In times of financial turmoil, businesses will look for alternative forms of funding. Some may opt for Merchant Cash Advance loans. A merchant cash advance (MCA) is a type of funding where a business borrows money and repays it with a percentage of its daily credit card sales. Such arrangements are touted be lenders as "risk-free," but are they? Speaking from a legal perspective, they may be, but you need to be careful with them.
They Can be Predatory
It is important to understand that when a small business is facing financial difficulties and looking for a loan, they may be vulnerable. Merchant cash advance companies often target small businesses that have poor credit or are struggling financially. They may promise easy and quick access to funding, but in reality, the terms of the loan can be very unethical. How do you determine a predatory MCA?
1. Abnormal Interest Rates
One way to know if a merchant cash advance is predatory is by looking at the interest rate. MCAs typically have much higher interest rates than traditional loans; in some cases, the rates can be criminally high. But you may not know about the extent of the interest rates until you read the fine print of the terms and conditions of the lender.
2. Non-disclosure of essential terms of the agreement
A business may be experiencing extreme financial difficulties making them desperate for working capital. Some lenders often use aggressive and misleading marketing tactics to lure small businesses into taking out these loans. They may promise easy access to funding and a quick approval process, but the loan terms can be very predatory.
However desperate you may be, never cave in to pressure from a lender who is not upfront with ALL the terms and conditions of the MCA. Legitimate lenders should be transparent about the loan terms. They should not put unnecessary pressure through misleading incentives to persuade you into taking it out.
The Law Protects Borrowers
The courts have deemed MCAs whose interest rates are criminally usurious as unenforceable. If you are struggling with MCA debt or any other business debt, it is essential to seek legal assistance.
A business attorney with debt settlement experience can help you understand your rights as a small business owner when taking up a merchant cash advance debt. They also help small business owners negotiate with lenders and potentially have the debt discharged in court.
Your Business Needs Diligent Attorneys!
In conclusion, merchant cash advances can be a helpful way for small businesses to get funding. Still, it is crucial to be aware of the potential predatory practices of some lenders. Contact us, and we can help you understand and enforce your legal rights as a borrower.