The owner of a local food market came to us with $58,000 in debt from his merchant cash advance loan with Everest Business Funding.
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A merchant cash advance is a business financing tool that many owners use to help with additional cash flow or provide the capital needed to grow. However, they come with plenty of risks, including high fees, short repayment, and the risk of falling into an endless debt cycle.
If you’ve used a merchant cash advance to borrow money in Massachusetts and are struggling to repay it, you have some options. A merchant cash advance attorney can help you understand your merchant cash advance agreement, explore your repayment options, and negotiate with your lender on your behalf if you can’t repay what you’ve borrowed.
A merchant cash advance (MCA) is a type of business financing that’s more complex than traditional business loans. Whether you’re considering taking out an MCA or you already have one, it’s important to understand how they work.
An MCA is an alternative type of business financing that allows a business owner to borrow against their future revenue. The MCA provides the business owner with a lump sum, and then withdraws payments, usually either daily or weekly, based on a percentage of that business’s revenue.
MCAs differ from traditional business loans in several ways. An MCA isn’t technically considered a loan — instead, it’s an advance on the business’s future receivables. The payments, which are made either daily or weekly, aren’t fixed or based on a set amortization schedule. Instead, they are based on a percentage (known as the holdback rate) of that business’s revenue, such as credit card sales. The higher the business’s revenue, the higher its MCA payments.
Instead of charging traditional interest like other business loans, MCAs use what’s called a factor rate. This determines how much the business owner will pay in fees. A typical factor rate for an MCA might range from 1.1 to 1.5. For example, on a $10,000 advance, the factor rate could range from $11,000 to $15,000. These high factor rates make MCAs more expensive and more difficult to repay than traditional business loans.
MCAs are legal in Massachusetts, as they are in most states although there are more and more restrictions being placed against these find of funding programs for businesses. However, they sit in somewhat of a legal gray area in business lending. Especially, their high costs and difficult repayment mean they’re often predatory and could harm your business’s finances.
As we mentioned, MCAs sit in a bit of a legal gray area. They aren’t legally considered loans, meaning they don’t come with the same legal regulations and protections as traditional business loans. Instead, an MCA is the equivalent of another company (the MCA provider) purchasing your business’s future receivables.
Massachusetts doesn’t have any laws that directly regulate MCAs, even though they take steps to regulate other predatory loans, such as payday loans. Unfortunately, this means small business owners are left to fend for themselves against predatory lenders.
Because of the complexities and lack of legal protections around MCAs, it may be worth speaking with a merchant cash advance attorney, who is experienced in dealing with these lending tools and can help you navigate the challenges that come with this kind of business financing.
An MCA attorney specializes in helping clients who have taken funds from merchant funders or are considering signing up with a merchant cash advance. While each situation is different, the job of an MCA attorney often starts with reviewing the borrower’s MCA agreement to understand the terms.
From there, an MCA debt relief attorney can advise their client on their options. In some cases, an MCA attorney may find that the terms of the MCA are unfair or illegal. If the MCA is legal and the borrower simply can’t repay it, the attorney may recommend and assist with remedies such as negotiating a payment settlement.
Finally, if the MCA provider sues a business due to a lack of payment or another breach of contract, the MCA attorney can represent the business and business owner since they will likely sue both.
Not every merchant cash advance requires the help of a business debt attorney. However, there are more situations with this kind of funding where it’s advisable to hire one for the best interests of your business finances.
There are a few primary situations in which a business owner in Massachusetts might seek the help of an MCA attorney:
MCA attorneys are experts in navigating these complex borrowing tools. Here are a few of the services MCA attorneys provide their clients:
If you’re considering hiring an MCA attorney to represent you, there are several factors you should consider when finding the right fit:
Are you ready to find an MCA attorney? Here’s a step-by-step guide to help you find the right person or law firm to represent you:
Unfortunately, MCAs are often predatory in nature because of their high factor rates and because they require small business owners to pay more than they can afford. This leads to an endless cycle of debt that’s difficult to get out of.
Outside of taking out an MCA in the first place, there are several other mistakes that borrowers often make. Here are a few to avoid:
MCA attorneys differ from other debt relief companies because they have legal experience and credentials that other companies lack. Additionally, a good MCA attorney will have years (or decades) of experience) representing small business owners against MCA lenders and other business lenders.
An MCA debt help attorney can help whether you’ve already taken out your MCA or not. If you’re still considering an MCA, an experienced attorney can help you read and understand your contract, advising you on any red flags. And if you’re already in over your head with an MCA, an attorney can help you explore your options or, in the worst-case scenario, represent you in any legal proceedings.
After more than 20 years of working solely in debt relief, Tayne Law Group has established healthy and long-lasting relationships with business lenders, creditors, and merchant cash advance lenders and companies. Because we’re a law firm, our process is respected, which, in the end, saves you time and money.
The owner of a local food market came to us with $58,000 in debt from his merchant cash advance loan with Everest Business Funding.
The owner of a cheerleading gym came to us as a borrower with $19,028.12 on an MCA with Lendini. She was dealing with other cash advances at the time, and this account became too much to handle.
The owner of a plumbing business was never paid on a big contract. To keep up with the bills he got an MCA with QuarterSpot. When he couldn’t pay the $72,230.64 balance, he became a client.
Yes, merchant cash advances are legal in Massachusetts. In fact, because they don’t fall under the same laws that regulate other business loans, there are few protections in place for borrowers. For that reason, it’s important to be proactive about seeking legal help.
You may be able to get out of your current merchant cash advance terms by either restructuring the agreement, negotiating a settlement with your lender, or refinancing the debt by applying for a new loan (not another merchant cash advance).
Yes, merchant cash advances are usually personally guaranteed, meaning the business owner promises to repay the debt if the business itself can’t. Unfortunately, this means that these cash advances can be harmful to both your business and personal finances.
If you stop paying on your merchant cash advance, the provider can sue you and obtain a judgment. You may have your bank account frozen or garnished to help pay off the unpaid debt. If you’re sued by your MCA provider, it’s important to appear in court and have legal counsel there to help you argue your case.
You may be able to negotiate your MCA to pay it off for a lower amount. MCA providers may be willing to settle when they don’t think the borrower will otherwise pay off the debt. You may also negotiate the terms of your MCA, meaning your factor rate or payments, to make it easier to pay off. You’ll likely be most successful in settling your debt if you have an attorney to represent you and negotiate on your behalf.
Being in debt can be an emotional burden in addition to a financial one. Unfortunately, if you’re unable to pay back your debt, your lender can sue you to force you to pay what you owe. If you’ve been sued by a lender or debt collector, don’t lose hope yet — there are steps you […]
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Merchant cash advances (MCAs) can seem like a lifeline for small businesses that need quick access to capital. They offer fast funding, are relatively easy to obtain, and can bridge urgent cash flow gaps when banks say no. But that speed and convenience often come at a cost; MCA agreements are notoriously complex, with high […]
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Merchant cash advances (MCAs) can feel like a lifeline when your business needs quick access to capital, but the repayment terms often become a serious financial strain. Unlike traditional loans, MCAs take a fixed percentage of your daily or weekly sales, leaving you with less flexibility to manage other financial obligations. First phone consultation is […]
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A team member will respond within 1 business day. Your free consultation phone call may not be with an attorney and does not include legal advice. This is limited to the first call on a new matter.
Your initial phone consultation is free and requires no commitment!
A team member will respond within 1 business day. Your free consultation phone call may not be with an attorney and does not include legal advice. This is limited to the first call on a new matter.
A Tayne Law team member will respond within
1 business day.