Guide to Merchant Cash Advances: Regulations & Brokers

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
How Do Merchant Cash Advances Work?
Merchant Cash Advance Regulation Overview
Non-Interest Rate Regulations
Self Regulation
The right to transparent pricing and terms The right to non-abusive 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) No collateral is needed 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 ending up translating into 20% to 50% of the cash advance amount Fees, which can be significant No early repayment benefits Lack of regulatory oversight Don’t help in building credit Could create debt cycles that can be difficult to escape Automatic payments can complicate cash flow
The Takeaway
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About the Author
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
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