If you’re a small business owner in Pennsylvania, you may have come across something called a merchant cash advance (MCA). This is an increasingly popular source of funding among Pennsylvania business owners who are in need of fast cash.
Though they provide quick access to funding, MCAs come with some major drawbacks. They have high fees and short repayment timelines, which can strain your cash flow and negatively impact your business. If you encounter a breach of contract by missing a payment, you could even be sued by the MCA funder.
That’s why it’s important to work with an experienced merchant cash advance attorney in Pennsylvania. An experienced attorney can help you navigate MCA contracts, defaults, and UCC liens. They’ll work to help you resolve any issues you’re facing with MCA debt that is located in Pennsylvania.
Understanding Merchant Cash Advance
Definition of Merchant Cash Advance
A merchant cash advance is a type of business funding that provides businesses with a lump sum of money in exchange for a percentage of their future receivables. It’s often used by businesses that need immediate capital and have a significant volume of sales through credit card transactions, particularly those who don’t have the credit to qualify for more traditional business financing.
How do Merchant Cash Advances Work?
MCAs can provide access to capital quickly, often within a few days. The repayment is flexible, adjusting with the business’s sales volume. However, they can be more expensive than traditional loans due to higher factor rates. It’s important for businesses to understand the terms and costs associated with the advance.
Here’s how an MCA works: The business applies for an advance from an MCA provider. The provider evaluates the business’s sales records, including bank statements and receivables, and determines how much it will advance.
Once approved (which is usually fast) the business receives a lump sum payment from the merchant cash advance provider. Repayment is made by automatically diverting a percentage of the business’s daily receivables either directly from their bank or through their credit card sales to the provider or purchaser. This percentage, known as the holdback rate, is agreed upon in the contract.
Instead of traditional interest rates, MCAs use a factor rate to calculate the cost of the advance. This rate is multiplied by the advance amount to determine the total repayment amount. Factor rates typically range between 1.1 and 1.5.
Legalities of Merchant Cash Advances in Pennsylvania
MCAs are structured as commercial transactions rather than loans. This distinction means they’re often not subject to the same regulatory scrutiny or interest rate caps that apply to traditional loans. Additionally, there are no licensing requirements to become an MCA provider or MCA broker in the state of Pennsylvania.
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Governing Laws of Pennsylvania on Merchant Cash Advances
There are no specific Pennsylvania state laws that govern MCAs. However, other states have implemented laws to reign in how MCA providers can operate. One such state at the forefront of MCA regulation is New York; the state enacted a law in 2019 banning New York MCA providers from issuing a Confession of Judgment (COJ) to a Pennsylvania resident or merchant. In other words, if a borrower from Pennsylvania takes out an MCA from a New York MCA funder, that funder can’t require the merchant to sign a COJ.
Role of a Merchant Cash Advance Attorney
A merchant cash advance attorney plays a crucial role in navigating the complexities of MCA transactions, offering legal guidance and support to businesses. Their responsibilities and services can vary widely.
What Does a Merchant Cash Advance Attorney Do?
Some of the services that an MCA attorney can provide include:
- Contract review: They review the terms and conditions of the MCA agreement to ensure clarity and fairness. An attorney can discuss the implications of the factor rate, holdback rate, and any other fees or obligations.
- Negotiation: An MCA attorney can negotiate with MCA providers to secure more favorable terms for the merchant, such as lower rates or more flexible repayment terms.
- Dispute resolution: In cases where disputes arise between the merchant and the MCA provider, the debt help attorney can represent the merchant in negotiations, arbitration, or litigation.
- Compliance and regulatory guidance: They ensure that the merchant’s actions comply with all relevant laws and regulations, helping to avoid legal pitfalls with the MCA contract they signed.
Importance of Merchant Cash Advance Attorney in Pennsylvania
MCAs can be complex and carry unique risks. If you’re considering an MCA or struggling with MCA debt, specialized legal guidance is critical.
Why do Business Owners in Pennsylvania Need a Merchant Cash Advance Attorney?
