Merchant cash advance (MCA), also called business cash advance provides you with a speedy and straightforward way to obtain finance for small and medium-sized companies in lieu of a part of your credit card sales proceeds. Since MCA is considered a sale of future revenue rather than a loan, it is not bound by financial regulations and is outside the purview of not regulated by federal laws governing lending industry. While the MCA industry has touched the $10 billion mark, many dishonest providers are ripping off businesses to make a quick profits. To ensure the integrity of the industry and guard you against financial misconduct, key MCA companies have come together to form the North American Merchant Advance Association (NAMAA). It is an effort to standardize industry practices so that merchant cash advance continues to flourish without getting tarnished.

NAMAA has published the following suggestions to help you distinguish white hat suppliers from swindlers, and to obtain optimum advantage from MCA financing:

Inappropriate Terminology

Guard yourself against inappropriate or complex terminology in the MCA contract. As per the instructions of NAMAA, beware of MCA providers who use the term “loan” in reference to your financial transaction or write a contract that needs pledging of collateral. Be certain that you understand every part of your contract and what it entails. This becomes even more significant if you are dealing with a provider selling a plethora of financial services along with MCA.

Risk Management Processes

MCA providers use underwriting process to evaluate the risk involved in lending to your business. To determine this, genuine lenders will expect you to furnish two details – time in business and your average monthly credit card receipts. You need not submit your financial statements, tax returns or any asset documents to be approved for the funds. Even though this financing option is speedy and you get the funding in a very short time, be suspicious of suppliers who are keen to approve finance without verifying needed facts to assess your business’ performance.

Collection Tactics

The merchant cash advance fraternity has created a set of guidelines to define appropriate behavior and collection tactics. To make your MCA transaction useful and lucrative, a set of appropriate collection rates have also been defined. Be aware of the current market rates before signing on the dotted line.

Fixed Retrieval Rates

In a merchant cash advance contract, the periodic payback sum is computed as a fixed percentage of the monthly credit card sales. During slow sale periods, you pay back smaller amounts and when times are good you pay back larger amounts based on the agreed upon retrieval rate. MCA suppliers are prohibited from making any terms for increase in rate in your agreement or retaining the right to make variations in the retrieval rate randomly. This is to guard consumers against being ripped off. Make certain your retrieval rate is clearly stated in your agreement and that it cannot be modified without your written approval.

Examine the terms and conditions of multiple MCA providers before picking one. Get a sample copy of the agreement and examine it in detail. To get the most out of your merchant cash advance, understand industry best practices and standards before begin hunting for an MCA provider.