Small business owners who need quick access to cash need to be wary of offers for merchant cash advances (MCAs). With an MCA, the provider gives the business owner a cash advance that is based on the credit card sales generated by the business. Although business owners don’t have to go through a lengthy approval process or meet strict credit requirements as they do with a traditional term loan, MCAs have substantially higher interest rates than other financing options. Other cons of MCAs include:
Risk of Falling Further into Debt
Taking a merchant cash advance can be a risky proposition if you are a small business owner because it will consume a portion of the revenue of that comes in. So if your sales are lower than usual, you will really feel the sting of paying back the advance. Also, unlike paying interest on a typical loan, paying off the debt early doesn't lower the overall cost of the MCA because it has a fixed rate.
MCAs Are Complicated & Unregulated
These types of cash advances aren’t federally regulated, and instead, fall under the authority of each state’s Uniform Commercial Code. As such, MCAs aren’t subject to the Truth in Lending Act. According to a 2018 Federal Reserve report, MCAs are far more complicated and confusing than loans because:
- The actual cost to the business owner is difficult to determine
- MCA contracts contain vague and confusing language
- Consumers who are used to traditional loans tend to make errors with MCAs
- There is less flexibility if you want to change merchant service provider
We Can Help If You Defaulted on an MCA
At Glenn F. Russell, Jr, & Associates, P.C., we are here to help small business owners negotiate and litigate collection actions brought against them where they have defaulted on MCAs and/or High Interest short term "loans". We have successfully settled outstanding MCA claims on behalf of small business owners throughout Massachusetts, and we are prepared to use our extensive resources and knowledge of the law to represent your best interests.
Give our law firm a call today at 1 (888) 400-9318 to set up your consultation with a member of our team.