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Struggling with Debt from Merchant Cash Advances & Need a Merchant Cash Advance Attorney?
Do you have a merchant cash advance you are struggling to pay? Did you receive a merchant cash advance breach of contract lawsuit? Are you having merchant cash advance legal issues? If you’ve received notice from your lender, you may be asking yourself what a merchant cash advance lawsuit is and what it entails?
Small business owners occasionally require additional operating capital to effectively run their businesses. You may need new equipment, additional inventory or maybe you just need to cover payroll. If a business owner does not qualify for traditional financing, a Merchant Cash Advance Loan may seem like a reasonable or viable option to help the business.
Unfortunately, many small business owners enter into contractual agreements with one or more MCA lenders with the expectation that the lender will provide short term factoring receivable funding to assist the business owner to meet the financial needs of the business between the intervals of its customer regular pay cycles.
However, what may have been characterized by the lender as a factoring relationship was, in fact, an unregulated loan. The payments and interest may become too high for you to handle on your own.
The money may come quickly, but what small business owners do not realize is that they may be setting themselves up for potential bankruptcy. If you’ve taken an advance from a merchant cash advance lender and are now struggling to address your situation, you need an experienced merchant cash advance attorney on your side.
How Do MCAs Work?
In a typical merchant cash advance, lenders and borrowers agree to a daily or weekly payback system and in return, the lender receives a percentage of sales or receipts from the borrowers.
You would assume that if your business is slow, the daily and weekly payments would reflect the revenue of the business. Unfortunately, this is not how the system works. Most lenders have a fixed amount that they recover from businesses whether the business is thriving or not.
As part of the process, a lender will generally require a person to provide businesses merchant processing statements and bank statements to determine how much of an advance he or she will qualify for. Additionally, a credit check may be required in order to qualify.
If approved, the lender will also provide the terms and conditions. The funds are then deposited into the business owner’s bank account for their use. The payments can then be paid back in a specified time frame.
Often, business owners may get in over their heads with these types of loans and may require the assistance of a Merchant Cash Advance experienced lawyer to help them in regaining day to day control of their business enterprise.
MCA lenders are quick to bring lawsuits against borrowers who default on payments, so it is important to seek legal counsel immediately if you have defaulted or believe you will default on a payment.
What is the Difference Between an MCA and a Loan?
A merchant cash advance (MCA) isn’t technically a loan, but rather a cash advance based upon the future credit card receivables a business will receive. The process to receive the advance is a fairly quick process and it is not a credit driven approval. Merchant cash advance companies look at the daily credit card receipts to determine if the business is capable of paying back the funds in a timely manner.
Merchants sign an agreement that outlines the advance amount, payback amount, holdback and the term of the advance. Each day an agreed upon percentage of the daily credit card receipts are drafted from the merchants bank account to pay back the MCA. This is called a “holdback” and it will continue until the advance is paid in full.
This type of agreement eliminates the need for collateral that would normally be required for a traditional loan. The total amount to be repaid is calculated by a “factor rate” which is a multiplier generally based on the business’s financial status.
The MCA company decides how high the factor rate will be based on reviewing bank statements which will show the number of monthly deposits, how much those deposits were for, how many days they did not receive any deposits and how many other advances the merchant has.
The MCA company also looks at how long the merchant has been in business for and what industry they are in. The higher the risk, the higher the factor rate.
Merchant cash advances can be very expensive. Not only is the interest rate often very high (and difficult to figure out), but there are often hidden fees that can greatly increase the amount that a small business is expected to repay this can eventually lead the business owner into debt or default.
Can You Default on a Merchant Cash Advance?
Yes, and defaulting on Merchant Cash Advance Loans can be especially detrimental to a business and could result in lawsuits, judgments and liens from the lender as well as negative credit reporting. It could put you out of business.
You may think that you can then pay this loan off with the next job, sale or receivable that comes in, but this is not always a reliable or a realistic solution.
Too often this thinking ends up making things worse for your business, with frozen business accounts, debt, liens, lawsuits and judgments.
Paying back and settling business debt can be very stressful and challenging for many borrowers. The Business Debt Law Group can help make arrangements with creditors and lenders for our clients to ensure that you make the necessary payments while also keeping your doors open. Your main goal as a borrower is to avoid filing for bankruptcy and closing your business.
The History and Harms of MCAs
Many people think that the aftermath of the financial crisis in 2008 is when merchant cash advances came to rise, but that is incorrect.
In 1998 a company called AdvanceMe (now called CAN Capital) pioneered the splitting of credit cards. AdvanceMe was monopolizing the merchant cash advance industry because they owned the patent on split-funding (known today as merchant cash advance).
Initially merchant cash advances were byproducts to selling credit card processing point of sale systems. Right before the financial crisis when the split-finding patent was invalidated, companies began to focus solely on funding advances.
When the economy took a downturn in 2008, it was one of the only sources to get funding for your business and this opened the floodgates. Merchant cash advances are now said to generate $5 billion to $10 billion in loans every year.
Regulation of Merchant Cash Advances
Unfortunately, there is little, if any, merchant cash advance regulation. MCA’s are not considered a loan and there is no federal oversight of the advances. They do not fall under any state usury laws.
