Merchant Cash Advance Regulations: Everything You Need To Know

By: Simon Reed, Guest Writer*

Small businesses regularly find themselves strapped for cash and in need of a financial injection to build and grow their operations, particularly in these ultra-competitive times.

And while traditional financing options definitely exist to help small business owners that have sterling silver credit, all kinds of assets, and at least a few years of success under their belt already new business owners, new entrepreneurs, and those pioneering new industries are going to find banks and credit unions at least a little bit reticent about handing over any decent chunk of change.

That’s where merchant cash advance financing packages come into play.

One of the more interesting types of unsecured business loans that you can choose to take advantage of these days, merchant cash advance financing options come from nontraditional lenders that leverage accounts receivable factoring to get cash in your hands ASAP.

To better understand merchant cash advances as well as any of the rules, regulations, and laws that currently govern these financial offerings, we’ve put together this quick guide of everything you need to know before you sign on the dotted line and jump right in.

Let’s get right to it!

How do merchant cash advances (MCA) actually work?

While different companies go about structuring their MCA offers differently than others, the financial packages pretty simple and straightforward across the board.

At the end of the day, you basically sell your future electronic transactions (not existing invoices like you would with accounts receivable factoring) to a nontraditional lender in exchange for cash and capital, and then you repay back a fixed percentage of your future transactions until the debt has been completely repaid.

The big advantage with MCA packages is that you’re going to get a sky high approval right, simply because there is no credit or collateral required to take advantage of these financing options.

On top of that, the process of applying for and receiving capital with MCA loans is about as easy as can be – and you can usually get your cash in hand inside of 72 hours (frequently faster than 24 hours) after your application has been submitted.

You’ll find there’s no restrictions on how you’re able to use the money you’ve received, the payments you make are pretty flexible, and you always have your debt repayment portion automatically deducted on every future transaction. You’ll never have to worry about late charges again.

On the flip side of things, not all is sunshine and roses when it comes to MCA offers.

Merchant Cash Advances are little bit like the Wild West

Because MCA financing options aren’t technically a loan – you’re simply selling future transaction revenue rather than borrowing money from a lender – these MCA offers aren’t subject to traditional usury laws or federal regulations.

The entire MCA industry is free from federal regulation because these financing options are structured differently, set up as commercial transactions as opposed to traditional loans. This allows these MCA providers quite a bit of leeway to operating some less than perfectly ethical or “straight and narrow” ways to skirt regulations and laws that traditional lenders can’t get past.

Of course, there is some industrywide regulation that happens apart from government regulation to keep legitimate MCA offers above board. Legitimate operations are going to be regulated by the Uniform Commercial Code as established by each individual state in the US rather than the federal banking laws like the Truth in Lending Act.

This gives business owners a bit of protection from predatory practices, less than ethical operations, and flat out conmen looking to separate business owners from their hard-earned money with scams.

At the end of the day, MCA opportunities that are proven to be 100% legitimate give small business owners a chance to take advantage of funding options they might not have been able to receive otherwise. They offer quick cash, reliable capital, and the chance to build the business of your dreams though they do have a couple of caveats that are worth looking into before you sign on the dotted line.

All things considered, you’ll have to weigh all of your options as a smart and strategic business owner to find the right financing solutions that work to build the financial future of your company.

Simon Reed is Director of Marketing at Excel Capital Management. Excel Capital Management is the trusted industry leader in the Fintech and alternative lending space. They have assisted thousands of business owners to receive funding over the last 6 years and is focused on helping one small business at a time achieve access to capital.

* The views expressed in this article are exclusively those of Simon Reed.