Coast Commercial Credit sounds the alarm about a new lending scheme that can negatively impact cash flow and the future ability to operate a business.
A number of car wash operators have been receiving calls from telemarketers offering easy working-capital loans in as little as 24 to 72 hours, according to the company. These types of loans come with extremely high interest rates, typically ranging from 70 percent APR to over 100 percent APR. They are called Merchant Cash Advance (MCA) or Business Cash Advance (BCA) loans. These loans are tied to merchant card accounts or bank accounts. MCA/BCA lenders debit the merchant card or checking account on a daily basis and take as much as 50 percent of a business’s daily receipts. These loans are designed for start-ups and borrowers with bad credit. However, these lenders have been heavily soliciting experienced operators with good credit.
Similar to how Payday Advance loans can cause personal financial failure, MCA-type loans can cause financial insolvency of a business, the company says. For operators who can't get funds elsewhere, MCA or BCA loans could be a loan of last resort. However, for operators not on the verge of failure, other sources do exist. Low-doc loan programs and other conventional loan programs are available for both experienced operators with good credit and those newer to the industry who have average credit.