Merchant Cash Advance Providers Find Themselves in the Crosshairs of the Nanny State

For all the advancements our society has gone through and the benefits they have brought, there was always a strong desire by many for things to stay the same. To maintain the status quo. And whenever change seemed to be on the horizon, certain institutions would step forward to try and stop it.

At the turn of the 16th century in Europe, the market was starting to break free from the constraints of feudalism. But the Catholic Church tried to fight against it by equating any interest rate with usury. It did not succeed, and the economic upsurge that created propelled the entire continent forward.

Then, Great Britain’s ruthless tax policies played a huge role in sparking the American War of Independence. Britain’s stubborn refusal to move with the times ended up costing it its prize colony. The American Founding Fathers realized this and recognized how important it was to ensure the markets were free from governmental meddling to the greatest extent possible. The Constitution reflects this and has barriers in place to control the Government’s ability to influence the market.

But in spite of that, countless elected officials have since attempted to curtail entrepreneurial efforts that posed a threat to the established state of affairs.

Recently, these regulatory efforts have expanded to include measures which make operation difficult for companies which can provide funding to certain types of small businesses or individuals. Specifically, these are the companies which service clients that need a cash injection but can’t get it from banks and the traditional channels because their credit history isn’t up to scratch and they don’t have the collateral. As a result, we are seeing regulations which are tightening the noose on pawnbrokers and other businesses which provide similar types of funding and working capital. These industries are not dead just yet, but the effort to put them down is certainly present.

This kind of atmosphere is what awaited the merchant cash advance – a comparatively new business model which is on the rise. The MCA is a safety net, and a much-needed one, that can help small businesses keep their heads above water when surrounded by the well-known juggernauts of the corporate world.

Therefore, it is of paramount importance to preserve this industry from the misguided efforts of policymakers. Eager to defend entrepreneurs from what they consider to be predatory practices, the legislators end up cutting off sources of financial aid that can play a vital role in the very survival of the businesses they are trying to protect.

With regard to the concept of a merchant cash advance, the idea is straightforward. A small business gets the working capital it needs and in exchange, it hands over a designated share of the sales it will make in the future. Due to its form and the absence of an annual percentage rate (APR), a merchant cash advance is exempt from many restrictive regulations that would otherwise be present.

Naturally, here is where the overprotective legislators (with the representatives from California at the forefront) make their appearance. Their fear is that those future sales might go over what the law considers an acceptable rate of return for such a transaction. In spite of certain inconsistencies in their rationale, these policymakers are now aiming to curb merchant cash advances.

As the political columnist Steve Sherman notes in a recent article, California’s legislative efforts aimed at MCA companies are both nonsensical and the reason behind added costs. He adds that this jeopardizes the industry at a point it is evolving and addressing the needs of a growing number of small business clients. Furthermore, this also comes despite the efforts from the private sector to put additional rules in place which would monitor the industry in a way that is more effective than the government’s ham-fisted strategy.

If you look at the United States as a whole, the reforms implemented by the Trump Administration have had a notable effect on reducing unemployment. Naturally, the GDP has followed in this positive trend. Those who observe the situation in an objective manner can easily see that small businesses are, to a large extent, the driving force behind this progress. They also realize that for such enterprises, the ability to get a timely influx of funds is often the deciding factor.

Now, massive companies are not likely to require a merchant cash advance. But a small business might in order to get through the unavoidable rough patch or two.

In the end, options such as a merchant cash advance can be an invaluable tool. Thus, it is imperative they survive the assault of overzealous legislators. This is particularly relevant now as the policies of the current Administration have allowed small business owners to lead the way in economic growth.