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Choosing a Merchant Cash Advance Provider: Four Simple Steps

Merchant cash advance (MCA) providers are changing the rules of commercial lending, offering fast and convenient access to cash. The appeal of instant unsecured cash has fueled wildfire growth in the industry, giving rise to both responsible lenders and, unfortunately, unscrupulous ones. To make sure their funding partner is among the white-hat players in the industry, businesses should follow these guidelines for selecting a MCA company.

Selecting a Responsible Business Funding Partner

According to a recent Business Week feature, the MCA industry is growing by double digits and poised to break $10 billion in funding. This rapid growth is turning the commercial funding market into the Wild West, with everyone from responsible financing partners to exploitative opportunists vying for a share of the market.

To find a legitimate merchant funding company, companies can follow these guidelines:

  • Broker or Principal? Deal directly with the merchant cash advance provider. Many MCA companies approach businesses through a broker. Merchants can verify that they are dealing with an actual advance provider by asking to see a copy of the contract before they proceed with an application.
  • Reputation. Businesses have a few options for determining an MCA providers reputability:
    • Industry association membership. The merchant cash advance industry took a step toward self-regulation by establishing a trade association in 2008. Look for membership in the North American Merchant Advance Association.
    • Experience. Merchants can weed out fly-by-night operations by finding out how long the provider has been in business.
    • Specialty. Some merchants may be able to find a funding partner with experience dealing with businesses similar to theirs in size, revenue, amount advanced, or industry.
    • References. Checking references to determine whether a provider has a track record of responsible partnership with past clients is always a good idea.
  • The Fine Print. An obvious point in any business partnership--but even more important when signing on with a merchant cash advance provider--is reading the fine print. Since MCA providers are technically not lenders, merchants have little recourse to government regulatory support should the relationship go awry. Without protection from the Truth in Lending Act, Electronic Funds Transfer Act, and Fair Debt Collection Act, merchants have to rely fully on the contract for legal protection.
  • Accessibility. Communication is critical in any business partnership. Merchants can vet a MCA company by examining the availability of company representatives. A good MCA partner communicates frequently through the application and repayment processes.

A Solid Report Card

According to the cash advance industrys established companies, reputable funding providers vastly outnumber the few bad apples. "Most merchant cash advance transactions proceed smoothly," says David Goldin, president and CEO of a MCA provider. "The complaints probably make up less than one percent of the overall transactions done by the merchant cash advance providers, which is an excellent record for any industry."

At their best, merchant cash advance providers offer small businesses immediate access to critical funds, enabling merchants to jump on business opportunities as they arise. In return, merchants pay a percentage of their credit card receipts until the advance is repaid. By carefully vetting the funding partner, merchants can make sure their experience hews closely to this mutually beneficial standard.


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