Steven Raiser is Chief Legal Officer, and Legal-Counsel at Delancey Street. Steven is a native of Long Island and has also resided in Manhattan and the Bronx.
Since being admitted to the New York Bar, Steven has represented the city of New York, serving as a Special Assistant Corporation Counsel. He handled all aspects of litigation in child neglect cases there, representing the interests of the children and the city. He then served as an Assistant District Attorney, where he successfully prosecuted hundreds of criminal cases, from violations of the Vehicle and Traffic Law to homicides. During his time as a prosecutor, Steven was involved in high-profile cases such as those involving Rapper DMX and NY Rangers’ Defenseman Sandis Ozolinsh.
While serving as a prosecutor, he joined the U.S. Army. As a commissioned officer in the Army National Guard Judge Advocate General’s Corps, Steven volunteered for active duty in Iraq. There he served in the office of the Staff Judge Advocate, defending soldiers from actions instituted by the federal government, making probable cause determinations for the command, and assisting in the training of Iraqi soldiers in legal proceedings. In recognition of his service in Iraq, he earned the Global War on Terrorism Expeditionary Medal for meritorious service in support of Operation Iraqi Freedom and the Army Commendation Medal for exceptional meritorious service during combat operations. He, along with his unit, received the New York State Bar Association’s Award for Excellence in Public Service and was presented with our state flag by Senate Majority Leader Joseph Bruno.
-Steven M. Raiser is admitted to practice law in the state courts and federal court in the Eastern District. On November 14, 2010, he was sworn in to the United States Supreme Court by Chief Justice John Roberts in Washington, D.C. Steven has appeared as a legal analyst for FOX, CNN, and Court TV (TRU TV). His interviews on CNN and FOX have been posted to their websites and have been showcased under “must see videos.”
Merchant Cash Advance Breach of Contract – What Happens If You Default?
Merchant cash advances (MCAs) have become an increasingly popular form of financing for small businesses in recent years. Unlike traditional small business loans, MCAs provide quick access to capital by advancing money against a business’s future credit card sales.But what happens if your business defaults on an MCA agreement? Can the MCA company sue you for breach of contract?Let’s break it down.
-How Do Merchant Cash Advances Work?
First, it’s important to understand what an MCA is and how it differs from a regular small business loan.With an MCA, a funding company provides you with a lump sum of cash upfront. In exchange, you agree to pay back a fixed percentage of your daily credit card and debit card sales over a set period of time – usually 4-12 months – until you pay back the advance plus a fee.So for example, if you get a $50,000 MCA with 15% fees, you would pay back around $57,500 over 12 months by allowing the MCA company to withdraw 15% of your daily card sales automatically.The key thing that makes MCAs different than loans is that MCA companies claim they are purchasing a percentage of your future receivables, not lending you money. This distinction is made to avoid being categorized as loans and running afoul of state lending and interest rate caps.
What Happens If You Miss MCA Payments?
Now, let’s say your business runs into financial trouble a few months into your MCA agreement. Maybe sales dropped unexpectedly or an emergency expense came up. And you aren’t able to make your daily payments anymore.Unfortunately, the moment you miss a payment, you are technically in default of your MCA contract. Even a single missed payment constitutes a breach of contract according to most MCA lenders.And once you default, the MCA company has the right to take legal action to recover what they are owed.
What Happens After A Business Defaults on an MCA
There are two main ways an MCA lender can come after you legally if you default:
1. If the MCA Company Has a Confession of Judgment
Many MCA contracts contain what’s called a “confession of judgment” or “cognovit note”.This gives the MCA lender the right to go directly to court and obtain a judgment against your business for the full amount owed without any notice to you or ability for you to defend yourself.So the day after you miss a payment, the MCA company can simply walk into court with your signed contract containing the confession of judgment. The court will then enter a judgment against your company, which the MCA lender can then use to:
- Freeze your bank accounts
- Garnish your receivables
- Seize assets like equipment
- Damage your business’s credit
Obviously, confessions of judgment are extremely dangerous provisions for small business owners. Unfortunately, they are buried in the fine print of many MCA agreements.
-2. If the MCA Lender Does Not Have a Confession of Judgment
If your MCA contract does not contain a confession of judgment, the lender’s recourse is to sue you for breach of contract in civil court.In this situation, at least you would receive notice of the lawsuit and have a chance to respond and defend yourself before a judgment is entered.The MCA company may try to claim the full amount owed per the original contract terms. Or they may sue only for the amount advanced plus reasonable fees based on what you repaid so far.If the court finds you breached the agreement, you would be ordered to pay damages, which could include:
- The remaining balance
- Interest
- Late fees
- Legal costs
- Court costs
This judgment would also negatively impact your business’s credit rating. And the MCA provider could pursue aggressive collection tactics to recover what they are owed.
What Happens After a Judgment Against Your Business
Whether the judgment comes via confession of judgment or a breach of contract lawsuit, the aftermath is similar.With a court judgment in hand, the MCA company has broad authority to forcibly collect directly from your business’s bank accounts and merchant processors via wage garnishment, levies, or asset seizure.Specific assets at risk include:
-- Bank accounts – Any business or personal bank accounts could be frozen and the funds withdrawn.
- Accounts receivable – Your credit card processor may be ordered to remit a percentage of daily sales to the MCA company.
- Equipment – Valuable equipment like vehicles or machinery could be seized and sold.
- Real estate – If you own your commercial property, they may be able to place a lien or force a sale.
Facing aggressive collection efforts like bank levies and wage garnishment can rapidly spiral a struggling small business into bankruptcy.So if at all possible, you want to avoid breaching your MCA contract or allowing a judgment against your company.
What Should You Do If You Default on an MCA?
If your business has already missed MCA payments or you anticipate an imminent default, get help right away.Speaking with an experienced small business debt relief attorney is crucial to understand all your options and formulate a game plan. An attorney can advise you on the best course of action based on your specific situation.In certain cases, they may be able to negotiate an alternative repayment plan or settlement with your MCA lender to avoid further legal action. Or if a lawsuit has already been filed, they can defend you in court to potentially have the judgment dismissed or reduced.There are also bankruptcy options like Chapter 11 reorganization or Chapter 7 liquidation that could eliminate or reduce the debt owed under your MCA. A small business bankruptcy lawyer can let you know if this is a viable path forward for your company.The key is acting quickly at the first signs of distress to avoid allowing the situation to spiral out of control. Because once an MCA lender has a judgment in hand or has started seizing your assets, it becomes much more difficult to negotiate or recover.
Conclusion
Getting a merchant cash advance can help ease short-term cash flow issues for a small business. However, failing to repay an MCA as agreed can open up your business to aggressive legal collection efforts.Within days of a missed payment, an MCA provider could have a court judgment against you or start freezing bank accounts and seizing valuable business assets. So if you anticipate struggling to make payments on your MCA, consult an attorney immediately to understand all your options before further action is taken against your company. In many cases, an experienced lawyer can help protect your business by negotiating alternative repayment plans, defending against lawsuits, or advising on bankruptcy filings if necessary.