Vetting a Merchant Cash Advance Provider
One thing to understand about the business of providing a merchant cash advance is that this is not as regulated as lending is. When you take out a merchant cash advance, you are technically selling a portion the future income from your business. As such, this is considered a business-to-business transaction, which is exempt from regulation by laws such as the Fair Debt Collection Practices Act, Electronic Funds Transfer Act, and the Truth in Lending Act.
That being said, the merchant cash advance is a niche that is able to provide businesses with capital that otherwise may be difficult or impossible to obtain. But since it is still a fairly unregulated industry, you must take steps on your own to avoid predatory practices. The North American Merchant Advance Association (NAMA) has been formed by a consortium of merchant advance providers as a self-regulatory organization (SRO), like the Financial Industry Regulatory Authority is an SRO. Before doing business with a merchant cash advance provider, check with NAMA to see if they are a member, or if NAMA is aware of any complaints about them. You may also want to check with the U.S. Federal Trade Commission to see if there have been any complaints or cases brought against the provider.
Before you accept the terms of any agreement with a merchant cash advance provider, be sure to read and understand the terms of the contract. If you accept a contract with unfavorable terms, you will have very little recourse. Most often you will fill out an application with a broker that will work to find a provider with the best terms for your business. This application, or even an application directly with a merchant cash advance provider, is no substitute for your contract; get a copy of your merchant cash advance contract before you agree to anything. Armed with this information, you will be best able to determine for yourself the fairness of any deal you enter into.