Why would a business take out a merchant cash advance?

The major appeal of a merchant cash advance is that you can get the funding very quickly. Since the decision is based on your credit card sales, the advance company can determine what they are willing to offer fast. With fast funding access and minimal credit requirements, a merchant cash advance is appealing to many business owners. 

Are merchant cash advances legal?

Yes, merchant cash advances are legal. An MCA isn’t a loan. It’s an agreement that sells a percentage of future sales in exchange for an advance. Since it’s not a loan, an MCA company doesn’t have to follow state usury laws. And currently, there is no federal legislation about MCAs. 

What happens if you default on a merchant cash advance?

If you default on your merchant cash advance, the company might have the right to sue your business. Since most business owners are required to sign a personal guarantee, the MCA company might also come after your personal assets. 

Are all merchant cash advances considered predatory?

In some situations, merchant cash advances are predatory. But generally, MCAs are only considered predatory if the company misled the business owner in some way. If everything is advertised correctly and the contract follows any relevant state laws, then an MCA isn’t considered predatory.

You can protect yourself against predatory MCAs by researching the company and taking a close look at the factor rate

Can I sue a merchant cash advance company?

If you believe that a merchant cash advance company misled you, then it’s possible to sue them. However, you should consult with an attorney before moving forward. 

Where do I find a merchant cash advance lawyer?

Lawyers specializing in merchant cash advance issues are popping up across the country. A quick internet search should lead you to a local professional. Read the reviews of an attorney before moving forward. 

About the Author

Sarah Sharkey

Sarah Sharkey

Personal Finance Writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions.

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