As a small business owner in Connecticut, you may have come across an alternative form of financing known as a merchant cash advance (MCA). These advances are marketed as a quick way to get business financing. They can be used for major expenses such as inventory, equipment, or payroll, even with poor credit.
However, as you may have discovered, this convenience comes at a cost. MCAs charge notoriously high fees that can strain your cash flow and make it difficult to meet your obligations.
Further, the contracts also often contain confusing language and provisions. Therefore, you may be left personally liable for MCA debt if your business can’t repay the advance. An MCA can do more harm than good for your business and can have consequences in states like Connecticut.
If you default on an MCA in Connecticut, you could be sued and face even greater financial strain. The good news is that by working with an experienced Connecticut merchant cash advance attorney, you can resolve this debt once and for all while keeping your business running.
How Does a Merchant Cash Advance (MCA) Work?
A merchant cash advance is a financing option for small businesses in which a company receives a lump sum payment in exchange for a percentage of its future credit card or debit card sales. This type of funding is primarily used by businesses with fluctuating or seasonal revenue or those in need of quick access to working capital.
Importantly, MCAs are not loans. Rather, they are an advance on future sales. The provider of the advance purchases a portion of the business’s future receivables. Then the business repays the advance through daily or weekly automatic deductions from their sales transactions. The repayment amount is based on a fixed percentage, known as the holdback rate. It can range from 5% to 20% or more, depending on the agreement.
The cost of an MCA is expressed as a factor rate. This is a multiplier applied to the advanced amount. Factor rates typically range from 1.1 to 1.5, meaning that the total repayment amount will be between 110% to 150% of the original advance. Companies with higher risk profiles can expect to pay higher factor rates.
To calculate the total dollar cost of an MCA, multiply the amount borrowed by the factor rate. For example, if you get an advance of $40,000 with a factor rate of 1.3, you’d pay back a total of $52,000, including $12,000 in fees.
Are merchant cash advances legal in Connecticut?
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Understanding Connecticut MCA Laws
In general, there is very little regulation surrounding merchant cash advances. Some states have specific laws and licensing requirements for MCA providers, though most do not.
In Connecticut, there are usury laws to prevent lenders from charging excessively high interest rates. However, they apply to loans and not MCAs. That means MCA companies are able to get around these laws and charge extremely high fees since they are not consumer-focused and aren’t regulated under the Fair Debt Collection Practices Act. Currently, there are no specific Connecticut laws regulating MCAs or merchant cash advance companies.
That said, some states have been implementing new MCA regulations to prevent predatory lending practices. For example, the state of New York established a law in 2019 that bans New York-based MCA funders from issuing a Confession of Judgment (COJ) to an out of state borrower — including Connecticut residents.
A COJ is a common clause in MCA contracts. It that states the borrower agrees to give up their right to a trial or hearing and allows a lender to obtain a default judgment against them without any notice or opportunity to defend themselves in court.
Today, if a Connecticut business owner takes out an MCA from a New York-based MCA funder, that funder cannot issue them a Confession of Judgment.
Signs You Need a Connecticut Merchant Cash Advance Attorney
Whether your MCA payments are placing strain on your business, you’re being harassed by debt collectors, or you’ve been sued by an MCA funder, you should get the assistance of an experienced MCA help attorney as soon as possible. These are some signs you need to hire a merchant cash advance attorney:
- Your business cash flow is strained due to high MCA payments.
- You are having trouble making your MCA payments according to the contract.
- You’re being harassed by debt collectors regarding past due MCA debt.
- You believe the terms of your agreement were unfair or predatory.
- Your signed a personal guarantee.
- Your MCA contract includes a Confession of Judgment (COJ).
- A UCC lien was filed against your business.
- Your business or personal bank accounts have been frozen.
- Your clients or vendors have been contacted by the MCA provider.
- Your MCA provider is pursuing legal action against you, such as a lawsuit.
- You have questions about your rights and responsibilities as an MCA borrower.
How Can Tayne Law Help With Connecticut MCA Debt?
An expensive MCA can be a burden on your business, thinning out your margins and making it tough to stay on top of all your other expenses and obligations. Plus, your personal finances could be at risk if the business can’t repay the advance. It’s important to have a reputable and experienced attorney on your side who understands how MCA contracts work and can help you resolve MCA debt quickly.
Tayne Law may be headquartered in New York, but we’ve been providing debt help to clients all over the country and even globally for more than two decades. Our process is straightforward. We work with our clients one-on-one to craft a strategy that eliminates troublesome merchant cash advances and other business debt, including credit card debt and business lines of credit. Our goal is to help protect your business and cash flow so that you can continue operating through the process of resolving your MCA debt.
Tayne Law Group is a Better Business Bureau accredited business with an A+ rating. We also earned the ‘Best Debt Consolidation Service’ for 10 years running.
How Our Services Work
- It starts with a phone consultation. During this free, no-obligation call, we’ll discuss your current challenges with MCA debt or any other types of business debt. Once we have an understanding of your situation and potential solutions, we can provide a quote for our services and explain our no-billing policy.
- You submit an initial payment. To get started, the next step is to send in your paperwork and make your first payment. Keep in mind we never outsource any work to third parties that don’t have deep knowledge of your situation. All work is done in-house by our experienced attorneys and staff.
- Negotiations begin. We’ll get started on your case right away. That includes contacting your creditors to notify them you’re interested in working on a plan to resolve your debt. Our team of debt relief attorneys have the negotiation skills necessary to work out a plan that makes sense for you and your business.
- We’ll keep you updated along the way. Our team will keep you in the loop as we get closer to a final resolution. You can also call at any time to ask questions without being billed for our time. We’ll handle the tough negotiations while you focus on what matters.
Call Tayne Law Today
Whether you’re struggling with MCA debt, or any other type of business debt, it can be difficult to know who to trust for legal advice. Tayne Law Group, P.C. is a financial services law firm representing businesses and individuals, and helping them avoid bankruptcy by renegotiating and modifying their financial obligations. Our team is available to speak about business debt whether you’re located in Connecticut or elsewhere.
Call us for a free phone consultation at 866-890-7337 or fill out our short contact form. All conversations are confidential, and we will never share or sell your information.