If you’re a business owner short on cash, one financing option you may have tried is a merchant cash advance (MCA). These increasingly popular sources of fast cash can be convenient when you need to cover major expenses such as inventory, equipment, or payroll. However, they can also be tricky to understand and come with very high fees. Often, they do more harm than good for your business and can have consequences in states like Utah.
If default on an MCA in Utah, you could be sued and face even greater financial strain. But you’re not alone — a Utah merchant cash advance attorney can help you resolve problems related to a merchant cash advances, including lawsuits and UCC liens.
Though a merchant cash advance is a type of business financing, it’s not actually a loan. MCAs are advances on your future receivables. The MCA provider pays you for those receivables upfront in the form of an advance, then collects it back through daily (or sometimes weekly) withdrawals from your business bank account, plus fees.
As your revenue fluctuates, so do your MCA payments. If your credit card transactions are up one day, your payment increases. And if transactions fall the next day, so does your payment. The repayment period usually lasts a few months to two years — much shorter than traditional bank loans.
There are no Utah laws that make merchant cash advances illegal in the state. MCAs are considered to be a legitimate source of funding for businesses in and outside of Utah. However, because MCAs are not loans, they are able to skirt many Utah laws that apply to traditional business loans.
Also, you don’t have to do business in Utah to be sued by an MCA provider. Many agreements have Utah jurisdiction and choice of law provisions, which allow MCA providers to sue you in the state of Utah.
There is very little regulation surrounding merchant cash advances. However, many states have been enacting new laws to reign in some of the practices of MCA providers. Utah is one of those states.
One of the biggest problems with MCAs is that the true cost can be hard to understand. Unlike traditional lenders that charge interest on loans, MCA providers charge a factor rate. Usually the factor rate ranges between 1.1 and 1.5. The riskier the business, the higher the factor rate.
To calculate how much an MCA will ultimately cost, multiply the amount borrowed by the factor rate. So if your MCA is for $50,000 and your factor rate is 1.4, you’d pay back a total of $56,000, which includes $16,000 in fees.
In March of 2022, the State of Utah passed new legislation surrounding “Non-Conventional Commercial Financing.” This new law applies to merchant cash advances and goes into effect on January 1st of 2023.
Under the new law (officially known as the Commercial Financing Registration and Disclosure Act), anyone who provides or funds commercial financing has to register with the Department of Financial Institutions of Utah. They also have to include specific disclosures in each financing packet, including the total dollar cost of financing. This is meant to help business owners make fully informed decisions about taking on non-traditional business debt (including MCA debt) and be able to compare offers apples-to-apples. If an MCA company doesn’t adhere to these rules, they can face penalties.
Despite these new laws and regulations, MCAs are still quite expensive and come with confusing contracts that can put you on the hook for debt even if you can’t afford to repay it.
If you are struggling to repay an MCA, it’s a good idea to get help from an attorney. Here are a few signs you may need legal assistance:
As a business owner, an expensive MCA can be a strain on your business. Plus, your personal finances may be at risk. It’s important to have a reputable and experienced attorney on your side that understands the ins and outs of MCA contracts and can help you resolve the MCA matter once and for all.
Tayne Law is such a firm. Our headquarters are in New York, but we provide assistance to clients all over the U.S. and globally. Many MCA matters end up in New York courts, as well as other states where MCA providers commonly bring actions.
We offer a simple and straightforward process, and work one-on-one with clients to build a plan to help eliminate troublesome merchant cash advances and other business debt, including credit card debt and business lines of credit. Our strategy is to help you protect your business and cash flow so that you can continue operating through the process of resolving your debt and MCA defaults.
Tayne Law Group has an A+ rating from the Better Business Bureau. We also earned the ‘Best Debt Consolidation Service’ for 9 years running.
If you are struggling with MCA debt — or any other debt — knowing where to turn and who to trust for help is important. Tayne Law Group, P.C. is a financial services law firm representing business and individuals so they can avoid bankruptcy by renegotiating and modifying their financial obligations like MCA and other business debts. Our team is available to speak about business debt no matter where you’re located.
Our team of experienced debt relief attorneys has helped thousands get the relief they needed, and for those with MCA defaults, helped to get them out from under the burden of MCA debt once and for all. Call us for a free phone 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.
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