Have You Read The Terms of Your Merchant Cash Advance Agreement?

Posted by Karen Erdelac on Jul 9, 2015

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We recently had a situation involving a merchant who received funding from us at Quikstone Capital Solutions but, had almost simultaneously received funding from another merchant cash advance company. The merchant apparently didn’t realize receiving two merchant cash advances at the same time could create a problem .It did and in a big way. This particular merchant ended up in default with both of us, due to the fact each contract had provisions under which multiple cash advances with different companies created a default. The merchant explained to me the other funding company sold him his merchant cash advance as a “business loan” so he didn’t anticipate a problem. When I questioned the merchant he explained that he hadn’t read either contract.

We worked with this merchant and were successful in getting him out of trouble. The other funding company attempted to freeze his processing which was partially successful, they charged the merchant $500 per day as a default fee while we worked with the merchant to fix the problem.

This situation made me think about whether or not some of our customers, particular those leaving us for “business loans” offered by other funding companies actually read their contract agreements. I’ve had the opportunity to speak with merchants who’ve been offered what appeared t to be a better deal elsewhere, I thought I’d share some of the terrifying terms I’ve seen included in merchant cash advance contracts offered by competing funding companies.

 

What is the real cost of your advance?

Funding contracts that I’ve seen offered to merchants often include an origination fee. These fees can run 2% or higher and are based on the amount advanced. What this means is that if a merchant is offered a deal at a factor of 113% (meaning that they are paying back $1.13 for every dollar advanced and that deal includes a 3% “origination fee the merchant is actually paying a factor of 116% (or $1.16 for every dollar advanced). When you consider that advances often exceed $100,000 this origination fee can be a costly hidden fee. We at Quikstone Capital Solutions do not ever charge an origination fee.

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Are you giving the merchant cash advance company direct access to your business bank account?

This procedure and contract term seems to be becoming more common among the merchant cash advance companies offering “business loans.” Personally in these days of widespread fraud I can’t imagine giving a funding company direct access to my business bank account. What if the funding company hires an individual who turns out to be a scammer or even a criminal? Is that a chance I’d be willing to take? Quikstone Capital Solutions never requests daily online access to a merchant’s bank account.

 

What are the hidden fees in my contract?

I’ve already mentioned the merchant who had a $500 daily default fee provision in his contract. I’ve heard of very high fees being charged for returned items in the case of a daily ACH based merchant cash advance. I’ve heard of processing fees for renewal applications. I’ve heard all sorts of horror stories about hidden fees concealed in these “business loan” contracts. My advice to merchant is always the same. Read your contract closely before you sign any merchant cash advance agreement..

 

It’s good practice carefully to read any contract that you sign thoroughly. It appears that many merchants rely on a sales pitch, as opposed to fully and carefully reading a funding agreement. My advice is to read every word in the agreement you’re signing. Hidden fees seem to be the rule and not the exception when it comes to “business loans” which are really just repackaged merchant cash advances. At Quikstone Capital Solutions we encourage our customers to read their funding contracts and we are more than willing to go over agreements with our customers in detail. We at Quikstone Capital Solutions have always been completely transparent with our customers and we don’t charge any hidden fees. I can’t say that about some of our competition.

Quikstone Capital Solutions provides merchant cash advances for businesses that need working capital, money for improvements, or money to purchase needed equipment. Their application process is easy and convenient for busy business owners.

 

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Topics: Funding Your Business, Growing Your Business