MCA agreements can be dense and difficult to understand, with terms that sometimes place a heavy burden on the business owner. An MCA attorney can review and explain the terms of the agreement, ensuring clarity and fairness when things seem overwhelming. They can also negotiate terms to make them more favorable for the business, such as reducing fees or adjusting the percentage of daily or weekly sales allocated to repayment. An attorney well-versed in Pennsylvania’s commercial law can help navigate state-specific regulations, ensuring that the MCA agreement complies with local laws.
Additionally, disputes between merchants and MCA providers can arise, particularly regarding the terms of repayment or the amount due. An attorney can represent the business in these disputes, whether in negotiations, arbitration, or litigation, to seek a fair resolution.
Process of Hiring a Merchant Cash Advance Attorney in Pennsylvania
Hiring an MCA attorney for MCA legal help is a significant step for any business considering an MCA, or dealing with issues from a current MCA agreement that they can no longer keep up with. Given the complexities and potential risks involved with UCC liens and litigation from MCA companies, it’s important to choose the right legal debt help with an experienced MCA attorney.
Things to Consider When Hiring a Merchant Cash Advance Attorney
Here are some important factors to consider when hiring an MCA attorney:
Experience and Specialization
Look for a legal debt attorney with direct experience in handling MCA debt cases. An attorney who specializes in financial transactions, particularly in the MCA sector, will be more familiar with the industry’s nuances than a general business lawyer.
Understanding of Local and Federal Regulations
Ensure the debt relief attorney is well-versed in both federal and state laws that govern MCAs and commercial transactions, especially any specific regulations applicable in your state. An attorney who keeps abreast of regulatory changes affecting MCAs can provide proactive advice and help you stay compliant.
Reputation and References
Look for reviews or testimonials from previous clients, especially those in situations similar to yours with MCA debt. Consider the attorney’s standing in the professional community, including any awards, recognitions, length of time practicing in the area of debt relief, and/or leadership positions in relevant legal associations.
Communication Skills
Your attorney should be able to explain complex MCA legal concepts in understandable terms. Effective communication is key to ensuring you are fully informed about your matter. And timely responses to your questions are crucial, especially in situations that require quick decision-making, which commonly happens in MCA debt cases.
Strategy and Approach
Discuss their approach to handling MCA cases. Ensure their strategy aligns with your business goals and legal needs. Given the potential for dispute resolution with MCA providers, strong negotiation skills are also key.
Cost Structure
Understand how the attorney bills for their services. MCA cases can vary in complexity, so it’s important to have a clear understanding of expected costs. Whether they charge an hourly rate, a flat fee, or a contingency fee (based on the outcome of the case), make sure the fee structure is clear and works for your business.
Personal Fit
You should feel comfortable discussing sensitive financial details with your attorney and trust their advice and judgment. Ensure they have the time and resources to give your case the attention it deserves.
Steps in Hiring a Merchant Cash Advance Attorney
When hiring a merchant cash advance attorney, there are certain steps you should take to ensure you select a professional who best fits your business’s needs and objectives. Here’s a general roadmap to guide you through the process:
1. Identify Your Needs
Clearly define why you need an MCA attorney. Whether it’s for negotiating MCA agreement terms, handling disputes, or understanding legal obligations and lawsuit risks associated with an MCA, knowing your specific needs will help you choose an attorney with the right expertise.
2. Research and Compile a List
Start by researching attorneys who specialize in MCA or have substantial experience with business financial transactions and contract disputes. Use online directories, legal association websites, and referrals from your network to compile a list of potential candidates.
3. Evaluate Experience and Specialization
Review the attorneys’ backgrounds, focusing on their experience and specialization in MCA transactions and related areas. Look for information on their websites, LinkedIn profiles, and any publications or testimonials.
4. Check Reputation and References
Look for reviews or ask for references to get insights into the attorneys’ reputations. Testimonials from former or current clients can provide valuable information about their experiences, work style, and outcomes.
5. Schedule Consultations
Many attorneys offer initial consultations free of charge. Schedule meetings with your top choices to discuss your situation, understand their approach to handling your MCA debt matter, and assess how well they understand actual MCA issues.
6. Inquire About Strategy and Costs
Ask about their proposed strategy for your case or needs and ensure it aligns with your objectives. Also, discuss their fee structure and billing practices. Understanding the costs upfront can prevent surprises down the line.
