In the words of Nancy Reagan, “Just say no.”
Some of you may not even know what an MCA or Merchant Cash Advance is, but those who do probably know so from the receiving end of the debt pile. When I first began in this industry, it became very clear to me that not all lending options or lenders are alike. And those are separate and independent of each other because one is a service and one is a person, and both mutually affect the relationship and outcome of the lending experience for a business owner. The one thing that has always been abundantly clear is that MCA loans are only truly beneficial to the company that provides them and not the one who receives the loan.
When a business, particularly and in most cases, small businesses, cannot get a traditional line of credit from their bank to assist with operational and growth expenses, they seek alternative lending sources. Due to a lack of understanding of the process, a lack of transparency from the lender and the seemingly instant solution to a growing issue for the business, most MCA loans become problematic for the business very quickly.
MCAs were originally structured as a lump sum payment to a business in exchange for an “agreed upon” percentage of future debit/credit card sales. These lump sums are not regulated or monitored like a loan with a bank because they are not governed by the laws that pertain to other types of business loans. You effectively enter into a contract agreement with the MCA, and failure to pay is a breach of said contract. This contract will very likely include a personal guarantee that may even go so far as to allow the MCA to go after and potentially freeze your bank accounts in the event of breach.
Earlier when we shared on how the loan is structured, we glossed over the payment terms. This is the scariest part. The loan is based on your future credit card sales and the payment in return for this loan is often daily. The sad truth of it is that the businesses that enter into a contract with an MCA have a great need for the cash quickly, and this type of loan can be turned over to satisfy that rapid requirement within days. But the biggest downside is you are entering into a loan agreement that will more than likely make your cash flow and debt issue worse, and very quickly. Why? The rate terms for an MCA are usually triple digits. You could pay 100-300% interest on these types of loans.
In all of this there is a silver lining: you are not alone. So many businesses feel no other choice is available to them and they use this access because they feel it is the only option. But it is not the end of the road. There are many alternative lending options that can not only assist with getting you out of your MCA agreement terms, but they can also give you a more affordable access that can assist with bringing you out of the harsh interest rates and into a flexible and affordable lending option that will support growth.
All of this information is not to scare you as much as it is aimed at arming you with the information you need to say no to this option.
If you are currently engaging an MCA and would like consultation, we would be happy to chat through the lending side of this discussion and recommend legal assistance that can help you through understanding what your rights are as well. This is what we in the industry refer to as “predatory lending,” and we are passionate about helping small businesses make the best decisions they can to assist with growth and prosperity in the work they love.
Knowledge is power in this circumstance, and we are always happy to share our expertise so that you know more and are able to choose the best remedy for your needs!