If you’re a small business owner in New York, you have likely come across many different financing options, including merchant cash advances (MCAs). These are a common source of financing among New York small business owners who need quick funds for buying equipment, covering payroll, supplementing cash flow, and more.
However, these seemingly attractive sources of funding often come back to haunt New York business owners. MCAs come with high fees and short repayment timelines, which can end up putting strain on your cash flow and negatively impact your business. Plus, if you end up behind on payments, you could face a breach of contract, which can result in legal repercussions such as being sued.
If you’re considering taking out an MCA or already struggling with MCA debt, it’s important to work with an experienced attorney who understands how to handle New York merchant cash advance attorney related matters. An experienced attorney can help you navigate the world of merchant cash advance contracts, defaults, and UCC liens, and work to help you resolve any issues you’re facing with MCA debt that is located in New York.
Understanding Merchant Cash Advance
As a New York business owner, understanding how merchant cash advances work is important for several key reasons. MCAs are an alternative financing option, particularly for small businesses that might not be eligible for standard bank loans due to credit constraints or lack of collateral. However, MCAs also come with high costs and potential risks, which could impact your business for years to come.
Definition of Merchant Cash Advance
A merchant cash advance is a form of business financing where a business receives a lump sum of money in exchange for a portion of its future receivables. An MCA is not considered a business loan, but rather an advance that is typically repaid through automatic deductions from the business’s daily or weekly ACH, operating account, and/or credit card transactions. Unlike traditional loans, MCA payments are generally based on sales volume rather than a fixed schedule, making the repayment amount variable and dependent on the business’s sales performance.
How do Merchant Cash Advances Work?
Instead of a traditional interest rate, MCAs use a factor rate to determine the cost of the advance. The factor rate, usually ranging from 1.1 to 1.5, is multiplied by the advance amount to calculate the total amount the business owes. For example, an advance of $10,000 with a factor rate of 1.2 means the business will repay $12,000 in total.
The repayment process is also unique for MCAs. Instead of fixed monthly payments, the lender takes a percentage of daily or weekly credit card sales from the business bank accounts until the advance, plus the factor rate amount, is fully repaid. This percentage is known as the holdback rate, which can range between 5% and 20%. The actual repayment amount varies with the business’s sales volume—higher sales mean quicker repayment, while lower sales result in a smaller payment and longer repayment timeline.
Legalities of Merchant Cash Advances in New York
Merchant cash advances are legal in New York. However, just because an MCA is legal doesn’t mean it isn’t a threat to your business. MCAs are often considered predatory due to their high costs and the creation of debt contributing to the ongoing cycle of debt that business owners often find themselves in.
Governing Laws of New York on Merchant Cash Advances
In New York, the regulatory landscape for merchant cash advances is evolving. There is no specific law governing MCAs in the state. However, New York passed Senate Bill 5740, which introduced certain requirements for non-bank lenders, including providers of MCAs.
Specifically, S.B. 5470 requires New York non-bank lenders to provide corporate borrowers specific disclosures, both in the paperwork and before finalizing the funding. The law specifically states that merchant cash advances are a form of corporate financing that S.B. 5470 governs.
This law is seen as a step toward reforming the MCA space and curbing abuses in New York. Despite this development, the MCA industry in New York has largely been unregulated, leading to issues like high interest rates and aggressive lending practices. The new legislation seeks to address these challenges by bringing more transparency and protection for borrowers.
Role of a Merchant Cash Advance Attorney
A merchant cash advance attorney specializes in any legal issues that are a result of a business taking an MCA—particularly, helping business owners navigate these issues and ensuring their personal rights, business, and finances are protected.
What Does a Merchant Cash Advance Attorney Do?
MCA law firms and attorneys play a crucial role in navigating the complex landscape of MCA agreements. They primarily focus on advising business owners who are considering or currently engaged in MCA contracts. Their responsibilities include:
- Reviewing and advising: They review MCA agreements to ensure terms are fair and legally compliant, advising clients on potential risks and benefits including the use of UCC liens, enforcement, and litigation.
- Negotiation and restructuring: They assist in negotiating with MCA providers to restructure terms, often seeking more favorable conditions for the business owner.
- Legal representation: In cases of disputes or litigation related to MCAs, they represent and defend the interests of their clients, addressing issues like contract breaches or predatory lending practices.
Their expertise is particularly valuable in protecting business owners from potentially exploitative or unfavorable terms within MCA contracts.
Importance of Merchant Cash Advance Attorney in New York
Why do Business Owners in New York Need a Merchant Cash Advance Attorney?
Business owners in New York may need an MCA attorney due to the complex and often unregulated nature of MCA agreements in the state. Having the right legal expertise is crucial for business owners to safeguard their interests and understand the implications of MCA contracts especially since it’s not a loan.
How Can a Merchant Cash Advance Attorney Help Businesses in New York?
An MCA debt help attorney can help businesses in New York or those sued in NY by an MCA company in several ways:
- Legal advice: They review MCA agreements, providing advice on terms and identifying potential legal issues related to UCC liens and lawsuits.
- Negotiation and restructuring: Assist in negotiating better terms or restructuring existing payment terms and the agreements with MCA funders.
- Litigation and dispute resolution: Represent businesses in legal disputes or litigation related to MCA agreements.
- Compliance guidance: Ensure compliance with state laws and regulations governing MCAs.
- Protecting against predatory practices: Help to avoid or address predatory lending practices and unfair contract terms and defending lawsuits by MCA attorneys.