MCA’s have been known to carry annual percentage rates – the total cost of a loan, including all fees – sometimes over 300%. Many would claim these advances to fall under the definition of predatory lending. These exorbitant fees can cause serious cash flow issues for merchants.
Many times merchants are forced into a vicious MCA debt trap, having to get advance after advance because they can’t afford to pay back the prior MCA’s they received.
Additional Risks of an MCA Loan
You may expect to receive more phone calls from brokers trying to get you to take out more advances. In a process called stacking, other MCA funders may contact you to try to get you to add new advances on top of your existing one in a gambit to get out of debt.
Information about your business becomes public record after a lien has been placed against you. This information is then compiled and sold to other MCA funders who will try to get you to stack your advances which will, in most cases, only place your livelihood at greater risk and further in debt.
Do You Need Help with Your MCA Loan?
Did you sign a confession of judgment when you received your advance? You may have been required to sign a confession of judgment document when you executed your MCA paperwork.
A confession of judgment takes away your right to defend yourself before a judge if you default or stop paying your merchant cash advance. You are agreeing to let a judgment be entered against you without notice and you allow the MCA company to skip the normal court proceedings that would be required to file a judgment.
Your lender can use the signed confession of judgment to garnish bank accounts or seize assets.
Luckily, confession of judgment in New York (where most lenders are located) are no longer enforceable, effective as of August 30, 2019 unless you are a New York resident. This legislation was amended to remedy the extreme abuses that were taking place by merchant cash advance companies.
Certainly, not all funders use COJs. Just recently, for instance, Greenbox Capital suspended the use of COJs indefinitely, in response to the heightened industry wide debate over their use. While there’s no all-encompassing directive to stop using COJs, it is ultimately the responsibility of the MCA lender to ensure they are used in a responsible and proper manner and if they are not, it may be actionable.
As an example, it would be potentially actionable for the MCA lender to execute on a COJ simply because the small business owner does not remit receivables the merchant cash advance company purchased because the small business owner did not generate receivables.
To be lawful, the COJ has to be based on a breach of performance under the agreement. Fraud, for instance, is actionable. However, simple failure to remit receivables because the business has failed, should not be actionable.
Most business cash-advances require a daily repayment which can become challenging if the business experiences financial distress. Defaulting on the repayment commitment can cause the borrower to be default in their agreement with the merchant cash advance lender, and ultimately the business could be subject to adverse credit reporting as well as a lawsuit from the cash advance funding company.
What Can an MCA Attorney Do for You?
Your merchant cash advance attorneys may be able to:
- reduce your payments
- lower your interest
- get you into a forbearance program
- settle your merchant cash advance loans for less than what you owe
Providing you and your business relief.
Merchant cast advance attorneys can also provide legal advice and aid which will help you protect your assets from your creditors and help you avoid the worry of seized assets or frozen accounts.
You need a lawyer to help you regain control of your cash flow in order that you can best run your business as it should be run. Hiring merchant cash advance attorneys before your debt problems grow worse will ultimately save you from a potential future bankruptcy.
There are hundreds of merchant cash advance lenders ready to give you cash while putting you in an unsustainable repayment schedule. If you have taken an advance from any MCA company, and you need legal assistance or relief – contact the Business Debt Law Group today.
Free Debt Relief Consultation with the Business Debt Law Group
We understand the stressful time you may be going through. Our firm and its lawyers will guide you through the entire process. With over 60 years combined experience we are well prepared to handle your case.
If you are experiencing merchant cash advance legal issues, if you’ve had a merchant cash advance breach of contract or if you need an MCA restructure to help with your cash flow – call us today.
A collection agent may have reached out to you, to demand that you pay the full balance of the alleged debt. Worse, the lender may exercise a Uniform Commercial Code (UCC) Lien against your business to stop other businesses, insurance companies, or individuals from paying you owed cash.
Lenders typically refuse to release that lien until the debt is fully paid. In many cases, debts rise to a level of criminal usury. The Business Debt Law Group Law Group has been successful in substantially reducing debts with lenders.
Following an initial free consultation, one of our firm’s attorneys will review your merchant cash advance or business loan agreements and share their findings and initial legal advice with you. You may be surprised to learn of your extremely high actual interest rate, costs and fees. Our firm has seen interest rates greater than 400% per annum. We will be able to tell you what your options are as well as answer any questions about the differences between a MCA consolidation vs MCA attorney.
Once our initial review is complete and you have elected to retain our firm, your assigned litigator will begin to work with your lenders to secure a method and pathway to get you out of the vicious cycle you are presently in and most importantly, help to get you back control of your business and its cash flow.
There is never a cost to speak with us and all attorney consultations are always complimentary. You deserve to know what options you have. Call us today to review your business’s hardship or pending lawsuit.
We understand this is a confusing and stressful time for you. Let us take the burden off of your shoulders. Before you have any bank accounts frozen or garnished, UCC liens filed against merchant processors/vendors, or you have a lengthy lawsuit filed against you that you would have to spend countless hours and money on, call us today for a complimentary consultation with an experienced business debt attorney. We are here to help you any way we can.