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Merchant Cash Advance Attorney: An In-Depth Guide for Small Businesses

Merchant cash advances (MCAs) have become an increasingly popular form of alternative business financing, but they also come with major risks. This comprehensive guide will explain what merchant cash advances are, discuss the pros and cons of MCAs for small businesses, review applicable laws and regulations, and most importantly, outline why it’s critical to work with an experienced merchant cash advance attorney before signing any agreement.

What is a Merchant Cash Advance?

A merchant cash advance provides businesses with an upfront lump sum of capital in exchange for a percentage of future credit card sales. It is not technically considered a loan, but rather the purchase of a business’s future receivables.Here’s how it works:

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  • A business applies to an MCA company, providing information on monthly credit card sales
  • The MCA company offers the business an upfront cash amount, often between $5,000 – $500,000
  • In exchange, the business agrees to pay back a fixed percentage of daily credit card sales, usually 10-20%, until the full cash amount plus fees and interest are repaid
  • The MCA company collects repayments by taking a set percentage of daily credit card transactions either directly or via ACH withdrawals

Unlike a term loan, there is no fixed repayment schedule with an MCA. The business repays the advance as a percentage of daily sales, so repayment amounts fluctuate based on sales volume.

Pros and Cons of Merchant Cash Advances

Merchant cash advances appeal to many small businesses because they provide quick access to capital with minimal qualifications. However, there are also significant downsides business owners should consider:Pros

  • Fast funding – MCAs can provide funding in as little as 24-48 hours which is much faster than traditional bank loans
  • Flexible qualifications – MCA companies generally have less stringent approval requirements than banks
  • Payments tied to sales – Repayments fluctuate based on credit card sales volume, providing flexibility


  • High costs – MCAs can be extremely expensive with interest rates often exceeding 30-40%
  • Daily repayment strain – The daily repayment structure can put significant cash flow strain on businesses
  • Vague contract terms – MCA contracts often lack transparency and contain confusing terminology
  • Aggressive collections – MCA companies are known to engage in aggressive collections tactics like accessing bank accounts or placing liens
  • Overreliance on credit card sales – Tying repayment exclusively to credit card sales leaves businesses vulnerable if processing is disrupted

As this overview shows, business owners need to carefully weigh the pros and cons before agreeing to an MCA. Speaking with an attorney can provide clarity on whether an MCA makes sense for your specific business situation.

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Applicable Laws and Regulations

A major issue with merchant cash advances is the general lack of oversight and regulation of the industry. Since MCAs are not defined as loans, they are essentially unregulated.MCA companies are not bound by state usury laws that cap interest rates on loans. And the opaque contract terms and confusing terminology used in MCA agreements often go unchecked.However, there have been some recent legal developments that improve transparency and provide more protections for business owners:

  • Texas Disclosure Requirements – A 2021 law requires enhanced disclosures from MCA companies about repayment terms, costs, fees, and other contract details. This helps improve transparency.
  • Potential Usury Violations – Some MCA agreements that feature exploitative fees and interest rates above legal limits may be in violation of state usury laws. Usury challenges have succeeded in reclassifying some MCAs as loans subject to rate caps.
  • California Settlements – Class action lawsuits settled in California in the late 2000s required some MCA companies to alter contract terms and practices. However, more oversight is still needed.

While limited, these developments demonstrate that MCA companies are not entirely immune from regulation and scrutiny when their practices are unlawful or predatory.

Why You Need an MCA Attorney

Given the risks and general lack of oversight of merchant cash advances, it is highly advisable to have an experienced MCA attorney review any agreement before signing. An attorney can provide tremendous value including:

  • Negotiating Favorable Terms – Attorneys can negotiate with MCA companies to remove or alter unfavorable contract clauses to improve the overall terms for the business.
  • Explaining Legal Rights – They will inform you of your rights under state laws as they pertain to MCA agreements. Knowledge of your rights is critical.
  • Reviewing Agreements – Experienced attorneys can review MCA contracts with a fine-tooth comb to ensure you fully understand all terms and costs.
  • Resolving Disputes – If legal disputes arise over the MCA, an attorney can represent your interests in court or negotiations.
  • Avoiding Scams – Unfortunately, some MCA companies engage in outright fraud. An attorney can help vet companies and agreements to avoid scammers.
  • Debt Settlement – If repayment difficulties occur, an attorney can negotiate settlements or debt reduction plans on your behalf.

Bottom line: Having qualified legal guidance can help ensure you receive fair MCA terms tailored to your business needs. Attorneys have the expertise to protect your interests.

What to Look for in an MCA Attorney

When researching merchant cash advance attorneys, you want to look for these key qualifications:

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  • Specific MCA Experience – Find attorneys who specialize in MCA agreements versus general commercial attorneys. Prior MCA experience is vital.
  • Local Experience – Look for attorneys licensed and experienced in your particular state. They will understand applicable state laws.
  • Negotiation Skills – Strong negotiation abilities can enable attorneys to improve MCA terms on your behalf.
  • Litigation Skills – In case disputes require litigation, proven litigation experience is a must.
  • Reasonable Fees – Look for attorneys with fair and reasonable fee structures. Avoid exorbitant retainer fees.
  • Positive Reviews – Check reviews and testimonials from the attorney’s past MCA clients. This provides insight into their capabilities.

Vet any potential attorney thoroughly. You want confidence they have the specific MCA expertise to protect your interests.

Alternatives to Merchant Cash Advances

While merchant cash advances carry significant risks, they also fill a need for fast financing for businesses unable to qualify for traditional loans.If you decide an MCA is not the right option, discuss alternatives with your attorney including:

  • SBA Loans – Small Business Administration loans feature long repayment terms, fixed rates, and strict lending regulations.
  • Business Credit Cards – Cards with 0% intro APR offers can provide short term financing options.
  • Invoice Factoring – Selling outstanding invoices to a factoring company can generate capital.
  • Crowdfunding – Platforms like Kickstarter or GoFundMe allow you to raise funds from backers.
  • Angel Investors – Wealthy investors provide startup capital in exchange for equity.
  • Equipment Financing – Lenders can finance essential equipment purchases and leases.
  • Friends & Family – Asking friends or family to invest in your business can be an option.

Be sure to closely compare the costs and terms of any financing option against merchant cash advances.

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Merchant cash advances allow businesses to quickly access capital but also come with major financial risks and pitfalls. Given the general lack of oversight and regulation of MCA companies, it is highly advisable to have an experienced attorney review any MCA agreement before signing.Attorneys can help improve contract terms, explain your legal rights, avoid scams, and provide counsel on alternatives. With an attorney’s assistance, you can make the most informed decision on whether a merchant cash advance makes sense for your small business situation.

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