remove a judgment that had been placed incorrectly and after 6 months settled the debt for 68% of the original amount due.
Call American Finasco before using a MCA. However, if you do fall prey to Merchant Cash Advance offers and fall behind, contact us today to get your business back on track!