As a small business owner, you may have recently taken out a merchant cash advance (MCA). These are a popular way for Texas business owners to secure fast and easy financing, even if they don’t have great credit. MCAs are often used to cover major expenses such as equipment, inventory, payroll, expansion, and more.
However, MCAs also come with high fees and complex contracts. The daily payments can strain your cash flow, making it tough to keep up on your regular day-to-day business expenses. And if you fall behind on payments, you could end up personally liable for the debt. You may even face legal action on behalf of the MCA provider.
Sound familiar? If so, it’s crucial that you contact an experienced Texas merchant cash advance attorney who understands the complex world of MCAs, how to protect your rights, and the right strategies to resolve your MCA debt for good.
A merchant cash advance is a type of financing in which a business receives a lump sum of cash in exchange for a percentage of future sales. The amount the business receives is based on the company’s projected future growth and revenue. The advance is then repaid, with fees, over a short period — generally, a few months to a couple of years.
Payments are typically deducted each day from the business bank account. The amount of that payment is based on the holdback rate, which is the percentage of your daily sales that are withheld. Holdback rates tend to range from 5% to 20%. As your revenue increases or decreases, so do your payments. In some cases, your MCA agreement might call for fixed weekly payments based on your estimated monthly revenue. This is more common for businesses that don’t have debit/credit card sales on a regular basis.
Additionally, instead of a traditional interest rate, which is loan-based, merchant cash advance providers charge what’s known as a “factor rate.” This is because a MCA is not a loan. This rate is generally around 1.1 to 1.5; companies with higher risk profiles are typically charged 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 $30,000 with a factor rate of 1.4, you’d pay back a total of $42,000, including $12,000 in fees.
Yes, merchant cash advances are legal in Texas. There are no laws that render a merchant cash advance contract illegal in the state.
However, if you read the agreement carefully, it’s likely the law pertaining to your MCA is outside of Texas, and instead based on New York, Utah, Virginia and even Connecticut laws. The MCA agreement will tell you what law applies, so while you may live and work in Texas and the funding took place in Texas, the law that the MCA has to follow is likely not Texas law.
Agaon, it’s important to note that merchant cash advances are not considered to be loans, but rather a form of alternative financing for businesses, so they are not subject to the same rules and regulations as Texas small business loans. This is important, since you will need an experienced attorney licensed and practicing where the law is applied.
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Merchant cash advances are notoriously challenging to business owners for a few reasons, one of the biggest being that they often operate as loans in disguise and are pushed as loans by brokers. However, MCAs are legally not loans at all, but rather an advance on future receivables.
There are usury laws in Texas to prevent lenders from charging excessively high interest rates, but that applies to loans and not MCAs. So MCA companies are able to get around these laws and charge exorbitant fees and since they are not consumer focused and don’t have to follow the Fair Debt Collection Practices Act.
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 Texas residents.
As a reminder, a COJ is a provision in many MCA contracts in which a borrower agrees to give up their right to a trial or hearing and allows a lender to obtain a judgment against them without any notice or opportunity to defend themselves in court.
Today, if a Texas business owner takes out an MCA from a New York-based MCA funder, that funder cannot issue them a Confession of Judgment.
Whether your MCA payments are placing strain on your business, you’re being harassed by debt collectors, or you’ve been sued by a merchant cash advance provider, you should get the help of an experienced MCA attorney right away. Here are a few signs you need legal assistance:
If you’re struggling with MCA debt in Texas, we can help. Tayne Law Group is headquartered in New York, but we work with clients all around the country — and even the world. We offer a transparent and straightforward process, and our experienced MCA debt help attorneys will work closely with you on a solution to resolve and eliminate MCA debt (as well as other types of business debt). We always keep your best interests and budget in mind, customizing a plan that protects your business operations and cash flow, and never outsource any of our work.
Our law firm is accredited Better Business Bureau and has an A+ rating. We also were voted the ‘Best Debt Consolidation Service’ for 10 years in row!
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.
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