Saturday, 25 May, 2024

MCA Loans Pose Hidden Risks for Small Businesses


Reading Time: 2 minutes

Leading factoring company Charter Capital is issuing a warning to small-business owners about the dangers of merchant cash advances. Otherwise known as MCA loans, states and the FTC have been cracking down on predatory practices within the alternative lending niche that can leave businesses paying annual interest rates of nearly 4,000 percent. However, Charter Capital representatives say the problem persists and urges small business owners to approach MCA loans with caution.

Those interested in exploring the detailed release are encouraged to read “The True Cost of MCA Loans Compared to Alternative Funding Sources,” now available at CharterCapitalUSA.com.

Joel Rosenthal, Charter Capital Co-Founder and Executive Manager, says that the way fees are presented with MCA loans is what makes them so troublesome. “Business owners hear their ‘multiplier’ is 1.5 and they think they’re getting a great interest rate on a loan,” Rosenthal explains. “But an MCA isn’t a loan and a multiplier isn’t an interest rate. A multiplier is the rate by which the amount of principal is multiplied to calculate the payback amount. When it is converted into an annualized interest rate or APR, it’s usually well over 100 percent and often into the thousands.”

Rosenthal says this is only the tip of the iceberg for business owners because MCA lenders typically scrape payments off the top of a business’s credit card income as a percentage of the processed payments. That can make it hard to predict income and expenses. Moreover, because MCAs are structured differently, there’s rarely any benefit to early repayment.

“Oftentimes, business owners don’t realize how their deal is structured until the money is coming out of their income. By then, it’s too late,” Rosenthal laments. “They may not be left with enough income to cover their expenses and can easily get caught up in a debt spiral while tapping into additional working capital solutions to make ends meet.”

Thankfully, small-business owners who don’t qualify for traditional bank loans still have options beyond MCAs, says Rosenthal. For example, some point-of-sale providers offer advances with more flexibility and reduced fees for early payoff. Invoice factoring, or advances on unpaid invoices, is also a suitable alternative to MCAs for those in the B2B sector.

Edited by Maryssa Gordon, Senior Editor, Price of Business Digital Network

0 comments on “MCA Loans Pose Hidden Risks for Small Businesses

Leave a Reply

Your email address will not be published. Required fields are marked *

VIDEO: This Week’s Best of our Network

GDPR Compliance

DBJ does not collect data on its visitors.

USABR: Nationally Syndicated Radio Distribution

Contact

Contact  articles@usabusinessradio.net
for more information on articles on this site. bmuyco@usabusinessradio.net for all other information.

Kevin Price’s “New Rich” Book Ready for Pre-order for 99 cents!

The Price of Business Visits with Robert Kiyosaki on 20 Years of “Rich Dad Poor Dad”

The author of the best selling finance book of all time celebrates its 20th anniversary in a series of interviews with Kevin Price on the Price of Business.

Adventures in Quora with Kevin Price

Kevin Price, Editor at Large of Daily Business Journal and host of the nationally syndicated Price of Business show writes frequently at Quora about issues ranging from politics to personality types. His favorite answers are also found at USA Business Radio.

#METOO REHAB

The Best in News and Thoughtful Commentary

All the News. All the Time

PMWorld 360

Archives

NONE OF THE OPINIONS IN DAILY BUSINESS JOURNAL SHOULD BE CONSTRUED AS BEING THOSE OF DAILY BUSINESS JOURNAL

For more information regarding content, see the About page.

Recent Comments

    RSS
    Follow by Email
    YouTube
    YouTube
    LinkedIn
    LinkedIn
    Share