7. Make Your Selection
Based on your research, consultations, and assessments, choose the debt relief attorney you believe is best suited to your needs. Who will help you best in your matter? Be sure to be comfortable with their expertise, communication style, proposed strategy, and fees.
Common Mistakes to Avoid When Using a Merchant Cash Advance
Merchant cash advances can offer a lifeline to businesses in need of quick financing, but they come with their own set of risks and pitfalls. Here are some common mistakes businesses should avoid when using an MCA:
- Not fully understanding the terms
- Overlooking financing alternatives
- Underestimating cash flow impact
- Ignoring cost of capital
- Borrowing excessively
- Lacking a repayment plan
- Stacking advances
- Skipping professional advice
How a Merchant Cash Advance Attorney Can Help Mitigate These Mistakes
An MCA attorney can play a crucial role in helping a business navigate the complexities of MCAs and avoid common pitfalls. Here’s how they can help mitigate the mistakes mentioned:
- Providing professional guidance: By consulting with an MCA attorney, you benefit from their professional advice on all legal aspects of the MCA, ensuring that your business’s interests are protected.
- Clarifying terms and conditions: An attorney can ensure that you fully understand the terms of the MCA, including factor rates, retrieval rates, and any hidden fees, to prevent surprises down the line.
- Developing a repayment plan: They can assist in creating a financial plan that accommodates the MCA repayments without disrupting your business’s financial stability.
- Vetting the MCA provider: They can conduct due diligence on the MCA provider, reviewing their reputation, customer feedback, and legal standing to ensure they are reputable and trustworthy.
- Exploring alternatives: They can advise on the full spectrum of financing options available to your business, helping you compare the costs and benefits of each and possibly steer you towards more favorable solutions.
Tayne Law Group is a New York-based law firm, but we work with clients from across the U.S. and even globally. So if you’re based in Pennsylvania or elsewhere and are struggling with merchant cash advance debt, we may be able to assist.
As a law firm, you can rest assured that everything about our process is transparent and straightforward. Our team is made up of experienced attorneys who resolve MCA debt every day. Our team can work with you to come up with a customized approach to resolving your merchant cash advance debt (and other types of business debt, too). We strive to protect your business cash flow and operations while negotiating the best possible agreement with your MCA provider.
FAQs About Merchant Cash Advance Attorneys in Pennsylvania
What is the role of a Pennsylvania merchant cash advance attorney?
A Pennsylvania merchant cash advance attorney offers legal advice and representation to merchants in matters related to cash advance agreements. They ensure the loan terms are fair, lawful, and protect the merchant’s interests. Further, they can help resolve disputes related to merchant cash advances.
Why might a business need a merchant cash advance attorney in Pennsylvania?
A business might need a Pennsylvania merchant cash advance attorney to provide legal guidance in securing an MCA or dealing with any issues that may arise post-agreement, including managing repayment terms, confronting unexpected charges, or resolving potential disputes with the provider.
What kind of disputes or issues can a Pennsylvania merchant cash advance attorney help to resolve?
A Pennsylvania merchant cash advance attorney can help to resolve disputes related to repayment terms, interest rates, or collection practices. They can also address contractual issues, potential fraud, or instances of harassment from lenders.
How to choose the right merchant cash advance attorney in Pennsylvania?
Choosing the right merchant cash advance attorney in Pennsylvania involves thorough research and ensuring they have significant experience in this domain. Consider their success rates, client testimonials, and dialogue with them to ensure they fully understand your business needs and financial aspects. Make sure they possess a deep understanding of the state’s regulations and laws surrounding merchant cash advances.
What should one expect from a first consultation with a Pennsylvania merchant cash advance attorney?
During a first consultation with a Pennsylvania merchant cash advance attorney, one should expect a thorough understanding of their financial situation, detailed explanation of legal options, and a discussion about the potential costs and timeline for resolution. They will typically provide advice on how to better navigate the merchant cash advance legal landscape in Pennsylvania.
If your business is struggling with MCA debt — or any other debt — you might not know where to turn or who to trust for help. Know that Tayne Law Group, P.C. is here for you. Our team of experienced debt relief attorneys can help you get your business back on track and out of debt for good. Call us for a free 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.
