HOUSTON, May 17, 2021 / PRNewswire / – Leader factoring company Charter Capital is warning small business owners about the dangers of merchant cash advances. Otherwise known as MCA loans, states and the FTC have cracked down on predatory practices in the alternative lending niche that can leave businesses paying nearly 4,000% annual interest rates. 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 version are encouraged to read “The True Cost of MCA Loans Versus Alternative Funding Sources”, now available at CharterCapitalUSA.com.
Joel Rosenthal, Co-Founder and Executive Director of Charter Capital, says the way the 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,” says Rosenthal. “But an MCM is not a loan and a multiplier is not an interest rate. A multiplier is the rate by which the principal amount is multiplied to calculate the repayment amount. When converted to a annualized interest rate, or APR, is typically well above 100 percent and often in the thousands. “
Rosenthal says this is just the tip of the iceberg for business owners, as MCA lenders typically eliminate payments from a business’s credit card income as a percentage of payments processed. This can make it difficult to forecast income and expenses. In addition, since MCAs are structured differently, there is rarely a benefit to early repayment.
“Often business owners don’t realize how their transaction is structured until the money comes from their income. By then it’s too late,” Rosenthal laments. “They may not end up with sufficient income to cover their expenses and can easily find themselves caught in a debt spiral while exploiting additional working capital solutions to make ends meet.”
Fortunately, small business owners who don’t qualify for traditional bank loans still have options beyond MCAs, Rosenthal says. For example, some point-of-sale providers offer advances with more flexibility and lower fees for early repayment. Invoice factoring, or advances on unpaid invoices, is also a good alternative to MCMs for players in the B2B sector.
Those who wish to explore factoring or get a free quote can do so at CharterCapitalUSA.com.
About Charter Capital
Based at Houston, texas, Charter Capital has been a leading provider of flexible financing solutions for the B2B industry for over 20 years. Competitive pricing, a fast approval process, and same-day financing help businesses across a variety of industries get the working capital they need to manage their day-to-day needs and grow. To learn more, visit CharterCapitalUSA.com.
The hidden risks of MCA loans
SOURCE Charter Capital Holdings LP