Imagine you’re running a business and need a cash boost fast. Traditional loans may be too slow or too rigid, so you turn to a merchant cash advance (MCA). Unlike loans, they offer you capital in exchange for a percentage of your future card sales, be it credit or debit card.
Sounds too good, right? It is, but not without merchant cash advance scams.
Yes. They are a reality. With some MCA lenders making deceptive promises or slipping hidden fees into the fine print, what looks like a golden opportunity can soon turn into a financial quagmire.
Do you need a Merchant Cash Advance?
Recognising the red flags in merchant cash advances
Let’s look at the points to be cautious of to avoid MCA scams.
1. Aggressive sales tactics
If a merchant cash advance lender is breathing down your neck with high-pressure tactics, that’s a red flag waving wildly. Are they pushing you to sign the deal faster than you can say “bottom line?” The hard sell is often a tactic used by fraudulent lenders.
2. Opaque fee structures
When it comes to MCA fees, any secrecy raises suspicion. Is the MCA provider being vague about costs? An honest lender will present all rates, fees and terms upfront. But some lenders might bury fees in the fine print or dodge clear answers about your effective annual percentage rate (APR, which you can calculate yourself).
3. Unrealistic promises
“Too good to be true” is often a mantra to live by in the world of finance. Fraudulent merchant cash advance lenders may paint a rosy picture of endless approval amounts and low-cost repayments. But think about it – why would a responsible lender ignore your financial background?
4. Push for direct account access
Does the lender demand direct access to your business bank account? This is common in MCAs for payment withdrawals, but if the provider is reluctant to discuss other options or pressures you into one specific access method, think twice.
How to verify a legitimate MCA provider to avoid scams?
- Do a dive deep into the lender’s history. Is the company licensed, regulated and transparent? Look for official listings; legitimate MCA lenders won’t be shy about sharing credentials or showcasing positive reviews.
- A quick check on review platforms, like Trustpilot or Google Reviews, can offer valuable insights into the lender’s reputation. Are other businesses satisfied, or are they airing grievances about hidden fees and poor communication?
- A good MCA provider will hand you a contract that’s clear and concise. Go through all terms and conditions meticulously, and if anything looks murky or vague, ask questions. Does the lender hesitate, sidestep or attempt to rush you? That’s a telltale sign of trouble.
- Call or meet with the MCA provider’s representative to gauge their customer service. Are they prompt and informative or vague and disinterested?
Best practices to protect against merchant cash advance scams
And now we will discuss some of the top ways to avoid merchant cash advance scams in the UK.
1. Avoid upfront fees
One of the golden rules: if a merchant cash advance lender asks for money before you’ve received funding, run the other way. Legitimate MCA providers earn their fees through retrieval rates and structured repayment, not upfront charges.
2. Insist on proper documentation
The devil is in the details. Reliable MCA lenders will request thorough documentation from your end, including business financials and sales records. While this might feel like an extra step, it’s actually a good sign: it shows the lender is interested in assessing your business’s genuine financial health, not just making a quick profit.
Scammers, on the other hand, might skip these steps to close deals faster.
3. Don’t rely solely on online communication
While email and online applications can simplify the process, it’s risky to rely solely on digital contact with an MCA provider. Arrange phone calls, or if possible, in-person meetings. Talking directly to representatives can give you a clearer sense of the lender’s professionalism and legitimacy, helping you avoid merchant cash advance scams that rely on anonymity.
4. Know the exit strategy
Many MCA contracts include early repayment penalties or renewal clauses. Ensure you fully understand the lender’s policies if you decide to settle the advance sooner or if your revenue slows down.
A professional lender will discuss options and make it clear how to avoid excessive costs if circumstances change, while a scammer will brush over or hide this information.
Steps to take if you are scammed
1. Report the fraud to the relevant authorities
MCA is legal in the UK. You can immediately contact the right people if you get scammed. In the UK, report to Action Fraud. By doing so, you’re not just looking out for your business but also helping others who might be targeted next. The FCA often investigates complaints against MCA lenders, especially if there’s a pattern of fraud.
2. Freeze your bank account and monitor activity
If you’ve given direct access to your bank account, it’s crucial to act quickly. Contact your bank, explain the situation, and request a freeze or change of credentials.
Keep an eye out for any unusual transactions. While no one likes to deal with extra security steps, it’s better than watching money vanish unexpectedly.
3. Seek legal advice
Consult with a legal expert specialising in finance or business fraud. They can help you understand your rights, potential remedies and ways to limit further damage. If you signed an agreement with the fraudulent lender, your lawyer might find loopholes to dispute the charges.
Merchant cash advances are often wrapped in complex contracts, and having legal guidance can help untangle the mess.
4. Consider credit monitoring services
MCA scams can leave a mark on your credit, especially if you’ve missed payments or unknowingly incurred debt. Signing up for a credit monitoring service helps you track any suspicious activity and alerts you to new lines of credit or loans taken out in your name.
While it won’t undo the scam, it’s a step toward financial freedom.
5. Share your experience with other business owners
Scams often thrive in silence, and by sharing your story with fellow entrepreneurs and businessmen, you can raise awareness. Whether it’s through social media, local business groups or networking events, your experience might prevent someone else from falling into the same trap.
Avoid scams and get connected with reliable MCA providers with ComparedBusiness
ComparedBusiness can help you secure and scam-free merchant cash advance funding from reputable lenders in the UK. Just submit your requirements in less than 2 minutes and we will match you with the top financial institutions in the UK. You can pick and choose the best option as per your business requirements.
