Risk Management Blog

As the Factoring world prepares to convene in Scottsdale April 13-16 for the annual International Factoring Association (IFA) conference, one of the topics of discussion will be the rise of Merchant Cash Advancers and their impact on the Factoring community.

One of the speaker sessions will focus on this, as described below:
Merchant Cash Advance Companies (MCA’s) are relatively new to the business funding arena. Their method of operation is different and often times clashes with a Factors Operations. We will discuss some of the issues related to MCA lenders, try to determine their longevity and discuss methods in which Factors and MCA lenders can work together.

So what is Merchant Cash Advance? Here is an article which address that from Bloomberg. Basically, it’s a way for businesses to receive lump sum payments today for a percentage of future sales, typically credit and debit card receipts. But, as the article stipulates below, MCAs are adamant that these are not loans:

Merchant cash advance companies take pains to point out that advances are not loans; instead, the deal is a “purchase and sale of future income.” That means that merchant cash advances are not bound by laws that regulate lenders and limit interest rates.

While their increasing popularity continues, there are some cautions from segments of the lending community to consider as well. Check out this article from 2014 entitled Merchant Cash Advancers Pose Legal Risks, including the below excerpt:

A majority of the litigation concerning cash advances has come out of California. The most prominent is Richard B. Clark, et al. v. AdvanceMe, Inc. under which AdvanceMe agreed to a settlement payment of $23.4 million and forfeited the right to pursue further payments from the plaintiff merchants. The litigation in California should make MCA businesses especially cautious when conducting business in California.

Do you have insights to share on Merchant Cash Advance? Do you or your company provide Merchant Cash Advances? Do you receive them and how does it impact your business? Please Share your thoughts below.