Congress members were in Michigan on Monday to speak with small business owners in the auto-motive industry who are having difficulty receiving loans from their local banks. Small business owners explained to the House Financial Subcommittee on Oversight and Investigations that there is extreme difficulty for Michigan based businesses particularly in the auto-motive industry to receive traditional bank loans.
Small businesses in Michigan are lobbying the Federal Government for more funding as the current situation of tight restrictions on business loans is hindering business expansion. More and more, the merchant cash advance industry has seen a rise in “loans” to the automotive repair industry as these small businesses have been unsuccessful in receiving loans from their local banks.
A merchant cash advance is not like a traditional loan but rather a purchase and sales agreement. The private lender purchases the merchant’s credit card receivables at a discounted rate. This allows high risk merchants to receive substantial amounts of funding for their businesses without any of it appearing on their credit report. There is no collateral involved – the merchant cash advance lender cannot collect if the merchant goes out of businesses.
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