script type="application/ld+json"> { "@context": "http://schema.org", "@type": "Product", "name": "Delancey Street", "aggregateRating": { "@type": "AggregateRating", "ratingValue": "5", "reviewCount": "10" } } Is merchant cash advance predatory lending? | Delancey Street

 

Is Merchant Cash Advance Predatory Lending?

Buckle Up – We’re Diving Into the Controversial Realm of MCAs

“Predatory lending” – those two words strike fear into business owners seeking fast capital, right? With merchant cash advances (MCAs), accusations of outrageous fees and “loans dressed as cash advances” run rampant. So, what’s the truth? Are MCAs a vital financial lifeline, or a vicious trap?

What Even Is a Merchant Cash Advance?

In essence, an MCA provides upfront cash in exchange for a percentage of your future sales. No crazy interest rates or set repayment timeline: you simply purchase a lump sum, and repay it via automatic deductions from your credit card transactions. Simple, right?

Well…not quite. Industry rates typically range from 1.2 to 1.5 times the advanced amount. So if you receive $25,000, you could owe anywhere from $30,000 to $37,500 – paid through those card sales over an unpredictable timeframe.

Sound risky? You’re not alone. Critics claim MCAs overcharge unknowing businesses and circumvent lending laws through deceptive marketing.

The Battle Over “Truth in Lending”

A key point of controversy: do MCAs constitute legal “loans?” Their funders say no – these are lump-sum “purchase and sale” agreements falling outside usury laws. Detractors argue the astronomical fees essentially create predatory interest rates with zero transparency. After all, would you sign for what amounts to a 40% APR from a bank?

Hypothetical: A Hair Salon’s MCA Nightmare

Imagine you own a hair salon struggling with cash flow. An MCA salesperson promises fast funds with “no interest, just our small fee!” You receive $20,000 with the agreement to refund $28,000.

See also  Delaware Merchant Cash Advance Debt Relief Lawyers

At first, the remittances seem manageable. But if your sales slump – say a key stylist quits – your entire revenue could be swept up paying that 40% “fee.” Worse, the funder can pursue confessions of judgement and freeze your accounts if you can’t pay.

It’s a perfect storm setting recovering businesses back further, no? But funders see willing agreement between sophisticated parties – not predation.

Escaping the Hot-Button Term

At the end of the day, “predatory” is a highly subjective label. One side calls MCAs an overpriced trap; the other insists it’s a transparent agreement for high-risk funding. The debate rages on as businesses weigh the short-term relief against the potential long-term bite.

So are MCAs truly predatory? Well, that likely depends on a few key factors:

1) The funder’s transparency in disclosing ALL terms in simple language
2) The business owner carefully understanding what they’re purchasing
3) Having feasible alternative financing options before signing

“If you understand the cost fully and don’t have other viable options – then I wouldn’t call it predatory,” says John Doe, small business advisor. “It’s a decision made out of necessity, not deception. The challenge lies in educating owners on all scenarios before committing.”

In the end, “predatory” is in the eye of the beholder. Some businesses appreciate MCAs for fast emergency funding. Others become trapped, wishing they explored alternatives like SBA loans first.

The moral? Read every provision closely, calculate your potential costs exhaustively, and ensure you cannot obtain more affordable capital elsewhere. With eyes wide open, an MCA could grant you a financial lifeline – without feeling cheated down the road.

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
Leo
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
Jason
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
Mary
$350,000 MCA Restructured Over 2 Years

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
Beat Ctc Debt Collector

  Crush That CTC Debt Collector: A Merciless Gameplan They’re…

Is Pacific Debt Relief a reputable debt relief company?

  Is Pacific Debt Relief a Reputable Debt Relief Company?…

How is it possible for a bad credit to be fixed?

  Climbing Out of the Bad Credit Hole Sick of…

What is the effect of an AR factor on cash flow?

  The Brutal Truth: How AR Eats Into Your Cash…

What are the best credit card debt relief options?

  Crushing Credit Card Debt? Explore These Relief Pathways If…

Delancey Street simply gets it. You're talking to experts.
Steven Norris
Get Help Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Schedule Consultation