Merchant cash advances are a popular option for businesses that need quick capital but don't qualify for traditional loans. But is it legal to take a merchant cash advance? The answer is yes, but there are some important things to consider. A merchant cash advance is not considered a loan, so it does not have to follow state usury laws that limit the amount of interest companies can charge on certain loans or credit cards. This means that merchant cash advance companies don't have strict regulations.
A merchant cash advance is actually a sale of future receivables. This means that the merchant cash advance company gives you an advance to buy your future sales on credit. If you stop making your payments, it could result in a breach of the merchant's cash advance contract, and the MCA lender could sue you. Generally speaking, merchant cash advance companies provide funds to businesses in exchange for a percentage of companies' revenues.
They are easy to obtain, but they can be expensive and must be returned soon, allowing you to request a second advance shortly after you receive the first. If regulation of traders' cash advances occurs in the future, disclosure of fees, rate limitations and other measures to prevent predatory lending is likely to be required. When you enter into a merchant cash advance agreement, you will pay a fixed percentage that the merchant cash advance company will take from your credit and debit card sales every day (or sometimes weekly). Because the details of a merchant cash advance offer can be misleading, it's important to consult your financial advisor or accountant before taking one out.
All in all, make sure you understand the terms and conditions of the agreement before signing on the dotted line.
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