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Merchant Loan Providers and Self Regulation

Merchant loan providers offer an alternative to bank loans that are a fast and easy way for businesses to get working capital when they are faced with limited options.

The business of merchant cash advances started about 11 years ago with the first provider advancing less than $10 million their first year. The business has since grown to a $1 billion a year industry and is still growing.

As the industry has grown over the years, it has attracted a few unsavory players. It doesn't help that the industry has also been categorized with payday loans that have seen their fair share of bad publicity. The truth is that a vast majority of merchant loan providers are reputable businesses that want nothing more than for their business to grow.

One of the complaints surrounding the industry is that some direct lender loans only try to advance more money than the businesses capacity to pay back. While this may be true in some cases; my experience has shown me that the vast majority of providers work closely with businesses to determine a balance of maximum working capital to what the business can realistically afford to pay back. You need to ask yourself; who loses if the business is unable to pay back the cash advance?

I have also read about a provider taking money directly from a business's checking account to pay back the advance. From what I understand, they were acting in accordance to their contract, but they were universally condemned in the industry and have since stopped performing those types of business practices.

Banks and lenders are strictly regulated by and federal and state agencies. Merchant loan providers are not regulated because legally they are buying receivables, and not offering loans. It is that technicality which allows them to escape state usury laws.

This industry will not survive if some of these bad practices were to flourish. Merchant loan providers depend on each other, and the industry is still too small for these bad practices to go unnoticed. Trust is their greatest asset, and there is already enough distrust in the banking industry as it is.

I think perhaps the biggest problems with business cash advances are that they are considerably more expensive than traditional bank loans. That is offset by the fact that these are unsecured loans that carry many risks with very little recourse for the provider.

Why consider a merchant loan?

To be clear, many businesses have benefited from receiving cash advances. Many of them would no longer be in business without them. There are many advantages to cash advances, especially since many businesses would not be able to get working capital without them.

As with any business transaction it is always good practice to read the fine print and ask lot of questions. It is also a good idea to know who you're doing business with; the Better Business Bureau is a really good place to start. You might try typing their business name in Google. You may be surprised what shows up.

There are many reputable providers out there with your best interest in mind. Please use the following link to see if a merchant loan is right for your business.

Chris R. writes articles about merchant loans and business cash advances for []

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