Merchant Cash Advance Attorney Virginia[yoast-breadcrumb]
Introduction to Merchant Cash Advances in Virginia
Merchant cash advances have become an increasingly popular form of financing for small businesses in Virginia. A merchant cash advance provides a business with a lump sum of capital in exchange for an agreed upon percentage of future credit card sales. It can be an attractive option for businesses that may not qualify for traditional loans. However, merchant cash advances also come with some downsides that business owners should fully understand before signing an agreement. This article will provide an overview of how merchant cash advances work in Virginia, key laws and regulations, pros and cons to consider, and when it may make sense to consult a merchant cash advance attorney.
How Do Merchant Cash Advances Work in Virginia?
A merchant cash advance, often referred to as an MCA, provides a business with an upfront sum of money in exchange for a fixed percentage of future credit card sales. The repayment amount is taken automatically from a business’s credit card receipts until the advance is paid back in full, plus fees and interest.Here is a step-by-step overview of how the process typically works:
- A business applies for a merchant cash advance, providing information on monthly credit card sales volumes, time in business, and basic company financials.
- The merchant cash advance company reviews the application and makes an offer, including the amount being advanced, the fixed percentage or “factor rate” that will be deducted from daily credit card sales, and the total estimated payback amount including fees and interest.
- If the business accepts the offer, the merchant cash advance company quickly provides the lump sum of capital, often within a few days.
- The business authorizes the MCA company to deduct the fixed percentage daily from credit card receipts via ACH payments or a split funding arrangement.
- Repayments continue automatically until the total payback amount is reached, which typically takes 6-12 months.
- There are generally no fixed repayment schedules or maturity dates. The business simply repays the advance at the agreed upon rate as a percentage of daily credit card sales.
Unlike a loan, the amount repaid is tied to future sales rather than a fixed schedule. There are pros and cons to this flexibility which will be covered. It’s also important to note that merchant cash advances are considered commercial transactions rather than loans in Virginia. This impacts the laws and regulations that apply which will be discussed next.
Virginia Laws and Regulations for Merchant Cash Advances
Merchant cash advances fall into a gray area in terms of regulations in Virginia. Here are some key considerations:
- Not subject to usury caps – Unlike loans, merchant cash advances are not subject to state usury caps on interest rates. This gives MCA companies more flexibility on fees and factors rates they charge.
- No licensing requirements – MCA providers do not need to be licensed lenders in Virginia. However, some industry groups are advocating for more oversight and regulations.
- No limits on rates or fees – The State Corporation Commission does not currently regulate or set maximum rates and fees for merchant cash advances. MCA companies set their own factor rates and fees.
- Repayment via credit card sales – MCA providers can deduct repayments directly from a business’s credit card receipts legally under Virginia law.
- Protections if registered as credit service organization – MCA companies that register as Credit Service Organizations (CSO) are subject to some consumer protections for the business owner. This includes limits on upfront fees charged before services are rendered.
- Disclosure requirements – MCA companies registered as CSOs are required to provide full disclosure on rates, fees, and repayment terms prior to finalizing an agreement.
- Potential for future regulations – There have been calls to regulate MCAs similar to other commercial financing products. Additional oversight and licensing could be imposed in the future.
With less regulation and oversight than traditional lending, it’s especially important for businesses to vet potential MCA providers carefully and understand all terms before signing an agreement. Consulting an attorney experienced with merchant cash advances can help business owners considering an MCA fully understand the legal implications.
Pros and Cons of Merchant Cash Advances in Virginia
Merchant cash advances can be an attractive financing option, but also come with downsides to weigh. Here are some key pros and cons for Virginia businesses to consider:Pros
- Fast funding – MCAs provide capital quickly, often in as fast as a few days, which can be critical for pressing cash flow needs.
- Flexible repayment – Repayment is tied to credit card sales, so businesses only pay back more when revenue is higher month-to-month.
- Easier to qualify – MCA approval is based more on credit card sales volumes than business credit scores. Startups and weaker credits may qualify.
- No collateral required – MCAs do not require liens on business assets or personal guarantees like some loans.
- Use funds for any purpose – The business owner has flexibility on how to use the capital injection from an MCA.
- Higher cost – The total repayment amount including fees and interest is typically much higher than a business loan.
- Daily repayments – The daily deduction of a percentage of credit card sales can make cash flow management more difficult.
- Short repayment terms – MCAs typically must be repaid quickly, often in 6-12 months, which can strain cash flows.
- Hard to compare offers – With no rate caps or standards, it can be difficult to compare MCA offers and identify the best terms.
- Potentially predatory – There are some predatory MCA providers that target desperate small business owners with misleading terms and excessive rates.
With such high costs and risks, business owners should have a clear understanding of their options before turning to a merchant cash advance. Speaking with an attorney experienced in MCAs can provide additional insights on how to protect your interests.
When to Consult a Merchant Cash Advance Attorney in Virginia
Here are some common situations where it would be advisable to consult an attorney before finalizing a merchant cash advance agreement:
- You are feeling rushed or pressured to sign an MCA quickly without fully understanding the terms and your rights. An attorney can help you avoid predatory offers.
- You want to improve the proposed MCA terms, rates, fees, or repayment structure. An attorney can negotiate more favorable agreements.
- You have concerns about the MCA provider’s reputation or business practices. An attorney can help vet providers.
- You want to ensure the agreement complies fully with Virginia laws and regulations. An attorney can identify any problematic clauses or disclosures.
- You are concerned about the MCA provider’s access to credit card receipts and bank accounts. An attorney can negotiate protections.