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Beware of deceptive merchant cash advance practices

On Behalf of | Mar 5, 2024 | Merchant Cash Advances

Traditional bank loans are not always a practical option when you are short on funds and in a crunch. Their extensive requirements, lengthy processing time, and strict terms may not meet your immediate needs. Meanwhile, Merchant Cash Advance (MCA) providers promise quick access to cash, speedy approvals and flexible repayment.

But beware: Not all MCA providers play by the rules. Although MCA agreements come with inherent risks, some providers resort to deceptive tactics to lure business owners, potentially trapping them in an endless cycle of debt.

The pitfalls of deceptive MCA practices

For a business owner in need, MCA providers can come across as a financial lifeline, offering hassle-free funding and easy repayment plans. Merchant cash advances grant you access to cash in exchange for a portion of your future sales. Typically, providers will deposit the advance into your account and then systematically withdraw from it until your debt is repaid.

However, a report from the Federal Trade Commission has shed light on some of the aggressive, deceptive and abusive MCA practices that a few providers are engaging in. Some reassured business owners that personal guarantees are unnecessary, only to require them later. Others lured debtors with the promise of generous funding, only to deliver much less. Worse still, some providers made unauthorized withdrawals.

Such tactics may escalate the financial troubles your business is already facing.

Spotting MCA red flags

To protect your business, consider these guidelines:

  • Watch out for predatory lending schemes. Some lenders may take advantage of your situation by offering generous loans they know will be difficult for you to repay and promising quick approval to further persuade you into making a rushed decision.
  • Do your homework on the MCA company. Unethical companies may hide their identities on their website to dodge accountability. It may be safer to work with providers who are not afraid to be transparent. Additionally, you can use online search engines to see if the company has a history of lawsuits, liens or judgments. A quick search may reveal feedback from actual borrowers and their real experiences.
  • Carefully review the repayment terms. MCAs must disclose their repayment structure. However, some may use confusing language to make repayment seem more manageable but may actually cost more over time.

Pressure to keep your business afloat may push you to make hasty decisions. However, some offers are just too good to be true. If you find yourself entangled in a complex MCA situation, consider consulting an attorney. With sound legal advice, you may make informed decisions that does not put your business at risk.