Case Study: Payday Loans

Payday Loans vs. Merchant Cash Advance

When you walk through the less well-to-do areas of New York City you’re bound to come across a Payday Loan business; the angler fish of poorer neighborhoods. At first glance these businesses appear to be for the people, a helping hand offering to lift you up after you fall down. This couldn’t be farther from the truth, as the allure of a payday loan quickly spirals into a state of constant debt at the hands of the very cash company that was claiming to help. To briefly summarize the role of a payday loan, they offer a short term lone that can be paid back with interest on the next payday. Theoretically this system is both helpful and profitable. In reality the interest starts to stack almost instanteously,

While there is still the possibility of being run into bankruptcy due to excessive borrowing, MCA’s are often times a for-profit only type of business. In otherwords, like a bank, the MCA company will go over bank statements, pull credit, do background checks, and even on-site inspection to confirm the legitimacy of a company. Unlike payday loans, which essentially scam their borrowers, MCA’s are usually the ones who risk being scammed. For example, some merchants send in fraudulent bank statements that can trick underwriters into believe that these merchants are generating a certain amount of revenue, when in reality they may be producing little to

While most funding companies, such as giants like Yellowstone Capital, focus on getting as many deals as possible for the highest amount of profit, Lex Group is more interested in funding merchants and deals that will create long time customers. Instead of quickly going over the bank statements, and pulling credit on the merchant, Ms. Kim’s underwriting teams takes the time to get to know the merchants, listening to their stories and going over the pros and cons of taking out a merchant cash advance. While there have been one or two instances of Merchants being able to pull the wool over Lex Group’s eyes, for the most part merchants have been dutiful in paying back and several have come back to Lex to be