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A merchant cash advance (MCA) may be a helpful financial tool for many businesses, but with the high fees, it can easily get out of hand. When that happens a merchant cash advance lawyer can be a valuable asset. These lawyers can help you potentially negotiate a settlement or renegotiate the terms of your MCA. This article will explore the role of a merchant cash advance lawyer and when you should consider getting one.
- A merchant cash advance lawyer is a type of lawyer who specializes in helping businesses navigate the merchant cash advance industry.
- A lawyer knowledgeable about merchant cash advances can assist with structuring cash advance agreements, advise on the legal and financial implications, and protect the business from potential exploitation.
- Businesses might need a merchant cash advance lawyer if they face lawsuits or disputes with lenders, need help with the negotiation process, or have questions about the legality and regulations of cash advances.
Understanding the Legality of Merchant Cash Advances
Merchant cash advances can be an intimidating form of financing, with complicated legal agreements and little security.
What is a Merchant Cash Advance?
A merchant cash advance is a convenient way to get an influx of cash quickly. Basically, you're selling a portion of your future credit card sales to an MCA provider in exchange for cash upfront. The amount you receive is typically represented as a percentage of your monthly credit card sales revenue. It's a great way to get the funds you need now and you only have to repay it when you make sales. So if your business is doing well, repayment can be easy. Plus, it's fast, easy, and doesn't require the same amount of paperwork as a bank loan.
Is a Merchant Cash Advance Legal?
MCAs are legal in most jurisdictions, though the exact details of how they’re regulated can vary by region. Know that merchant cash advances are not considered loans, and therefore are not protected by federal regulations. This can make them a dangerous source of funding if you don’t follow the exact stipulations of the contract you sign.
How do Merchant Cash Advances Work?
When a business obtains a merchant cash advance, they receive cash in exchange for an agreed-upon percentage of their future credit card sales. And rather than having a set APR as you would with a traditional loan, you’ll pay back an amount based on what’s called a factor rate. The factor rate, generally determined by an overall assessment of your business, is often between 1.1 - 1.5. The borrower will pay back whatever the loan amount they’re taking out times the factor rate they’re given.
The repayment of the merchant cash advance is based on a set percentage of the business’s daily credit card sales. Each day, a small percentage of the business’s credit card sales is automatically deducted to repay the loan. This percentage, known as the holdback rate, is agreed upon in the loan contract and doesn’t fluctuate.
What’s the Difference Between an MCA and a Loan?
While a loan involves repayment of a fixed amount with interest payments, an MCA is a purchase of a predetermined portion of a business’s future sales. The lender pays the business a lump sum of cash in exchange for a percentage of those future sales.
The other major difference between the two products is the cost of capital. An MCA typically comes with a much higher cost than a loan, as the lender is taking on more risk and isn’t getting fixed monthly payments.
Why do Businesses Choose to Take Out an MCA?
Businesses of all kinds may decide to take out an MCA to help get the funds they need. Here are just a few reasons MCAs are a popular choice among small businesses:
- Flexibility. An MCA offers flexible repayment options, allowing businesses to make payments in proportion to their revenue. This can help businesses manage their cash flow and make payments in an easier, more flexible manner.
- Fast funding. MCA funding can be approved and sent to a business in as little as one day through certain lenders, giving access to fast, efficient capital.
- No collateral needed. An MCA doesn’t require any collateral, freeing up valuable resources that businesses can use elsewhere.
- No impact on credit. An MCA will often not affect a business’s credit score, making it an ideal option for those with poor credit or a limited history.
What Are the Risks of a Merchant Cash Advance?
A merchant cash advance is an attractive option for small business owners in need of fast cash. However, like with any financial decision, there are some potential risks and drawbacks associated with MCAs that you should be aware of. These include:
- Uncertain repayment terms. The repayment terms of an MCA can be difficult to keep up with due to the flexible nature of the loan. Since you’re paying back the advance with a percentage of your future credit card sales, if those sales are unpredictable it can be hard to keep up with the payments.
- Short loan terms. The loan term of an MCA is usually much shorter than traditional business loans, which means you may not have enough time to pay off the loan before incurring late payment fees.
- High fees. MCAs are one of the most expensive forms of financing, as lenders are taking on a risk by offering you financing with potentially no credit check.
Should I Consult With a Merchant Cash Advance Lawyer Before I Sign?
If you have the means to do so, yes, you should. As with any legal agreement, you should always consult with a lawyer before signing a merchant cash advance agreement. A merchant cash advance lawyer can help you make sure that your rights are protected and provide guidance on the best course of action for your particular situation.
Your business lawyer will work with you to review the terms of your agreement and provide important advice on options that may be available to you. These options may include negotiating for better terms, restructuring or extending the repayment period, or in some rare cases, a complete restructuring of the agreement.
Can You Default on a Merchant Cash Advance?
Yes, it’s possible to default on a merchant cash advance. Merchant cash advances are usually not backed by collateral but are instead repaid through a business's future cash flow. This means that if you don't have enough income to cover the money you borrowed from the merchant cash advance, and can’t repay in the timeframe you agreed on, you may default on the loan. If you default on a merchant cash advance, the lender may pursue legal action to collect on the loan.
