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.
Merchant cash advances have become popular in recent years. This has drawn a lot of attention not only from customers but also from other financial fields. Media attention has also been drawn to these financial products. This has given rise to questioning if they’re illegal. This has been a major concern for many small business owners who rely on the ability to receive the quick funding these financial services produce. This article will shed light on the legality of merchant cash advances and the many benefits that they provide to small business owners.
Bad credit Merchant cash advances are based on a company’s receivable balance. The history of credit card sales the company produces is used to forecast future sales. Merchant cash advances are a loan on the amount of business the company is anticipated to produce in credit sales. For this reason, they technically aren’t secured by any sort of assets and aren’t considered a loan. This also means that they’re not regulated by state and federal banking regulations. As a result, the merchant cash advance businesses are able to provide quick turnaround times. This is a major benefit to small and medium-sized businesses. A small portion of the loan balance is deducted from the daily credit sales of the company. This means that the merchant cash advance company benefits from reducing their risk exposure while still generating some revenue. The merchants benefit from being able to delay a balloon payment which becomes due at a future specified date. Companies that anticipate sales on the rise see this as a significant benefit.
Since small businesses typically have limited financial options, they’re drawn to the convenience of merchant cash advances. Often times, small business owners do not make any distinction between their business credit and personal credit and finances. While this may benefit them from a tax shelter perspective, it significantly limits their ability to borrow using traditional business methods. Business lenders typically require a significant amount of business credit is established to even be considered for a loan. Also, many banks and finance companies require that sole proprietors provide business or personal assets as collateral. This alone deters many small business owners. Many of them have already had to risk their homes and other items to get the initial financing to open their business. Coupled with a required initial equity investment, many small business owners simply don’t have any other forms of collateral available. The convenience and low-risk factor tend to outweigh the cost for many small business owners.
Options that would be similar products offered by banks would be a business line of credit. Again, a significant business credit history is typically required for these loans. Also, even if the owner of the business never touches the funds, they must still pay all the interest. Many business owners prefer being able to only pay for what they are going to actually need which is yet another draw to merchant cash advances. Also, these lines of credit require a significant amount of time for underwriting. This means that the loan can be denied several months down the line after the business owner has already counted on the money being available. Unfortunately, the reality of business lending is that it’s not a practical solution for many modern small business owners.
Merchant cash advances do come with significant price tags. This is yet another reason they’ve been heavily criticized. Clearly, many business owners consider the benefits worthy of the cost. Many banks provide similar services that would be considered to be predatory in nature as well. Allowing customers and business owners to intentionally overdraft their accounts is a similar concept with a hefty cost. The banks are able to provide the service since they’re only charging fees and not any interest charges. This would be the same concept following the logic that merchant cash advance companies are being condemned for. Legally, since the banks aren’t charging any sort of interest, they’re not providing a loan product. The fact is that many business owners benefit from merchant cash advances every day. While it may not always be the most cost-effective solution, it keeps them afloat when they may need it the most. It will be interesting to see if business lenders follow suit with offering similar products to their customers.