To say it’s been a challenging year for business owners is a serious understatement. From temporary shutdowns and social distancing to government restrictions and changing customer demands, small business owners have been struggling to keep their doors open and embrace what is being called the “new normal”. One of the biggest obstacles has been maintaining cash flow.
Positive cash flow ensures operations continue, employees can be paid and the lights stay on. It is also needed to explore new ways of satisfying customer’s needs, experiment with new products and services and add new payment processing options that are “pandemic-friendly”. Of course, maintaining and increasing cash flow is no easy task during a crisis. Most business owners have had to scramble to find funding sources.
Unfortunately, not all lenders are created equal, nor do they have the best intentions. Predatory lenders have become an even bigger problem in recent months. While there are laws to protect consumers from usurious interest rates, those protection laws do not apply to small businesses. As a result, many business owners have fallen victim to predatory “merchant cash advance” lenders.
Consider the sweeping lawsuit against Par Funding by federal regulators of more than $600 million. The lender is described as being “opportunistic”, charging merchants punishingly high interest – 50% on average to borrow capital. But there are many cases of interest being astronomically more.
And what do these accused lenders have to say for themselves? Par and others in the MCA industry insist they are not making loans; they say they are simply advancing money from profits on future sales. This response is an attempt to free themselves from usury laws that place a ceiling on interest. They are also leaning on what is called a “confession of judgement”; this involves the borrower signing loan paperwork that requires them to “confess” upfront they won’t fight collections steps to garnishee their income.
A relatively newer option, merchant cash advance firms became popular around two decades ago. In fact, e-commerce giants like Amazon, PayPal and Shopify were among the first to become billion-dollar lenders of cash to small businesses by tying the loans to future sales. After the 2008 financial crisis, these types of lenders really took off and generated big growth.
How to Find a Reputable, Industry-Leading MCA Provider
Sean Murray, editor of deBanked.com, a trade publication that covers the merchant cash advance firms, says “There are good people in this industry,” Murray said. “And there are many small businesses that can’t get a loan from a bank.”
If you are interested in a merchant cash advance or are already seeking out an MCA lender, here are a few tips that will ensure you find a reputable, industry-leading provider:
- Take a look at their Better Business Bureau rating.
- Find out just how flexible the lender is, especially in the repayment process.
- Compare lenders: their interest rates, additional programs, loan terms, etc.
- Partner with a provider that offers round-the-clock customer service and support.
Author Bio: Michael Hollis is a Detroit native who has helped hundreds of business owners with their merchant loans solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.