Merchant Advance Funding Lenders – What To Watch Out For | Behalf

By January 6, 2017Merchant Cash Advance
merchant advance funding lenders - what to watch out for

The Wild West of Merchant Advance Funding

Though it has grown in popularity since the financial crisis, merchant advance funding has earned a bad reputation over the years. Why? Predatory lenders have abused the lack of regulation on the merchant advance funding industry. Many legislators continue to push for an increase in regulation, but they struggle to keep up with the industry’s fast development – particularly online. As a result, the internet has become a breeding ground for predatory lending.

Naturally, you may wonder why they haven’t banned internet-based merchant advance funding, when so many small businesses are taken advantage of. Merchant advance funding is an inevitable development in financial history because banks and traditional lenders have failed much of the small business population in the US. With their high rejection rates and slow loan application processes, banks have overlooked and underserved small business owners.

Merchant advance funding filled a void in the market, emerging as a source of funding for small businesses who were abandoned by the traditional banking industry. Legitimate merchant advance lenders recognize the potential for small businesses to help grow the US economy and empower those businesses by freeing up capital for them. With predatory lenders lurking online, the internet has become a wild west for merchant advance funding. If you are considering merchant advance funding for your business, avoid getting trapped by the wrong lender. This article identifies 3 signs of predatory lending practices to watch out for.

1) Lack of Transparency

Once you get past the smoke and mirrors, good merchant advance funding is not hard to find. That being said, you need to know what to avoid. Predatory lenders rarely give straight answers on their website. They may offer fast and easy merchant advance funding for your business, but brush over just how they intend to provide it. Lenders that do not go into detail about their fees and rates typically have something to hide. Do not sign up for merchant advance funding you do not fully understand. Ask questions and look out for hidden fees.

2) Desperate Demographic

Look out for merchant advance lenders that market to desperate businesses that are strapped for cash. They tend to offer merchant advance funding that traps financially weak businesses. How? Their APRs can reach three to four digits and their fees are crippling. Once an unhealthy business latches onto a predatory lender, they are typically unable to pay back the funding on time, causing them to take out more money to pay it back until they enter a vicious debt cycle. Merchant advance funding works best with healthy businesses that may experience the occasional cash flow gap, but still have a positive cash flow. It helps them cushion their capital reserve, in case of an emergency or slow business season.

3) Savior Pitch

One of the most effective marketing techniques used by predatory lenders is their savior pitch. They convince their “desperate demographic” that they are their only hope. They tell business owners that no one else would even consider giving them merchant advance funding. They pressure you to commit to them before you get the chance to shop around and weigh your options. The truth is you have more options than you think. Merchant advance funding has come a long way, so it is important that you take your time and look for the best option for your business. Don’t listen to those who say otherwise.

If merchant advance funding is new territory for you, the worst thing you could do is end up in a predatory lender’s trap. Merchant advance funding can be an amazing resource for businesses to free up their cash flow and cushion their capital reserve. It is faster, easier and more flexible than a traditional bank loan. The key is to find a lender that is open and honest about their lending practices.

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