Rights & Regulations For MCA Lenders & Borrowers: A Complete Guide

Jason Hunt
May 12, 2022
Merchant cash advances have become an important and growing part of the lending industry that supports small businesses. But as this form of lending flourishes, it becomes more important for both providers and borrowers to understand the associated rights and responsibilities.

Here’s a detailed overview of some key considerations that include rights and regulations when it comes to merchant cash advances.

How Merchant Cash Advance works

A merchant cash advance is a financial service, where borrowers sell a fixed percentage of their future credit card sales to the lender.

Borrowers get money upfront and then repay the advance with a fixed percentage of their daily credit card sales until the advance plus fees are repaid in full.

Merchant cash advances are an important and growing segment in the small-business lending market.

Regulating Merchant Cash Advance

Because MCA is not considered a loan, but rather a sale, this business is not subject to stringent regulations.

Merchant cash advance brokers are a necessary part of the economy, such as Biden’s $1.9tn stimulus. They provide much-needed liquidity to small businesses, which helps small businesses grow and create jobs.

Unfortunately, brokers are under fire in recent years with numerous misconceptions about their business practices, and many people believe that they are predatory lenders. This, however, is not true…

Although there are no such things that are directly associated with MCA and regulate this financing sector, nowadays, merchant cash advances are highly regulated by the government.

They must comply with a number of regulations, including the UCC and Dodd-Frank Act.

Regulations that an MCA Broker should follow

With rapid financing, merchant cash advances help small businesses recover from difficult times – but do we really understand the rights and responsibilities of MCA Loan Providers and Borrowers?

MCA appears to be a highly intriguing and hassle-free option to assist your organization in overcoming financial difficulties.

But in reality, when a small company owner applies for a merchant cash advance loan, MCA may seem infeasible. In this case, understanding your rights is much preferable.

Non-Interest Rate Regulations

MCA loan providers are not subject to the same federal laws that other loan providers are subject to.

Rather, they are governed by the Uniform Commercial Code and the Dodd-Frank Act.

The United States Business Code (UCC) is a set of rules and legislation that regulate all commercial activity in the country.

Although UCC laws are not regarded as federal law, they are considered state law informally. UCC does not provide a boundary for setting an interest rate for MCA providers.

Rather, it encourages businesses to freely enter into commercial contracts. MCA lenders usually charge factor rates instead of interest rates.

Make sure to educate yourself about factor rates and how they affect your payback amount to understand the accurate cost of the advance.


The Small Business Owner’s Bill of Rights should be upheld by the merchant cash advance provider.

In general, these rights protect small businesses from unscrupulous loan tactics. It also guarantees transparency and clarity across all areas of small business finance.

The bill of rights includes:


  • Transparent Pricing and Terms
  • Non-Abusive Products
  • Responsible Underwriting
  • Fair Treatment from Brokers
  • Inclusive Credit Access
  • Fair Collection Practices

These rights provide transparency and clarity in all aspects of small company financing. Knowing them makes it easy to locate the best MCA supplier.

Regulations for UCC Lien

UCC Loan agreement

Creditors submit a UCC-1 filing to protect their interest in a borrower's property or assets used as collateral for a loan.

According to the UCC filing rules, a lender is authorized to place a lien on one or more of the borrower's company assets.

For example, if a person or organization obtains an appliance loan, there will normally be a particular collateral lien placed against the equipment utilized to finance the loan.

A UCC petition for an unsecured merchant cash advance lays a lien on all of your company's assets. This might contain revenue sources as well as potential receivables.

 In any event, failure to fulfill the obligation of the loan could lead to confiscation of your assets; furthermore, many lenders require a personal guarantor, which means you will be personally accountable for the debt if your firm fails. 

Impact If You Can’t Repay the Advance

If you are unable to return your MCA in any way, the lender may contact your customers or clients and demand payment for the items or services your firm has supplied them.

Because your customers have effectively acquired your future accounts receivable, their future payments to you are treated as an asset for the purposes of the UCC lien.

Pros & Cons

Merchant cash advances, like other small business funding, have some advantages and disadvantages. Here, we are mentioning some of the positive and negative factors of MCA -

Pros of MCA

  • From Approval to Receipt of Funds, it’s a quick process
  • Simple Paperwork
  • No Requirement for Collateral
  • Payment amounts may decrease if the number of sales transactions decreases
  • In most cases, a lack of credit history isn't an issue
  • You can use the capital quite flexibly

Cons of MCA

  • High cost, with factor rates ranging from 20% to 50% of the cash advance amount
  • Substantial extra fees
  • There are no advantages to repaying early.
  • Credit building is hampered by a lack of regulatory control.
  • Automatic payments may wreak havoc on your cash flow.


Although MCA companies are still unbound to obey any strict rules or regulations yet, state and government regulations are slowly formulating around them. If you are a lender or a borrower needing legal help from MCA experts, It's better to take help from a company that is reputed and has years of experience. We inspire small businesses to take MCA for their business advancement.

But at the same time, you should provide all real information and rely on an MCA provider that is trustworthy.

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Jason Hunt

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