Since the recession hit, there are many small businesses that have found it difficult, if not impossible, to acquire loans from traditional banks and lenders. Unfortunately, they still needed capital for day-to-day expenses, and many smaller businesses found they were really struggling if they could not find the needed financing. Similar to households across the country, if your business is tight on cash, you may get desperate. Modern, alternative lenders not only know this, but they take advantage of it. This is usually when an MCA lender will show up. This for-profit company makes promises of fast approval, easy qualifications, and no issues related to bad credit. It is important to note that this type of advance is not considered a loan. That is because of how it is structured. Essentially, the MCA is the equivalent of a payday loan, but for businesses.
What is a Merchant Cash Advance?
​MCA loans allow your business borrow against its future earnings. These are different than other types of small business loans for several reasons. For example, collateral is not usually required to get a MCA. In some situations, this means you can receive the needed funds in 24 hours or less. While all that may sound good theoretically, these loans are unregulated, which means many of the lenders in this industry use predatory tactics that can be devastating to small or newly established companies.
Businesses and MCA Loans
MCA's are popular options for businesses that may not be qualified for other business financing options. That is because they do not require all the “red tape” of other loans. This makes them extremely appealing to businesses with bad credit, no history, or other issues that prevent it from acquiring a different loan. Instead, the cash advance will be repaid based on the daily sales of the business. Factors like total time in business, daily sales, and others will determine the cash advance amount, which means that there is no real consideration regarding your ability to repay. As COVID-19 has proven, things may be fine today, and financially devastating tomorrow. You can’t get yourself in a financially compromising situation, which is something that happens often for businesses that choose to go the MCA path. If your startup has strong daily sales, then the cash advance may be an appealing option if you are in need of a fast source of capital. Unlike other unsecured business loans, a business does not have to have impeccable credit or assets to use as collateral. These are a few of the reasons this type of lending has become so popular. Unfortunately, it is these reasons that many have
defaulted on an MCA and why they can be so dangerous
Understanding Repayment for a Merchant Cash Advance Loans
According to MCA law, the loan is repaid based on your day to day sales amount. Depending on the way that the cash advances are financed, your lender will receive a percentage of your daily credit card sales or a percentage of your total business sales. This means you are repaying this loan each day. The terms for these cash advances will vary from one lender to another, which is why it may be smart for you to speak with a
merchant cash advance attorney before signing anything. After all, you do not want to fall victim to predatory lending practices, which is all-too common in this industry. The lawyer can help you find other options that may be better for your business.
The Qualification Process for a Merchant Cash Advance
To qualify for these merchant loans, there are some requirements you must meet. While this is true, the actual funding process is much faster than other loans. That is because there is no type of regulation on the lending practices. Essentially, this means the lenders can do whatever they want, which may wind up financially devastating to your business. In most cases, you will need to provide four to six months of past receivables or bank statements and fill out an application from the lender you choose. When you choose to get a MCA, it means you get to skip the mountains of seemingly endless paperwork, risking your business’s collateral, and avoiding the damaging effects of a credit pull. While all this is appealing too, it further highlights how this industry is unregulated and shows how the outcome may be dangerous and costly.
Understanding the Biggest Issues with Merchant Cash Advance Companies
The main issue with MCA's is that they are typically not very transparent regarding the amount of money they are really going to cost you. There has been an array of studies done on these practices and all of them have shown how damaging this lending product may be, or what happens when you default on a merchant cash advance. Along with getting stuck with very high interest rates and a plethora of hidden fees, there are some MCA lenders that may require you to sign a COJ – Confession of Judgement. The COJ is one example of how these companies are trying to trick you. If the lender makes it a requirement for you to sign the COJ before they give you any funds, this should be a huge red flag. While not all lenders that require you to sign this will drain your bank accounts and call you with threats, but if you do sign it, you are essentially giving them the ability to seize your assets with no warning. More dangerous aspects of these type of loans are Bank Restraints and UCC Liens. Even though taking out an MCA may seem like a smart option for financial needs that are occurring right now, the actual cost of the hidden fees and the misleading wording isn’t always worth it.
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New Relief Options for Struggling Small Businesses
​While the government has always been a proponent of small business owners, with the COVID-19 pandemic, there are now even more options for relief that will help your business avoid some of the more potentially damaging options that are currently available. Some of the options that you may be able to qualify for include:
PPP – Paycheck Protection Program
These are federally backed loans provided by traditional lenders to help businesses offset their expenses. Specifically, this loan is designed to cover payroll costs. It can also be used for mortgage, utilities, rent, and interest.
EIDL – Economic Injury Disaster Loan
These can be accessed through the SBA. The loans were created to help your business recover from the potential economic setbacks that are created by various disasters, which includes COVID-19.
EIDL Emergency Grant
You can receive this for an emergency advance of up to $10K when you have applied for an EIDL.
SBA Loan Forgiveness
With this option, it is possible for you to forego some payments on specific portions of your SBA loans for a certain amount of time.
Do You Need Help with Loan Relief and Your Options?
If you are in a situation where you need assistance with unsecured business loans or merchant cash advance relief and do not know what to turn, we are here to help. Even if you are experiencing merchant cash advance legal issues or in danger of a default on a merchant cash advance. Our team can provide you with helpful advice that will ensure you do not suffer issues that are financially devastating to your business. Remember, business loan relief or merchant cash advance services may not be something that all businesses qualify for, but if you are dealing with predatory lending practices and are in a financial jam, then speaking with us is one of the smartest things that you can do. Our merchant cash advance attorneys can evaluate your situation and help you figure out the options that are available.
Your Business Does Not Have to Suffer
​When it comes to your business and predatory lending practices, you have to remain aware and ensure that you take the steps to protect yourself, your business, and your assets. If you need assistance with this, we can answer any questions that you may have. Merchant cash advance relief is here! Ready to learn more? If so, contact us today. We will review your current financial situation and ensure you are taking the right financial steps to ensure the ongoing success of your business. There are options you can use to protect your business and ensure your long-term financial health. Speak to us to learn more about these practices and to find an option that will suit your business wants and needs. With this information, you will be on your way to creating a financially strong business.
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