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How to Avoid Fraud When Applying for a Merchant Cash Advance

Stricter bank policies for obtaining business loans have caused many small and medium-sized enterprises (SMEs) to seek alternative financing options. It is a good thing that financing companies have come up with different strategies to service the business sector. One of these new solutions is the merchant cash advance (MCA) program. Because the merchant cash advance industry has proven its profitability potential, new players have been attracted to invest and participate in this type of lending. However, some are not knowledgeable enough in the trade, and, worse, there are those who try to outwit unsuspecting SMEs.

If you are a small business owner, you might want to look at the following cautionary tips on possible merchant cash advance fraud you might encounter.

Verify the Company’s Reputation

Do a little research to check for the company’s legitimacy. Dubious entities would not want their businesses to be tracked by independent accrediting firms. There are actually accrediting firms which monitor the business practices of various listed companies. These sites show a company’s reliability by employing a rating system often with A+ being the highest and F being the lowest. This is the most common rating scale as found with the Better Business Bureau.

Review the Industry Best Practices

Though it is customary that individual business entities set process standards, these operating procedures should be measured against the overall industry’s best practices. In the business financing sector, there are certain organizations tasked to ensure that clients are guaranteed professionalism in their financial transactions. Significant deviation from these best practices should be a cause for alarm for prospective clients. It is best to look for governing bodies or community forums that deal with the particular financing option you are considering.

Look for Risk Management Policies

To entice business owners, MCA providers have developed systems to make the application, approval, and funding processes very quick. The common application process leads to approval in 24 hours and transferring of funds in 72 hours because established financing companies can afford to ask for fewer and easy to produce documents like bank receipts, credit card and/or bank statements. Every company requires a different set of documents so it would be best to make sure you are comfortable with providing the necessary documentation before you begin the process.

Additionally, it is not the industry standard to charge a fee to process an application so be suspicious of any company that requests upfront fees.

Clarify Contract Details Before Signing

As with any business dealings, more so if it is financial in nature, elements of the contract should be clearly indicated. To avoid misleading terminologies, the financing representative should be able to explain terms in line with its use in the contract. Collection methodologies and retrieval rates should also be stipulated and should meet industry standards.

Business loan applicants must be on the lookout for the best financing deals. However, a great deal of care must be exercised to ensure that transactions are only done with legitimate and knowledgeable financiers. As the saying goes, “If it is too good to be true, it probably is.” But then again, there are some that are just really good providers so it pays to get a little background before entering into a possible financial transaction.