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A small business that needs financing and that may not qualify for other types of small business loans could be eligible for an MCA, which can make them attractive. However, they are risky and pricey with the potential to trap a small business owner in a cycle of debt.
With an MCA, a lender extends a small business a cash advance in return for that business’ future receivables.
In other words, a lender will give a business a lump sum of cash. In return, the business will make a promise to the lender to give a percentage of the business’ future revenue—usually in the form of debit and credit card sales or daily payments—to cover the cost of the cash advance and the fees. Higher sales could mean a faster repayment while lower sales could mean a slower payoff.
A business can also agree to pay daily or weekly payments, from the company’s bank account, to the MCA provider.
An MCA has a fee, but it’s not like a typical loan since an MCA is not a loan. An MCA fee is known as a factor rate. For example, if the factor rate is 1.25 for a MCA worth $100,000, the business would owe the lender $125,000.
MCAs are often repaid directly through a business’ card processor or directly via ACH withdrawals from a business’ bank account.
Since MCAs aren’t technically considered loans, they’re not subject to federal regulation or consumer based debt collection laws. There is, however, a Uniform Commercial Code (UCC), that typically is tied to MCAs. The UCC is a set of laws regarding commercial contracts that’s been adopted in nearly all U.S. states.
If, for example, you’ve signed a MCA contract, the provider could put a UCC lien or blanket lien on your assets. This means the provider could be entitled to future income streams or business assets in the event of a default. On the upside, if you’ve paid off the MCA and the UCC lien remains on your assets, you’re legally entitled to have it removed.
Although there’s no federal laws regarding MCAs, there is regulation in some states such as in New York and California. There is, however, no regulation in the state of Arizona surrounding MCAs.
While Arizona has laws governing predatory lending for consumers, (like prohibiting payday loans), there are no such laws protecting small businesses from MCAs. Therefore, it’s important to get in touch with a business debt help law firm that can help you better understand the fine print of your MCA contract and obligations under the MCA agreement you signed.
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Since MCAs are largely unregulated, their pricing can be opaque and hard to understand. And since they’re generally not considered loans, they don’t have to abide by state usury laws, which normally place a cap on the interest rates lenders can charge borrowers.
If you’ve already signed a contract with an MCA funder or plan to, think about reaching out to an MCA attorney for business legal advice. An MCA attorney can help you determine whether the terms of the contract are fair, help you negotiate with a merchant cash advance provider, or navigate a cash advance lawsuit if you’re sued by the MCA company.
MCA brokers and MCA providers can be predatory and there can be a lot at stake if you fail to adhere to their repayment schedule.
Having a debt help lawyer can help you avoid some of these possible negative consequences:
MCA contracts may also include a personal guarantee which indicates that you’re personally on the hook for the company’s debt with the MCA.
An MCA debt help attorney can help businesses in Arizona in many ways:
Negotiate with the lender to get more favorable terms or restructure your debt
Represent you in court if you’re sued
Understand the terms of your contract or business loan agreements
File a countersuit against the MCA if they’ve engaged in illegal practices
File for bankruptcy if necessary.
Before hiring an MCA attorney, you’ll want to weigh a few different factors.
Credentials. Verify their legal qualifications and standing with the Arizona Bar Association. You can check this online.
Experience and specialization. Look for an attorney with a track record of handling a high volume of cases involving MCAs.
Costs and fees. Understand each attorney’s fees and service terms—some work on a contingency fee basis (they get a portion of the settlement if you win) while others charge hourly. And take advantage if they offer a free consultation. This can help you understand if they’re a good fit for you.
Reputation. Read client testimonials or reviews online. Also, consider reaching out to friends, colleagues, or loved ones for their recommendations.
Communication. Seek out a business debt attorney who you trust. You want someone who will communicate with you effectively and keep you informed throughout the process. Steps in Hiring a Merchant Cash Advance Attorney.
When hiring an MCA attorney, look for someone who has worked on MCA cases or has experience on contract cases related to financing and lending agreements. They don’t have to be located in your State since the MCA agreement may have other State laws where enforcement can take place against you even if your business is in Arizona. Consider looking for online reviews and testimonials to get an idea of whether clients are satisfied with the debt settlement lawyer’s work.
Once you have a shortlist of potential local MCA debt help attorneys, schedule consultations to discuss your case. During these meetings, ask about their experience with MCA-related legal matters and their familiarity with laws governing MCA lending practices. It’s important to ensure any debt relief attorney is experienced, knowledgeable and understands goals.
Finally, you’ll want to make the hiring decision based on the factors that are most important to you and your business.
MCAs may seem like a good option when your small business needs cash, but before signing a contract and take the money, you’ll want to make sure you have the ability to repay it.
Since many MCAs involve a lender taking a percentage of a business’ sales through either credit card or debit card sales, they can be a risky option if your business’ sales are variable.
An MCA attorney can help you better understand the terms laid out in a contract and therefore, minimize the likelihood of your small business getting trapped in a cycle of debt. Specifically, a MCA lawyer can negotiate a better contract, figure out whether the MCA is acting legally, and if necessary, represent you in any disputes or litigation.
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.
To get started call (866) 890-7337.
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.
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