Guide to Merchant Cash Advances: Regulations & Brokers
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How Do Merchant Cash Advances Work?
Merchant Cash Advance Regulation Overview
Federal Trade Commission Act (FTCA) Gramm-Leach-Bliley Act (GLBA) Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
UCC Regulations
Self-Regulation
The right to transparent pricing and terms The right to nonabusive products The right to responsible underwriting The right to fair treatment from brokers The right to inclusive credit access The right to fair collection practices
What Are Merchant Cash Advance Brokers?
Using Merchant Cash Advance Companies
Pros and Cons of Merchant Cash Advances
Pros of MCAs
Speedy process from approval to the receipt of funds Uncomplicated paperwork (perhaps just a basic application and a record of recent credit card/debit card transactions) Payment amounts may drop if the amount of sales transactions dips Lack of credit history isn’t typically an obstacle Freedom to use the funds as desired
Cons of MCAs
High cost, with factor rates typically translating into 20% to 50% of the cash advance amount Fees, which can be significant No early repayment benefits Could create debt cycles that can be difficult to escape Automatic payments can complicate cash flow
The Takeaway
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