Merchant cash advance (MCA), also called business cash advance provides you with a fast and simple means of acquiring finance for small and medium-sized businesses in exchange for a fraction of your credit card receipts. Since MCA is considered a purchase of future revenue rather than a loan, it is not bound by financial rules and is outside the purview of financial regulators. While the MCA industry is set to cross the $10 billion mark, a number of corrupt providers have entered the industry to enjoy a share of the profits. To sustain the reputation of the industry and guard you against financial malpractices, major MCA providers have collectively created the North American Merchant Advance Association (NAMAA). It is an effort to standardize industry practices so that merchant cash advance continues to grow without getting tarnished.
NAMAA has released the following suggestions to enable you to segregate honest suppliers from swindlers, and to obtain maximum benefits from MCA funding:
Inappropriate Terminology
Guard yourself against confusing or complex jargon in the MCA agreement. According to NAMAA, be cautious of MCA providers who use the word “loan” in reference to your funding deal or ask you for collateral. Be in no doubt that you understand each term in your agreement and its implications. This becomes even more essential if you are dealing with a provider selling multiple financial services along with MCA.
Risk Management Processes
MCA providers use underwriting process to examine the risk involved in lending to your business. To determine this, legitimate providers will expect you to furnish two pieces of information – number of months in business and your average monthly credit card sales. You need not submit your financial statements, tax returns or additional asset documents to be approved for the advance. Even though this financing alternative is speedy and you will receive the MCA within a week, be cautious of providers who are willing to approve the advance without verifying necessary particulars to verify your business’ health.
Collection Tactics
The merchant cash advance fraternity has come up with a set of standards to define acceptable behavior and collection tactics. To make your MCA contract beneficial and profitable, a set of appropriate collection rates have also been outlined. Inquire about these rates before signing on the dotted line.
Fixed Retrieval Rates
In a merchant cash advance transaction, the periodic repayment sum is calculated as a fixed percentage of the monthly credit card sales. During slow months, you pay back the provider with smaller amounts and during better months you pay bigger sums based on the agreed upon retrieval rate. MCA providers are forbidden from including any conditions for increase in rate in your contract or holding the right to change the retrieval rate randomly. This is to safeguard consumers from being ripped off. Double check that your retrieval percentage is clearly stated in your contract and that it cannot be changed without your written consent.
Survey the terms and conditions of several MCA providers before picking one. Ask for a sample copy of the agreement and study it minutely. Maximize on your merchant cash advance, learn about the industry best practices and standards before begin hunting for an MCA provider.
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