A merchant cash advance is not a traditional small-business loan issued by a bank or other lender, which the business pays back in monthly installments plus interest. A business loan is typically secured by a major asset your business owns, such as its building.
Instead, an MCA is an advance on your business’s future earnings, usually secured by your company’s merchant credit card account. These advances require you to pay regardless of whether business is good or bad, and companies that issue MCA often charge much higher interest rates than standard lenders do. If you fall behind, the advancing company could place a lien on your profits or force you into a costly settlement.
So, why do so many business owners in Brooklyn turn to MCAs? Many times, it isn’t so much that a merchant cash advance is such a great way for a new business to get off the ground or an established one to expand. It’s that some owners have no better options.
Traditional lenders have pulled back
After the 2008 financial crisis, tougher regulations starting in 2009 made obtaining credit more difficult for many small and first-time business owners. And now, inflation and high interest rates have made it even more challenging to get a small-business loan, at least one at an affordable interest rate. Many businesses feel their only option for infusing cash is to sign up for an MCA instead.
Where do you stand with your MCA?
MCAs are not illegal, but the companies that offer them can become predatory. If your business is struggling to repay a merchant cash advance or the lender is threatening legal action, you need to know your rights and options for a reasonable outcome.