Process of Hiring a Merchant Cash Advance Attorney in New York
If you’re considering hiring a merchant cash advance attorney, here’s what you need to know first.
Things to Consider When Hiring a Merchant Cash Advance Attorney
When hiring an MCA attorney, there are several factors to consider, including:
- Specialization: Look for an attorney with a proven track record of handling volatile and high volume cases involving MCAs and who is familiar with New York’s financial laws. A non-attorney company is not going to be your best bet with your MCA matter.
- Consultation: Schedule a free phone consultation with an attorney to assess their understanding of your situation and devise a strategy. Keep in mind that no one other than an attorney should be giving legal advice related to your business.
- Credentials: Verify their legal qualifications and standing with the New York Bar Association and community.
- Costs and fees: Understand their fee structure and any additional costs. It should be transparent and easy to understand what it will cost you to resolve your MCA debt issues.
- Client reviews: Check for client testimonials or reviews to gauge their reputation and effectiveness.
- Communication: Ensure they communicate effectively and keep you informed throughout the process.
Steps in Hiring a Merchant Cash Advance Attorney
When hiring an MCA debt help attorney, it’s important to choose the right person and team. Follow these steps when deciding who to work with:
- Identify potential attorneys: Research and identify attorneys specializing in MCAs who are familiar with New York’s legal landscape and have experience in debt resolution. Not everyone has the same experience.
- Evaluate credentials and experience: Check their legal qualifications, experience in handling MCA cases, and standing with the New York Bar Association.
- Consultation: Arrange initial consultations with the selected attorneys to discuss your case and their approach.
- Discuss fees and costs: Ask questions about their fee structure and any additional costs involved.
- Make a decision: Based on your interactions, expertise assessment, and comfort level with their approach, choose the attorney that best fits your needs.
Common Mistakes to Avoid When Using a Merchant Cash Advance
A merchant cash advance might seem like an attractive way to secure financing quickly and without meeting the strict requirements of a traditional bank loan or SBA loan. However, MCAs can be costly and confusing.
If you’re considering an MCA, be sure you are aware of their risks and potential pitfalls, such as not thoroughly reading and understanding the agreement’s fine print and overestimating your business’s ability to repay. Businesses should also consider other financing options before opting for an MCA and use the advance for critical business needs only. Additionally, keep in mind that stacking multiple MCAs can lead to a harmful debt cycle, worsening the business’s financial health.
How a Merchant Cash Advance Attorney Can Help Mitigate These Mistakes
A merchant cash advance debt relief attorney can help mitigate MCA risks by thoroughly reviewing any contracts you’re considering and advising on the terms of the agreement, highlighting potential issues that can impact you personally and your business. They can also assist in negotiating better terms and ensure your MCA adheres to relevant laws. Additionally, they offer representation and appropriate legal and business advice if any disputes or litigation related to the MCA do arise.
FAQs About Merchant Cash Advance Attorneys in New York
How do I get out of paying a merchant cash advance?
If you want to stop paying an MCA, there are a few ways to go about it. For example, you could refinance your debt into a fixed-rate installment loan. Or if your financial situation is more dire, you could negotiate a settlement or even file for bankruptcy. You can’t get out of the agreement by simply ignoring it.
What happens if you don’t pay back a merchant cash advance?
If you don’t pay back an MCA, the consequences can be serious. The MCA provider may pursue aggressive legal action in New York to recover the owed amount. Additionally, since many MCA agreements include a personal guarantee, your personal assets and credit might be at risk. The MCA provider may also engage in aggressive collection practices calling you, your family and/or customers. It’s important to communicate with the MCA provider initially to see if there is anything they can do for you, but to also seek legal advice if you’re struggling to make payments, as ignoring the issue can make things worse.
What is the role of a New York merchant cash advance debt help attorney
A New York merchant cash advance attorney offers legal advice and representation to merchants and businesses in matters related to cash advance, factoring and funding agreements. They ensure the terms are fair, lawful, and protect the merchant’s interests, assets and business reputation. Furthermore, they can help resolve disputes related to merchant cash advances where the merchant is being threatened.
Why might a business need a merchant cash advance attorney in New York?
A business might need a New York 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 lender.
What kind of disputes or issues can a New York merchant cash advance attorney help to resolve?
A New York merchant cash advance attorney can help to resolve disputes related to repayment terms, interest rates, and/or collection practices. They can also address contractual issues, potential fraud, or instances of harassment from funders.
How to choose the right merchant cash advance attorney in New York?
Choosing the right merchant cash advance debt relief attorney in New York involves thorough research to ensure 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 and have experience negotiating and working on these extensively. You don’t want to be a test case.
What should one expect from a first consultation with a New York merchant cash advance attorney?
During a first consultation with a New York merchant cash advance attorney, you should expect to discuss your overall financial situation, go over a detailed explanation of your legal options, and talk about the potential costs and timeline for resolution. In general, the attorney will provide advice on how to better navigate the merchant cash advance legal landscape in New York.
If your business is struggling due to MCA debt, you may not know who to go to for help. Tayne Law Group, P.C. is a trusted source of legal assistance for businesses struggling with MCA debt. Our team of knowledgeable debt relief attorneys and trained staff may be able help you get your business back on track and out of debt for good. Call us for a free phone consultation with our team at 866-890-7337 or fill out our short contact form. We never sell or share your information, and calls are never outsourced. All conversations are confidential.