What Are the Legal Issues Regarding MCAs?
While MCAs can provide businesses with an influx of cash, they must be entered into with caution as they’re extremely complex, legally-binding contracts. Plus, there are no regulations around MCAs, so it’s up to individual lenders to set their own terms.
It’s also important to understand the potential implications of defaulting on an MCA. In the event of default, the MCA lender may have the right to seize the business’s assets, such as proceeds from its credit card sales, for payment.
Why Work With a Merchant Cash Advance Lawyer
Merchant cash advance lawyers understand the laws and regulations that govern MCA transactions and can help protect you from missteps and liabilities. They can also help you understand your rights under the lender's agreement with you. Working closely with a merchant cash advance lawyer will provide you with the tools and knowledge you need to navigate the legal aspects of a merchant cash advance loan.
Some of the benefits of working with a merchant cash advance lawyer include:
- Providing legal advice on all matters related to your cash advance.
- Offering consultation on state and federal laws, protecting your rights and obligations as a borrower.
- Negotiating with lenders on fees, interest rates, and other terms of the loan.
- Helping you draft legal documents related to your loan.
- Representing you in court if necessary.
How a Merchant Cash Advance Lawyer Can Help
A merchant cash advance lawyer can provide invaluable help and guidance to businesses seeking or already receiving a merchant cash advance. An MCA lawyer can not only explain the legal jargon related to MCA agreements, but can also help businesses navigate the complex world of MCA lending.
A merchant cash advance agreement typically includes a number of complex terms and provisions. An MCA lawyer can help businesses understand the intricacies of these provisions, such as:
- Confessions of judgment, which is a clause in an MCA agreement in which a borrower agrees to waive their right to go to court and admits to owing money if the lender makes a demand.
- Reconciliation clauses require a borrower to complete certain financial reports and documents in order to prove that they are able to make repayment.
- Liens are legal claims against a borrower’s property while garnishment is the act of withholding wages or money from an individual or business until a debt is repaid.
An MCA lawyer can help businesses understand these terms better, and make sure that they’re properly integrated into the MCA agreement. An MCA lawyer is also knowledgeable of the laws and regulations governing merchant cash advances, so they can help businesses understand what rights and responsibilities they have as an MCA borrower.
How do I Fight a Merchant Cash Advance Lawsuit?
If the worst happens and you do end up involved in a lawsuit with an MCA company, what do you do? This is exactly when a lawyer comes in handy.
What Can I Do if I Default in a Merchant Cash Advance?
If you've defaulted on a merchant cash advance and are looking for options, the first step is to contact the lender. Depending on the reasons for your default, the lender may be willing to work with you to establish a new payment plan.
It is also important to get in contact with a merchant cash advance lawyer. A lawyer can help assess the situation and determine if there are any legal options that may be beneficial to you. A lawyer can also advise you on alternatives to resolving the debt, such as filing for bankruptcy or defending against a lawsuit.
How do I Settle My Merchant Cash Advance Debt?
A lawyer may be able to negotiate with the lender, on your behalf, to obtain more favorable terms in order to reduce your payments or even forgive your debt entirely.
To settle your debt, your lawyer may contact the lender or their legal team to negotiate a settlement or restructure your payments. Your lawyer may also be able to review the original loan documents in order to determine if the lender is within its rights to collect the debt. This could help you get a better understanding of your rights and obligations as a borrower.
Can I Sue a Merchant Cash Advance Company?
Yes, if the terms of the MCA are violated by the company, then you as the borrower can sue the company. When taking out an MCA, it’s important to make sure all of the terms are understood and agreed upon.
What Can I Do If I Signed a Confession of Judgment?
If you signed a confession of judgment and are now having difficulty making the repayment on your merchant cash advance, you should consult a merchant cash advance lawyer. They’ll be able to help you understand the legal ramifications of signing a confession of judgment, as well as provide advice and assistance on how to potentially void the agreement.
If the confession of judgment was obtained through fraudulent or coercive means, a merchant cash advance lawyer can help you by filing a motion to vacate the judgment. This motion is essentially a request to the court to void the confession of judgment and relieve you of any legal obligation to make repayment.
What to Look Out For When Finding an MCA Lawyer
When it comes to finding an MCA lawyer, there are a few things to keep in mind to ensure you make the right choice.
- Check past work and reviews. Do your research into the lawyer’s past work and reviews. This should give you an idea of their capabilities and how satisfied their previous clients were.
- Make sure the fees are competitive. Check to make sure the lawyer’s fees are competitive and in line with the services they are providing.
- Build a relationship. Look for a lawyer who you’re able to build a good working relationship with. This is important to ensure you have trust and confidence in their service.
- Make sure they’re available. Make sure the lawyer you choose is available when needed, especially in the event of any unforeseen issues.
A merchant cash advance lawyer can assist businesses with any merchant cash advance-related questions or legal issues. The need for a lawyer arises when a business owner has a contract or loan agreement that needs to be reviewed or interpreted, or when there is a dispute between the lender and borrower of a merchant cash advance. In these cases, it is best to consult an experienced lawyer who has expertise on merchant cash advance laws. With their help, businesses can protect their rights, protect their assets and work towards a resolution that best serves the interests of all parties.