Los Angeles Merchant Cash Advance Attorney
Getting a merchant cash advance can seem like a quick fix for a small business in Los Angeles struggling with cash flow. But these loans, which use a company’s future credit card sales as collateral, often come with high fees and short repayment periods that can put extreme pressure on the borrower.If you took out a merchant cash advance loan for your LA business and are now facing aggressive collection tactics or even a lawsuit, don’t panic. An experienced merchant cash advance attorney can help you understand your rights under California law and explore options like negotiating a settlement.This guide will cover everything you need to know about merchant cash advances in Los Angeles, including:
- How merchant cash advances work
- The pros and cons of merchant cash advances
- Your legal protections under California law
- When to hire a merchant cash advance attorney
- How a merchant cash advance attorney can help
- Questions to ask a prospective merchant cash advance attorney
How Merchant Cash Advances Work
With a traditional small business loan, you receive a lump sum of cash up front and repay it in regular installments over a set period of time. The lender will likely secure the loan against some kind of collateral, like real estate or equipment.A merchant cash advance works differently. Instead of providing a lump sum, an MCA company purchases a percentage of your future credit card sales. For example, the company might advance you $50,000 in exchange for 15% of your credit card receipts until you pay back $75,000.There’s usually no set repayment schedule. Instead, the MCA company will collect its percentage of daily credit card sales automatically via your credit card processor until the agreed-upon payback amount is reached.This means that if your credit card sales drop, your daily repayment also drops. But if your sales increase, your daily repayment will too.
The Pros and Cons of Merchant Cash Advances
Merchant cash advances appeal to small business owners because:
- They provide fast access to capital – You can often get funded in a matter of days, which is much faster than a traditional bank loan.
- They don’t require good credit – MCA companies look at your credit card sales rather than your business and personal credit scores.
- There’s no collateral required – With a cash advance, your credit card receipts serve as the collateral. The MCA company has no claim to any of your business assets if you default.
- The repayment schedule adjusts with your sales – Slow sales periods won’t leave you strapped for cash to make loan payments.
But merchant cash advances also come with considerable downsides, including:
- Extremely high interest rates – MCA companies charge interest rates ranging from 30% to 300% APR when expressed as a loan.
- Short repayment periods – Many MCA contracts require payback within 6 to 18 months, which can mean very large daily payments.
- Personal guarantees and confessions of judgement – Most MCA companies will require a personal guarantee making you personally responsible for the debt. Many also contain a confession of judgement giving them the right to enter a judgement against you without notice or a court hearing.
- Potentially illegal lending practices – Some MCA companies engage in illegal lending by not registering as lenders, not clearly disclosing rates as required, or violating state usury laws.
- Aggressive collections – MCA companies are quick to threaten or file lawsuits once a merchant defaults on payments. They may also try illegal tactics like contacting your customers to get paid directly.
As you can see, merchant cash advances can quickly spiral out of control for borrowers. Many LA small business owners have found themselves sued and facing judgements for debts two to three times more than what they originally borrowed.
Your Legal Protections Under California Law
If you’re struggling to repay a merchant cash advance in Los Angeles, it’s important to understand your rights under California law. Here are some key protections:
- Disclosure requirements – MCA companies must disclose the annual percentage rate (APR) equivalent, amount being advanced, total repayment amount, term length, and more. Failure to do so may invalidate the agreement.
- Usury interest rate cap – Interest rates above 10% are illegal under California’s usury law. MCA companies claim that their advances are purchases rather than loans, but this defense is questionable. Excessive rates could potentially invalidate the contract.
- Licensing requirements – MCA companies making advances over $2,500 must obtain a California Finance Lenders License. Operating without a license is a misdemeanor and can invalidate the contract.
- Unfair business practices protections – Under California consumer protection laws, you may be able to sue MCA companies engaging in unlawful, deceptive, or unfair business practices like misrepresenting rates or making illegal threats.
- Right to cancel – California’s seller assisted marketing plan law gives you the right to cancel certain MCA contracts within two weeks and obtain a full refund.
Having an experienced merchant cash advance attorney review your agreement for violations of California law is crucial. If violations are found, that could provide leverage to negotiate a settlement or even get the contract invalidated.
When to Hire a Merchant Cash Advance Attorney
Here are some common situations when a Los Angeles small business owner should consider hiring a merchant cash advance lawyer:
- You’re struggling to make the daily payments and need help negotiating reduced payments.
- You’ve defaulted and are now receiving threats of a lawsuit from the MCA company.
- You need help responding to a breach of contract lawsuit filed against your business.
- The MCA company has obtained a judgement against you.
- You believe the MCA company has violated California lending laws.
- The MCA company has started contacting your customers directly or freezing your bank accounts.
- An MCA broker misled you about the terms of the agreement.
- You need the contract reviewed for violations you can use as leverage in negotiations.
- You need help filing a lawsuit against an MCA company for illegal lending practices.
The earlier you involve an attorney, the more options you’ll have. Once a judgement is entered against you, your leverage is greatly reduced.
How a Merchant Cash Advance Attorney Can Help
A qualified merchant cash advance lawyer can assist you in several important ways, including:
- Reviewing your agreement for violations of California law – This can uncover leverage to invalidate the contract or reduce what you owe.
- Negotiating reduced payments or partial debt forgiveness – Your attorney can negotiate a settlement with the MCA company to make the payments more affordable.
- Defending against lawsuits – They can file motions asserting your rights and defenses under California law.
- Halting illegal collection activities – Your attorney can send cease and desist letters if the MCA company engages in harassment or unlawful tactics.
- Suing MCA companies for violations – You may be able to file an affirmative lawsuit to invalidate the contract, recover damages, or stop illegal behavior.
- Helping you file bankruptcy – If negotiating a settlement isn’t successful, bankruptcy may be an option to eliminate the MCA debt.
- Offering tax debt relief strategies – If the MCA debt resulted in tax debts owed to the IRS or California FTB, your attorney can help negotiate relief.
The goal is to protect your business assets and free up cash flow as much as possible so you can recover from the merchant cash advance.
Questions to Ask a Prospective Merchant Cash Advance Attorney
If you decide to hire a merchant cash advance lawyer in Los Angeles, here are some key questions to ask during your initial consultation:
- How much experience do you have specifically with merchant cash advance cases?
- Are you licensed to practice law in California?
- What strategies do you use to defend against MCA lawsuits?
- Will you review my agreement for violations of California law?
- What are the rates and fee structure for your services?
- Can you provide references from past MCA clients?
- Will you represent me if this goes to court?
- How quickly can you intervene with the MCA company to stop collections?
- What settlement results have you achieved for other MCA clients?
- Are you able to file an affirmative lawsuit against the MCA company if needed?
An experienced merchant cash advance attorney will be able to explain in detail how they can help improve your situation. Having a knowledgeable lawyer on your side can help relieve stress and improve your prospects of reaching a favorable resolution.
While merchant cash advances may seem like an easy short-term financing option, LA small business owners can quickly get trapped in a cycle of crushing debt. But California provides important protections, and an attorney experienced with these complex cases can be your best ally.If you took out a merchant cash advance for your Los Angeles business and are now struggling with the burden of repayment, contact a qualified lawyer. They can review your agreement, halt any illegal collections against you, and negotiate a settlement so you can move forward. With an attorney’s help, you may be able to invalidate the contract, reduce the amount owed, or restructure the payments to affordable levels.