For the merchant cash advance (MCA) universe, the past few years have been nothing short of a seismic shake-up, all thanks to state regulators turning up the heat.
In recent years, a number of states have implemented merchant cash advance disclosure laws, with many more contemplating legislation.
Not surprisingly, this new normal is throwing merchant cash advance providers into a whirlwind of compliance challenges (especially for those working across multiple states).
But worry not: Onyx IQ is here to guide you through the disclosure maze with some resources that can help simplify the complexities of MCA disclosure legislation.
Read on to learn how we can support you on your MCA journey, helping you not only navigate, but thrive in this ever-evolving industry.
MCA Disclosure Laws: A Brief Overview
Back in the 1990’s, the merchant cash advance industry was something of a regulatory wild west.
That’s because historically, lawmakers struggled to understand MCAs.
It was new. It was niche. There were more pressing issues.
The reality is that state representatives are making hundreds of decisions a day on a variety of issues, and often don’t have the time needed to become experts in transportation, healthcare, small business funding, etc.
This is a point recently highlighted by the Revenue-Based Financing Coalition’s Rachael Schreiber in an interview with Funder Intel’s Shane Mahabir.
Given how difficult it was (and still is) for elected representatives to agree on a number of pivotal MCA questions (e.g., “is it a loan?”), MCA providers found themselves free of many of the regulatory constraints of traditional lending products.
But recently, there’s been a growing push from state legislators for new disclosure rules, with the goal of promoting transparency in the MCA industry.
In response, several states have enacted or proposed their own disclosure laws. These laws require MCA funders to share consumer loan-like disclosure details with merchants—such as total funds disbursed, APR, payment terms, and prepayment policies.
The upside? By setting standards for accountability and transparency, these regulations are set to increase trust between small businesses and funders, and strengthen confidence in the entire industry.
That said, understanding these new rules is no easy feat.
Disclosure specifics vary from state to state, which can make things confusing for MCA providers—and even come with hefty fines for non-compliance. For example, Utah and Virginia require MCA funders to register in the state to do business there, while others states do not.
The rules even apply to MCA providers located in states without disclosure laws. It all comes down to where the client does business—if they’re in a state with such laws, providers have no choice but to abide.
Disclosure Challenges Ahead
For most MCA providers, adapting to new disclosure laws will require more than simply sharing a bit of extra information with clients.
Rather, staying compliant will require an operational revamp of several internal processes, incurring time and extra costs, as they:
- Upgrade their tech, to guarantee accurate and transparent reporting, regardless of where they/clients do business.
- Get lawyers involved, to ensure that all processes and workflows are aligned/comply with the new laws.
- Educate teams on legislative changes, to avoid slip ups and human error, via training workshops and other resources.
And let’s not forget about the merchants themselves.
Some may find this new level of detail overwhelming and difficult to grasp. So, merchant cash advance providers will also need to be proactive in communicating these modifications clearly and comprehensively. After all, clear communication and education are essential for MCA success.
The biggest challenge will be following all the rules, but we have a few resources that can help.
Introducing the Onyx IQ MCA Disclosure Map
Despite the initial challenges posed by the merchant cash advance regulations, there are ways to stay ahead in the game.
Onyx IQ’s interactive MCA disclosure laws map is a great resource for navigating the MCA disclosure landscape in each state. It provides essential, up-to-date information about existing rules—as well as ones still in the pipeline.
MCA providers can (and should) leverage this tool together with other available resources (e.g., legal professionals, industry publications, events, etc.)
Here are four ways our disclosure map can help MCA providers:
- Simplified compliance monitoring: researching MCA disclosure laws across states is as easy as it gets, as the interactive map keeps you informed and up-to-date with evolving regulations in a user-friendly way—just click and read.
- Improved risk management: by understanding state laws and proposals, you can proactively identify compliance risks and make strategic adjustments, minimizing legal repercussions.
- Better informed decision-making: adapting funding models or expanding services to a new state? This map provides a comprehensive overview to help facilitate crucial decisions, ensuring your MCA operations are in sync with diverse and intricate state regulations.
- Enhanced customer relations: with a clear view of where each state stands, you can offer customers clear and accurate information regarding changes to your funding experience. Clients value this openness, which gives your organization’s customer experience a boost.
In essence, this comprehensive disclosure map serves as a strategic tool for MCA funders, as it empowers them to navigate the changing landscape with confidence.
Onyx IQ: Disclosures Made Easy
In addition to our interactive map, Onyx IQ also provides an innovative lending platform that, among many other benefits, allows for hassle-free disclosures.
Onyx IQ seamlessly integrates the disclosure process into your workflow. Automation helps to reduce errors and ensure accuracy when it comes to providing the necessary information to your clients.
Integrated disclosure compliance to keep you operating efficiently in all states:
- Automated and Built-In Disclosures: Onyx IQ knows when and which disclosures to send (and when not to send) for every state.
- Effortless Distribution: Populated and sent for e-signature with automated status updates and email communications to keep stakeholders informed.
- Ongoing Compliance: Onyx IQ will continue to monitor and add additional disclosures and other compliance related features so you don’t have to.
Ultimately, Onyx IQ not only ensures compliance ease with disclosures, but also aids merchant cash advance funders in saving time, notably reducing manual workload.
Stay Ahead of Change: The Onyx IQ Advantage
With revenue-based financing rising in popularity, there’s undoubtedly more merchant cash advance regulations, scrutiny, and challenges heading our way.
But it’s not necessarily bad news.
This era of change represents a chance for MCA operations to step up, meet the new disclosure requirements, and snag a competitive edge.
Adaptability is the key to staying ahead, while you look for smooth operations amid change. Onyx IQ, with its comprehensive roadmap and platform, offers an integral solution that addresses a crucial aspect of the funding process.
At the forefront of the dynamic merchant cash advance industry, Onyx IQ provides an unparalleled level of support to MCA funders.
With Onyx IQ, you gain a partner equipped with the expertise and technology to capitalize on the many opportunities to come.
Why wait? Schedule a free Onyx IQ demo today to get started.
