Fresno Merchant Cash Advance Legal Help – Attorneys Provide Debt Settlement Advice
Merchant cash advances (MCAs) can seem like an easy way for small Fresno businesses to get quick funding, but they often come with predatory terms and cripplingly high interest rates. If your business took out an MCA and is now facing legal threats or aggressive collection tactics, don’t panic – help is available. This article will cover the basics of MCA laws in Fresno, common legal defenses business owners can use, and how to find an attorney to negotiate a settlement or defend you in court.
How Merchant Cash Advances Work
A merchant cash advance provides a business with a lump sum of capital in exchange for a percentage of future credit card sales. It’s not technically a loan under California law, so MCA companies can skirt consumer protection laws that cap loan interest rates. Unlike a term loan, MCAs have no fixed end date – you pay back the advance from your credit card receipts until it’s fully repaid (often at a 2:1 or higher payback ratio).The lack of regulation around MCAs allows funders to set unfair terms in their favor. And because it’s not a loan, missing payments can quickly send your account into default without the normal consumer protections. That leaves many small businesses dealing with aggressive collections and facing lawsuits over balances that increased exponentially from what was originally received.
-Common Legal Issues Facing Fresno Small Businesses
If you’re struggling with MCA debt, some of the common legal issues and threats you may be facing include:
- Breach of contract lawsuits – The MCA agreement you signed likely allows the funder to sue for the full payback amount if you default. Some may claim unjust enrichment.
- Aggressive collections – Outside collectors hired by MCA companies often use high-pressure tactics bordering on harassment to get you to pay. This includes threats to sue you, seize assets, or garnish wages.
- Confessions of judgement – Many MCA contracts contain these, allowing the funder to obtain a judgement without giving you a chance to defend yourself in court. Lenders can’t enforce these in California, but some still use them to intimidate business owners.
- Arbitration clauses – Similarly, the contract you signed may require you to resolve disputes through arbitration instead of in court. If the arbitration company favors lenders, you’re less likely to win your case.
- Deceptive business practices – Some MCA companies misrepresent or omit key loan terms in their marketing and contracts. This violates state consumer protection laws.
- Unlicensed lending – MCA companies that registered as alternative business lenders must follow state lending rules. Those that didn’t may be engaging in illegal lending by charging usurious rates.
4 Potential Defenses California Small Business Owners Can Raise
If an MCA company sues you over a defaulted advance, all hope isn’t lost. A business law attorney can review your case and identify potential defenses to fight the lawsuit. Here are some of the most common ones California small business owners in this situation can raise:
1. Unconscionability
If a court finds the terms of your MCA contract are unfairly one-sided or abusive, it may rule the entire agreement is invalid and unenforceable. This depends on factors like:
- Did the funder exploit your lack of understanding of the terms?
- Are the interest rates outrageously high compared to other financing options you could have obtained?
- Do the terms unreasonably favor the funder without legitimate business justification?
If so, the contract may be deemed unconscionable under California law. This would invalidate the funder’s claims against you.
-2. Usury Law Exemptions Don’t Apply
As noted, MCA companies avoid state lending laws capping interest rates by claiming they aren’t making loans. But if the transaction is truly just a usurious loan under a different name, usury law exemptions won’t protect the funder. This depends on factors like:
- Is there a set repayment schedule and fixed maturity date like a term loan?
- Were you required to sign a personal guarantee making you liable for the full amount?
- Did the funder obtain a security interest in your assets as collateral for “repayment”?
If so, a court may determine the cash advance is actually a loan subject to state usury caps. Interest rates above that would be reduced, lowering what you owe.
3. Deceptive or Misleading Statements
If an MCA company misled you about repayment terms, failed to adequately explain key contract conditions, or engaged in false advertising, that violates California consumer protection statutes. This would make the contract voidable at your election. Grounds can include:
- Obscuring the actual annualized interest rate
- Falsely advertising “no hidden fees”
- Misrepresenting or omitting information on repayment rates or amounts
- Failing to clearly disclose key repayment terms
If you can show the funder used deception to induce you into accepting the advance, the agreement may not be enforceable.
4. Breach of Contract by the Funder
Even if the MCA agreement itself is valid, showing that the funder didn’t uphold their end of the bargain could release you from repayment obligations. Grounds can include:
-- Taking payments in excess of the contracted percentage of receipts
- Assessing unauthorized penalties or fees
- Failing to provide detailed account statements
- Withdrawing sums in excess of amounts owed
- Not applying funds paid as contractually agreed
This flips liability back onto the funder for breaching first. And it countersues for any losses their breach caused you.
Work With a Business Attorney to Negotiate Settlement or Defend Litigation
The potential defenses above require making nuanced legal arguments, backed by supporting evidence and case law. Without an attorney’s help, you’re unlikely to succeed raising them yourself.An experienced small business lawyer can evaluate the specific terms of your MCA agreement and the funder’s conduct. They’ll then advise you on the strongest defenses to either get the case dismissed or leverage for a favorable settlement. This can potentially eliminate or reduce the claimed amount owed.Don’t wait until you get served with papers to contact a lawyer. The sooner you engage counsel, the more strategic options they’ll have. An attorney can also intervene to stop unlawful collection harassment or negotiate agreements to prevent further legal action.
Work With a Business Attorney to Negotiate Settlement or Defend Litigation
The potential defenses above require making nuanced legal arguments, backed by supporting evidence and case law. Without an attorney’s help, you’re unlikely to succeed raising them yourself.An experienced small business lawyer can evaluate the specific terms of your MCA agreement and the funder’s conduct. They’ll then advise you on the strongest defenses to either get the case dismissed or leverage for a favorable settlement. This can potentially eliminate or reduce the claimed amount owed.Don’t wait until you get served with papers to contact a lawyer. The sooner you engage counsel, the more strategic options they’ll have. An attorney can also intervene to stop unlawful collection harassment or negotiate agreements to prevent further legal action.
-Key Takeaways
Getting sued or harassed by an MCA company is stressful, but California laws do provide protections if you have an attorney in your corner. The main points for Fresno small business owners facing MCA debt troubles to remember are:
- Many components of MCA agreements may be legally unenforceable, providing defenses to repayment.
- Usury exemptions likely don’t apply if the advance operates as a loan.
- Proving deception or contractual breaches by the funder can release you from obligations.
- An experienced lawyer can help negotiate settlements or build strong defenses. Don’t wait to engage counsel.
Fighting an MCA lawsuit won’t be simple or assured – but it is possible, and absolutely worth exploring with legal guidance. The right attorney can find ways to resolve your debt burden on manageable terms.