are merchant cash advances illegal
In business news, bad credit merchant cash advances have been gaining much attention. Due to this attention, many leaders in business finance had put these products under a microscope. They’ve begun to question whether or not they’re illegal. Of course, companies that provide merchant cash advances have been subjected to a great amount of scrutiny and have had to defend their services to the public. This is also due to the popularity of the services being used by many small business owners. Since business to business sales of financial products is a huge source of income for many finance companies, they’ve been attempting to have these services outlawed. This article will explain merchant cash advances and how they work. It will also examine the issue of their legality.
Merchant cash advances aren’t considered to be financial products that are subjected to banking regulations. They’re actually not even considered to be loan products from a legal standpoint. Merchant cash advances are typically used by small businesses. The merchants are approved for a loan based on their anticipated receivables coming from credit sales. This is determined by the company’s history of credit sales. Other factors like returns are also computed to determine whether or not a lender will qualify. Since the loan amount is based on a history of receivables, the company must be able to provide documentation to support this claim. Once the history is considered to be acceptable by the lender, the funds are approved and disbursed.
Merchant cash advances are popular with small business owners for several reasons. As previously implied, they provide a quick alternative to a traditional loan product. The underwriting process is minimal and the funds are received within a matter of hours or days. Traditional business loans are typically subjected to a great deal of scrutiny by lenders and can take months to be approved. They may even not be approved in many cases. Since small businesses often operate on a modest budget, this is not a practical solution for many owners. Businesses that experience slow times or cash flow issues also often turn to merchant cash advances. For many small business owners, the funds can make the difference of whether or not they can keep their doors open.
The concern that’s been raised regarding the legality of merchant cash advances lies within the details. Since banks and even private finance companies are subject to usury laws, they simply can’t compete with the merchant cash advance companies. In such a competitive landscape, this means that valuable business could be lost. Adding another competitor into the ring would certainly be a cause of concern. This also means that these companies would want to subject any of their competitors to the same legal regulations. Unfortunately, for these companies, the fact remains that merchant cash advances are still very much legal. As a result of being unable to prevent these companies from conducting business, they’ve attempted to accuse the merchant cash advance companies of predatory lending practices.
While many small business owners do benefit tremendously from these services, they do come with a cost. The convenience factor and being able to get fast cash has seemed to outweigh the negatives for many small business owners. Also, since the concept of merchant cash advances has been introduced, the competition has become fierce. Since many businesses are able to provide the service without having to deal with banking regulations, they’ve started offering the service. Fortunately, this means that small business owners benefit by receiving lower fees and incentives. This has pushed the banks and finance companies to draw as much negative attention as possible to their new competitors.
Whether or not the companies should be considered lenders is up to the legal system. Merchant cash advance companies continue to conduct business and provide a valuable service to small business owners. With low payments and fast funding, many small business owners have been turned on to these services. Should banks and finance companies wish to compete, they may have to find a way to make their products more flexible. It should be interesting to see the developments that occur in the next few years. Hopefully, options for small business owners will remain flexible and continue to expand in the future.