Merchant cash advances are an increasingly popular form of financing and funding for small businesses, including Virginia small business owners. They promise fast cash — even with not-so-great credit — that can be used to pay for major expenses like equipment and inventory or fill the gap when cash flow is strained or unpredictable lately.
Unfortunately, many business owners find that merchant cash advances aren’t as convenient and easy as they thought. With high fees and daily withdrawals from your receivables, an MCA can strain your business and personal finances even more. It’s not uncommon for Virginia business owners to find themselves behind on payments and even facing legal issues.
If that’s the case, it’s important to work with an experienced MCA attorney who can handle Virginia merchant cash advance legal matters. A Virginia merchant cash advance attorney can help you navigate the world of merchant cash advance contracts and UCC liens. They can also help resolve any issues you face with MCA debt, like litigation when you’re being sued in Virginia.
A merchant cash advance (sometimes called a credit card processing loan) is a type of alternative business financing. Though it might seem like a loan, an MCA is technically not a loan. Rather, it’s an advance on your future credit card sales (or other revenue). When you take out an MCA, the provider buys a portion of your receivables and gives you the money upfront. Then, you pay back the advance over a fairly short time- anywhere from 3 to 18 months — plus fees.
MCA payments are usually deducted every day from your business bank account. The amount deducted is based on the holdback rate, the percentage of your daily sales withheld as payment to the MCA funder. It typically ranges from 5% to 20%. As your revenue increases or decreases, so do your payments. However, you could find yourself in overdraft with bounced payments due to an MCA withdrawing money regularly from your account.
Sometimes, your MCA may instead require fixed weekly payments based on your estimated monthly revenue. This is more common for businesses that don’t have many debit or credit card sales.
Merchant cash advance providers also charge a “factor rate” instead of the usual interest rate on a traditional bank loan. Factor rates for MCAs are around 1.1 to 1.5, depending on the expected performance of the business. Higher-risk companies usually pay a higher rate. 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 $42,000, including $12,000 in fees.
Yes, merchant cash advances are legal in Virginia. There currently aren’t any laws that render a merchant cash advance contract illegal in the state. Merchant cash advances are a form of alternative financing and funding for businesses, and in Virginia, they are not considered loans.
Understanding Virginia MCA Laws
One of the biggest criticisms of merchant cash advances is that they are basically loans in disguise. Virginia’s usury laws prevent lenders from charging excessively high-interest rates. But because MCAs are technically not loans, MCA providers can skirt these laws and charge as much as they want, costing the small business owner thousands of dollars to fund these agreements.
However, some states have been instituting new MCA regulations to prevent this type of predatory lending. Virginia was actually the second state to legally require MCA providers to adhere to special rules that help protect merchants. And unlike other states that have passed new laws that broadly cover financing companies, Virginia took direct aim at merchant cash advance providers and brokers.
Under the new law , providers of “sales based financing”- including MCA companies- must provide upfront disclosures about certain financing terms. Those include the total amount borrowed, financing cost, estimated number of payments, total repayment amount, and more. MCA providers are also required to follow certain dispute-resolution procedures. Under this new set of rules, Confession of Judgment (COJ) provisions are prohibited. If legal action is taken, it must be brought in Virginia.
Signs You Need a Virginia Merchant Cash Advance Attorney
If you are struggling with MCA payments or have defaulted on the advance repayment agreement, it’s a good idea to enlist the help of an attorney. Here are a few signs you need legal assistance:
- MCA payments take up a large portion of revenue.
- You signed a Confession of Judgment (COJ) when you received your advance.
- You’re contacted repeatedly by debt collectors or solicitors about MCA debt help.
- Your MCA contract included a personal guarantee.
- There is a UCC lien filed against your business.
- Your business or personal bank accounts are frozen.
- MCA lenders have contacted your clients or vendors.
How Can Tayne Law Help With Virginia MCA Debt?
If you’re struggling with MCA debt in Virginia, we can help. Our headquarters may be in New York, but Tayne Law provides legal help to clients across the U.S. and even globally. Our process is straightforward and transparent. Plus, our experienced MCA attorneys will work with you on customized solutions that help eliminate merchant cash advance debt (as well as other types of business debt), all while protecting your business cash flow and operations.
Tayne Law Group is accredited by the Better Business Bureau and has a rating of A+. We also earned the ‘Best Debt Consolidation Service’ for 9 years running.
Here’s how our services work:
- Call for a consultation. In this initial conversation, we’ll ask questions to better understand your financial situation and learn more about your business debt. Once we get to know you better, we can explain how we can help and discuss our no-billing policy.
- Get started easily and quickly. When you decide to hire us, we’ll start working on your file as soon as you make your first payment. You won’t have to worry about fielding calls, emails, or texts from MCA debt collectors or MCA attorneys once we are involved, as we’ll take over all communications with your creditors.
- Negotiations begin. Our team will contact your creditors to notify them that you’re ready to resolve your debt. Our debt relief attorneys are skilled negotiators and have established relationships with many creditors and their legal teams. We know what it takes to secure a deal that works with your budget. And our office does all the work; we never outsource to third parties who don’t know you or your business.
- We’ll keep you in the loop. As we work toward a final resolution with your creditors, we’ll provide updates along the way. We have an open-door policy, which means you can call any time. In the meantime, you’ll have the breathing room to focus on keeping your business running.
If your business is burdened by MCA debt, knowing where to turn for help can be difficult. Tayne Law Group, P.C. is an award-winning law firm and a trusted source of assistance. Our team of knowledgeable 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; we will never share or sell your information.