The Ugly Truth About Merchant Cash Advances

When entrepreneurs need cash fast, Merchant Cash Advances (MCAs) might seem like a good solution. But they’re often too good to be true. Read about how MCAs can drag your small business into dangerous debt cycles.

What is a Merchant Cash Advance?

Since the recession, small businesses have had trouble getting loans from traditional banks. Businesses need working capital to survive, and smaller businesses can really struggle if they can’t get financing when they need it.

Like many American households, when entrepreneurs are tight on cash things can get desperate. Alternative lenders know this, and some take advantage of this desperation. This is where Merchant Cash Advances (MCAs) show up: for-profit companies who promise lightning fast approval and super easy qualifications, even with bad credit. These advances are not classified as loans because the MCA company offers a cash amount upright that is repaid through a percentage of future debit/credit card transactions. Think of an MCA as a payday loan for businesses.

Why Merchant Cash Advances Are Deadly For Small Businesses

The problem with MCAs is that they often aren’t transparent about how much this money will cost you. We’ve conducted industry research on these harmful practices, which you can read about here. Not only will you be stuck with high interest rates and hidden fees, leading to painful APR levels, but some MCA businesses may ask you to sign a Confession of Judgement (CoJ).

A CoJ is one way that MCA companies trick you. If a lender requires you to sign a CoJ before they will give you money, that is a giant red flag. Not every lender who asks you to sign will call you with threats and drain your bank accounts overnight, but by signing a CoJ, you are giving them the freedom to seize your financial assets without warning.

Although MCAs may seem like a good solution for an immediate financial need, the cost of hidden fees and tricky wording simply isn’t worth it.

Take a look at this simple video that illustrates how MCAs can lead to dangerous debt cycles.


Opportunity Fund, the nation’s leading nonprofit small business lender, believes small dollar loans help hard-working entrepreneurs make lasting change in their own lives and build stronger communities by growing businesses and creating jobs. Opportunity Fund’s community of donors and investors is creating an inclusive financial system that empowers women, immigrant, and minority small business owners. Our strategy combines microloans for small business owners and New Markets Tax Credit investments in high-impact community infrastructure projects. Since 1994, Opportunity Fund has deployed more than $750 million and helped thousands of entrepreneurs invest in their families’ futures. The organization has committed to lending an additional $1.2 billion to small business owners across the country and investing $174 million in community real estate projects by 2023.

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