The growth of Merchant Cash Advance

In 2008, many banks stopped lending to small business. This created a vacuum which the Merchant Cash Advance or Cash Advance industry filled. As of 2014 it has grown to a 3 Billion Dollar business.

In its early days, advances were based upon the credit card sales of the business and the advance was repaid by taking a cut of future credit card transactions.  Often the funding company provided a replacement card swipe terminal and earned processing fees too.

Currently, most advances are based upon the cash-flow of the business checking account. The funding company is paid back by automated daily or weekly withdrawals from the business checking account.

So what can go wrong?  A lot.              But let's look at the Pro's first.

It is true that banks are not lending and businesses need access to cash.  And the industry delivers. Here is the test: If the money borrowed, makes the business more money than is charged in interest and fees, a merchant cash advance makes sense.

One example might be a store bringing in a summer line which they know will sell at a good margin by Fall. Another would be a construction company buying the raw materials to deliver upon a big job. These advances also often help a seasonal company make it through the slow season. That assumes nothing will go wrong. Knowing something will sell is not the same thing as actually making the sale.

But the real potential for trouble comes if the money is used to get by or pay other creditors because of the fees and interest. And the interest and fees can be very high because an "advance" is technically not a "loan" and as such may be exempt from usury law because the lender is technically purchasing future sales [receivables].

At the very low end, interest is 25% of principle over six months. Some companies charge much more. There may also be dangerous provisions in the contract allowing stiff penalties and fees if the agreement is not honored. At the high end, especially if the small business takes more than one loan, or keeps rolling them, the interest can run at many multiples equating to a rate closer to 100-200% or more.

So, how do you get out of a bad situation like this?

There is really only one proven way:  With professional help.

Call us at 855-708-2670, there's no charge – We've provided a solution for thousands of companies in similar situations. The call is free and we'll show you a complete solution and how it can be affordable. Most of our clients actually come out ahead. 

                                                                 – it's what we do.

p.s.  To their credit, advance companies do a very good job of explaining interest rates and fees. It's just that a business owner, under pressure and feeling eternally optimistic, may sign something that should have been avoided. Other similar names for these advances are: Business Cash Advance, ACH Loan, Quick Money Loan, Cash Flow Lending.

p.p.s. we'd also like to give credit where credit is due. The Mayor's of America raised a strong alert on this subject as early as 2008 – see "adopted resolutions" excerpts below from the United States Conference of Mayors Conference as appear on their website:

''…….WHEREAS, predatory lenders have emerged to exploit the current credit environment and increasing cash flow needs of small businesses and are selling usurious products known as merchant cash advances (MCA), which are advances on a business’s future credit card receivables (aka “factoring of future credit card sales”); and

WHEREAS, merchant cash advances are not loans and do not have to follow state or federal lending regulations, and feature over 85% approval rates and imputed annual percentage rates as high as 200%, and in addition to these egregious rates, require daily deductions of 18-25% of the small business’s credit card sales -significantly more than a business can afford; and

WHEREAS, merchant cash advance companies have already lent approximately $2 billion at egregious rates and have been quoted in leading main stream media publications such as Forbes, Business Week, Dallas Morning News, and American Banker claiming that their new originations have increased 75% in the first half of 2008; and......."

Looking for the solution?

Call us for a free no strings conversation at 855-708-2670 Eastern Standard Time.

We'll be glad to take up to 30 minutes to assess your payables and explain how to solve the problem.

Where 

95 Route 17, Paramus, NJ 07652

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855-708-2670