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Myth: Merchant Cash Advances are extremely expensive and have high interest rates.

Reality: Merchant Cash Advances are not annual loans! Industry critics misrepresent the truth and to help make their case. Merchant Cash Advances typically do have a higher rate than a traditional loan annual interest rate because it is a short term advance and require no collateral. Back to top.

Myth: Merchant Cash Advances trap borrowers in a never-ending “cycle of debt”.

Reality: Wrong. Although the phrase “cycle of debt” is a favorite among industry critics, it’s not based on the truth.

Researchers and province regulators consistently report that 70-80% of clients use merchant advances once a year. The fact is that a merchant advance is more economical than other options. Back to top.

Myth: Merchant funders take advantage of small companies.

Reality: Wrong. Critics of the industry have been successfully perpetuating the myth that the merchant advance industry exploits the downtrodden. By perpetuating this myth, they have created a warped idea of the industry’s customer base. Actually, merchant advance customers represent the heart of Canada's middle class. They are typical hard working business owners who may not have savings or disposable income to use as a safety net when unexpected expenses occur or working capitol.

SOME SIMPLE FACTS

1) The majority of merchant advance clients earn between $5,000 and $100,000 monthly;- Sixty-eight percent of business owners are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population;

2) Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree;

3) Thirty-two percent own their own office buildings;

4) One hundred percent have steady incomes and active checking accounts, both of which are required to receive a merchant advance.

If you find a study that concludes otherwise, chances are the researcher combined merchant funders with other financial services such as merchant lenders, pawnbrokers, car title lenders and check cashing outlets. These entities are in a different line of business and have a different client base. All merchant cash advance clients have steady business and active merchant accounts. Back to top.

Myth: Merchant funders high fees help the industry make billions in profits.

Reality: Wrong. Small denomination, short-term advances are very expensive to originate and maintain, which is why most banks no longer offer the product. The cost for a small bank to originate and maintain an advance for 7 months is not profitable.

Industry critics fail to recognize that, in addition to the cost of administering the advance, merchant lenders incur the normal overhead costs of running a business and paying employee salaries and benefits.

Operating costs lie in the range of advance fees collected and that, after subtracting fixed operating costs and unusually high rate of default losses, merchant advances may not necessarily yield extraordinary profits. Back to top.

Myth: Merchant funders do not want to be regulated.

Reality: Wrong. Quite the contrary. Our industry is currently regulated in all provinces in Canada and Synergy Merchant Services is in compliance in all of them. While the industry does not want to be regulated out of business (as industry critics would like), it has always supported sound and balanced regulations that protect clients, while preserving their right to financial options.

Over the past decade, most provinces have created or maintained a regulatory environment that satisfies the robust consumer demand for these short-term advances. As a result, millions of satisfied clients have enjoyed the convenience and economic benefits of merchant advance services without complaint. Back to top.

Myth: Merchant funders advance money to companies who cannot afford to pay it back.

Reality: While clients may not have the ability to repay when taking out the advance, the allegation that lenders do not consider a clients ability to pay is completely false. All reputable merchant funders have underwriting criteria, in addition to the requirements of steady processing and a merchant account. More than 90 percent of merchant advances are repaid when due, a fact confirmed by numerous provincial regulatory reports. It simply would not make good business sense to advance money to people who can't pay you back. Back to top.

Myth: Merchant funders use coercive collection practices.

Reality: Synergy Merchant Services and Cesef Financial (Advance It) is committed to collecting past due accounts in a professional, fair and lawful manner. In accordance with best practices, companies may not pursue criminal actions against a client as a result of the customer’s check being returned unpaid. If it becomes necessary and is appropriate, however, we may turn the account over to a collection agency. Back to top.

Myth: Merchant funding has grown dramatically because of aggressive marketing.

Reality: Merchant funding has grown as a result of consumer demand and changing conditions in the financial service marketplace. Traditional financial institutions exited the small-denomination, short-term credit market, largely due to the high administration costs. Consequently, the demand for short-term advances grew substantially. Additionally, legislation was enacted to provide regulations and consumer protections for merchant advance clients. Back to top.

Myth: Merchant funders hide fees and mislead clients.

Reality: The cost of a merchant advance is fully disclosed to clients in disclosure agreements. Moreover, in accordance with the Truth in Lending Act (TILA), the terms of the advance are clearly outlined in the lending agreement. Merchant Cash Advances involve no hidden charges.

In a recent survey, 96 percent of merchant cash advance clients said they were aware of the finance charges. A recent study by the Annie E. Casey Foundation found that, “Consumers do make a cost analysis in comparing the price of a merchant advance with the alternatives…”Back to top.

Myth: Anti-merchant funding activists have clients best interests in mind.

Reality: While they claim to represent the best interest of the consumer, anti-merchant funding activists seek to limit the already small number of short-term credit options available.

The reality is that anti-merchant funding activists do not represent the views of millions of clients who use merchant funding responsibly and are glad to have somewhere to turn when they need quick access to funding. Back to top.

Myth: Consumers win if merchant funders are regulated out of business.

Reality: Critics’ allegations that consumers are better off without this option is far from the truth. Anti-merchant funding activists should not be in a position to determine what is right or wrong for hard-working Canadians and business owners. So-called consumer groups and activists working to ban the merchant funding industry do not represent the vast majority of consumers who work hard to make ends meet. The bottom line is that consumers don’t want others making decisions for them. And they especially don’t like the idea of people (who have probably never been short of cash) dictating where they can or cannot borrow money. If critics are successful in regulating the industry out of business, consumers will be forced to turn to offshore Internet and often unregulated rouge lenders for their short-term credit needs.

At the end of the day, consumers win when given a variety of options and trusted to make financial decisions based on what’s best for them and their businesses. Back to top.