How is Merchant Cash Advance regulated?

By David Harrison
Content writer
Last update: 1 July 20201 minute read
How is Merchant Cash Advance regulated?

Table of Contents

Access to external funds on demand is an essential aspect of running a successful business. There are a great number of business finance products on offer by the Alternative Finance Industry, including Business Loans, Invoice Finance and Asset Refinance, all designed to aid your business. But of all the products on offer to developing SME business, one of the most flexible and unique finance solutions on the market is Merchant Cash Advance. Yet, as flexible and unique as the product may be, there is one question that borrowers always ask: How is Merchant Cash Advance regulated?

How is Merchant Cash Advance regulated?

Merchant Cash Advance is often considered as a fast and effective way of acquiring external funding when your business needs it most. It can be used in a variety of ways to support your business, including business projects, seasonal trade fluctuations, cash injections, asset purchases and so on. Plus, thanks to the product’s simple application process, which only takes into account your monthly card-based sales reports, applicants usually acquire the relevant funds in as little as 48 hours. Yet, despite the many benefits offered by a well-placed Merchant Cash Advance solution, the question of regulation is one that many borrowers always wish to have answered, and rightly so. As it stands, Merchant Cash Advance currently isn’t subject to usury regulation, unlike other forms of business finance.

What does the lack of regulation mean for borrowers?

Unlike other forms of finance, such as your traditional business loan, Merchant Cash Advance is not subject to usury regulation. Although this may sound negative, there are pros and cons when it comes to this particular product and the choices borrowers have available.

On one hand, applying for a Merchant Cash Advance is usually a quick and simple process, with lenders only taking into account your monthly card-based sales. Consequently, this product also has one of the highest acceptance rates on the market. So, if you need money fast for your business, Merchant Cash Advance can certainly help.

However, the lack of regulation can lead to a predatory business model being adopted with some lenders deliberately seeking out SMEs that are desperate for cash. As such, some SME businesses may appear as fair game to unscrupulous lenders. Ultimately, the issue lies in the way Merchant Cash Advance is sold. Some business owners may not be familiar with certain financial terms, causing confusion. For example, a potential borrower who hears 10% holdback may go on to think about APR, not realising that the deal comes packaged with a high factor rate. As such, if you’re considering applying for Merchant Cash Advance, be sure to familiarise yourself with certain financial terms or ensure that their representatives thoroughly explain all aspects of the deal.

Do you accept card payments and need to release cash? Find out what Merchant Cash Advance could do for you today

Another potential issue in regards to the cost of Merchant Cash Advance is that this form of finance is generally very expensive, featuring high interest rates, but it’s a very malleable finance product that fits around your business. However, some lenders may not always be upfront about the way they charge. Representatives may neglect to mention, or not know about, transaction fees. Their job is not just to sell finance but to help you make an informed decision, so if you’re unsatisfied with the answers you’re getting don’t be afraid to walk away.

Also, you must be certain about what you’re signing up to. Be sure to have your business accountant thoroughly go through the agreement, explaining to you how the lenders charge. However, it is also possible for lenders to alter the agreement after you’ve signed, possibly by readjusting their interest rates and transaction fees. As such, before entering into any agreement, seek guarantees from the lenders and encourage them to state your terms very clearly in the agreement. If you’re unhappy with what you’re being sold, walk away and find a more reputable lender.

Despite this, there are plenty of Merchant Cash Advance lenders available who are all more than willing to offer your business a fair deal. The only question you need to ask is ‘where can I find them?’

How do I find the right Merchant Cash Advance solution for my business?

One of the biggest obstacles for business owners is sourcing the most appropriate business finance solution for their business’ unique circumstance. When looking for a Merchant Cash Advance solution that offers the greatest possible benefit, it can as stressful as it is nerve-racking. You want to be fully aware of what you’re signing up to and know that the terms and conditions won’t change later in the agreement. So how can you tell which product on offer is the right match for your business?’

With the services and expertise of the business finance experts at Rangewell, we can help you source the most appropriate and affordable solution for your business, accompanied by highly competitive rates to match. Whether it’s for new growth products, support during a slow sales period or an unexpected emergency, Rangewell is offering you a helping hand and leading the way forward.

Our values are simple – We’re on your side

At Rangewell, our services are clear and transparent. We support a wide range of SME businesses of every shape and size, for finding every type of finance. Follow us on Twitter and LinkedIn for business tips and tricks, and feel free to call us on 0203 637 2340 if you’d like to chat about what we can do for you.

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