Chat with us, powered by LiveChat

If you run a small business, chances are you’ve heard about merchant cash advances, or MCAs. They can be a quick way to get funding when you need it. But they can also get you in trouble fast if you don’t know what you’re doing.

That’s why I put together this guide – to help business owners like you understand MCAs and avoid issues. I’ll explain how they work, pros and cons, legal considerations, and more. My goal is to give you the info you need to make smart decisions for your biz. Sound good? Let’s dive in!

What is a Merchant Cash Advance?

OK first – what is an MCA, exactly? Basically it’s a short-term loan where the repayment comes from a percentage of your future credit card and debit card sales. You get a lump sum up front, and the lender takes a cut of your daily revenue until it’s paid back. There are no fixed monthly payments.

This flexibility seems great, right? But it can also get merchants in trouble when sales drop unexpectedly. If your revenue goes down, your daily repayment doesn’t drop – so you end up paying back a huge chunk of reduced sales. Not ideal.

See also  Merchant Cash Advance Business Debt Relief

How MCAs Work

Let me break it down a bit more…

  • You get an upfront lump sum, usually between $5K – $500K
  • The lender takes a % of your daily credit/debit card sales as repayment
  • Payments fluctuate based on your sales – no fixed monthly amount
  • The term is usually 6-12 months until repaid in full

Seems simple enough. But you need to be careful. Here are some key things to know…

- -

Pros of Merchant Cash Advances

  • Fast funding – usually within a week of applying
  • No fixed monthly payments – repayments scale with revenue
  • No collateral required – unsecured funding
  • Flexible terms – pick your ideal repayment percentage
  • Poor credit OK – based on card sales, not credit score
  • Keep using your cards – no need to switch processors

Cons of Merchant Cash Advances

  • Very high interest rates – often over 100% APR
  • Can drain your daily revenue fast if sales drop
  • Repayments don’t drop when your revenue does
  • Aggressive collections if you fall behind
  • Recourse – personal guarantee usually required
  • Expensive to refinance once signed up

As you can see, there are some big advantages but also considerable risks. Tread carefully.

Common MCA Company Abuses

Unfortunately, many MCA lenders engage in predatory practices that take advantage of small businesses. Here are some shady behaviors to watch out for:

  • Quoting super high repayment rates that crush your margins
  • Taking daily debits that drain your bank account
  • Harassing nonstop calls from aggressive collectors
  • Getting you to sign confessions of judgement for easier asset seizures
  • Strongarm tactics to collect if you fall behind
  • Hiding terms in the fine print
  • Misrepresenting repayment amounts
See also  How To Beat Absolute Resolutions Investments LLC If they're Calling and Harassing Me

Not all MCA companies are evil. But many are extremely aggressive in getting their money back. You need to protect yourself.

MCA Legal Considerations in California

Now let’s talk about some of the legal issues surrounding merchant cash advances. There are a few key laws and regulations you need to know:

California Finance Lenders Law (CFLL)

Many MCA lenders get licensed under the CFLL, which governs lending activity in the state. This allows them to bypass usury limits on interest rates.

- -

Usury Limits

In California, the maximum allowable interest rate is generally 10% APR for loans under $2,500. MCA loans often far exceed this. But lenders claim they are not technically “loans” in order to avoid usury.

SB 1235

This new CA law requires MCA lenders to provide certain disclosures about rates, terms, potential liability, etc. It’s a start, but more protections are needed.

Unconscionable Terms

Some MCA contracts contain such unfair, one-sided terms that they become legally invalid. A skilled attorney can get them thrown out.

- -

Confessions of Judgement

These allow the lender to seize your assets if you default. They’re banned in CA but some lenders still sneak them in.

What to Do if You Have an MCA

If you already have a merchant cash advance, here are some tips:

  • Review your agreement closely – know the terms inside out
  • Build up reserves if possible to stay on top of payments
  • Talk to the lender right away if you anticipate any repayment issues
  • See if you can renegotiate the repayment percentage
  • Avoid signing any new confessions of judgement
  • Contact an attorney immediately if you receive threats or harassment
See also  Merchant Cash Advance Attorney Los Angeles

The most important thing is to act quickly if you fall behind on payments. Ignoring the problem won’t make it go away – it will only get worse. Be proactive.

Fighting Back Against Predatory MCA Lenders

If you realize you’ve been taken advantage of, it’s not too late to fight back. An experienced attorney can help you get relief through strategies like:

  • Proving usury violations
  • Filing breach of contract claims
  • Invalidating unfair contract terms
  • Proving fraudulent inducement
  • Seeking damages for harassment/abuse
  • Negotiating a favorable settlement

Don’t be intimidated by aggressive collection tactics. You have rights. And you may be able to get the contract thrown out completely. Fight back.

Should You Get a Merchant Cash Advance?

Here’s my honest advice after seeing many MCA deals go bad:

Proceed with extreme caution. MCAs can provide quick funds when used carefully. But they come with big risks. Examine all options before choosing an MCA.

If you do go the MCA route, work with an attorney to review the contract. Negotiate the best possible terms. And have a plan to cover payments if sales decline.

MCAs can be helpful. But they can also destroy businesses if not managed properly. Educate yourself and get professional advice before moving forward.

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
$350,000 MCA Restructured Over 2 Years

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
How to Lower Your Monthly Auto Loan Payment

How to Lower Your Monthly Auto Loan Payment A high…

Boston Merchant Cash Advance Attorney

Boston Merchant Cash Advance Attorney Getting a merchant cash advance…

How To Get Out Of A Merchant Cash Advance – MCA Debt Relief

How to Get Out of a Merchant Cash Advance So…

Getting Free Help with Your Student Loans is Incredibly Easy

Getting Free Help with Your Student Loans is Incredibly Easy…

6 Signs Your Future Spouse Is Bad With Money

  6 Signs Your Future Spouse Is Bad With Money…

Delancey Street simply gets it. You're talking to experts.
Steven Norris
Get Help Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Schedule Consultation