Merchant Cash Advance

Feds Crack Down on Lenders Targeting Small Businesses 

As small businesses have continued to struggle amidst the uncertainty and unknowns, the need for capital has rapidly increased. Lenders have done their best to step in and provide the financing solutions business owners need to keep their doors open. Unfortunately, this has also led to an increase in the number of lenders taking advantage of the situation.

The problem has quickly grown, causing both federal and state regulators to jump in and a crackdown on lenders targeting small businesses with high-cost loans and abusive collection tactics.  On July 28, 2020, the FBI raided Par Funding, located in Philadelphia. Both RCG Advances and Yellowstone Capital of New York were sued by the Federal Trade Commission (FTC) for allegedly misrepresenting the terms of their finances.

RCG was also sued by the New York attorney general for even threatening physical violence in some cases in an effort to compel repayment. More than a dozen merchants across six other states reported that, even when their revenues had vanished amid shutdowns, lenders kept extracting money – sometimes going as far as freezing their assets.

Jay Hoehn, a founder of a personal training studio in La Jolla, California and one of the many businesses affected, described the situation to NBC News, saying, “It almost seems like it’s a gangster operation.”

The lenders in question are known as merchant cash advance companies. A merchant cash advance provides alternative financing to a traditional small business loan. The provider deducts a percentage of the business’s future credit or debit card sales until the agreed-upon amount has been repaid in full. The biggest advantage of this option is the speed and flexibility of funding. Depending on the lender, a business can have cash in hand in as little as 24 hours.

The biggest takeaway from this situation appears to be really doing your homework. Make sure you know everything you can about a lender, do your research. Before partnering with any company, find out their reputation, their intentions, every little fee and make sure they have your business’s short-term needs and long-term financial health in mind.

Thankfully, not all lenders are created equal. There are many, many reputable alternative lenders out there today that make it their mission to provide fast, flexible funding that works with your business, not against it. A few ways you can make sure you know everything you need to know before committing: read reviews and testimonials on each company you’re considering, compare rates, call and ask questions and check the contract. Make sure you know every little detail before you sign.

Michael Hollis is a Detroit native who has helped hundreds of business owners with their merchant cash advance solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.