Merchant cash advance (MCAs) was created after small banks and lenders stopped loaning money to small businesses in 2009. Many small businesses continue to use a merchant cash advance to help their companies--especially during times of uncertainty, such as COVID-19. Our New York merchant cash advance defense attorneys explain the pros and cons of a merchant cash advance to help you determine if it’s the right choice for your business.
What Is a Merchant Cash Advance?
A merchant cash advance is an “advance” on future revenue, so business owners can borrow money for their operations to sustain their business. However, a merchant cash advance isn’t like a typical loan. An MCA is based on the credit card sales in a business owner’s merchant account. In fact, payments are deducted daily until the advance is paid in full--regardless of the business’ sales performance. Although you would assume that the payment plan would reflect on the businesses’ ability to pay, lenders will still claim their payment even if a business is slow.
Merchant Cash Advance Qualifications
To qualify for a merchant cash advance, the lender will require the borrower to provide business merchant processing statements and bank statements to determine how much of an advance payment they will qualify for. The lender might also require a credit check to qualify. If approved, the lender will then provide the terms and conditions for the repayment plan.
What Are the Benefits of a Merchant Cash Advance?
Businesses may find MCAs beneficial for a wide variety of reasons, including the quick approval process. Once an MCA request statement and report is submitted, the lender will approve or deny the advance quickly. If you’re approved, the money will quickly get deposited into your account.
Another benefit is that some lenders don’t require collateral, making MCAs unsecured loans. However, they might require a confession of judgment. This allows them to retain your bank account upon default.
What Are the Disadvantages of Merchant Cash Advance?
Although there are a handful of benefits to get a merchant cash advance, there are also downsides. For example, they have high-interest rates--plus the higher the daily sales, the higher the interest rate. MCAs aren’t federally regulated, so this can lead to serious issues.
When borrowers can’t afford to make minimum payments, they often don’t know where to turn. It can quickly lead businesses down a rabbit hole with merchant cash advance lenders. For many small business owners, a merchant cash advance may be the only option in order to continue to grow his or her business. However, it is important to speak with an experienced New York merchant cash advance attorney who can help explore the options that are right for you and your business.
Cash- Advance Pioneer Accused of Deception
In August 2020, Yellowstone Capital LLC was accused by federal regulators of deceiving small business customers by hitting them with surprising fees and over-collecting on debts. Yellowstone is a pioneer in merchant cash advisory services. The Federal Trade Commission filed a lawsuit against Yellowstone in federal court Manhattan, claiming that they have been engaging in deceptive and unfair business practices. Since merchant cash advances aren’t federally regulated, it is important to seek legal counsel before applying for one.
Seek Legal Guidance
Before determining if a merchant cash advance is right for your business, you should seek legal guidance from our team at Jacovetti Law, P.C.. If you already have MCA and you’re struggling to make payments, we can help make arrangements with creditors and lenders to ensure that you make the necessary payments while also keeping your business running. Let our team guide you through the process from beginning to end.
Call our New York merchant cash advance defense attorneys today at (516) 217-4488!