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Running a small business is tough. Between managing employees, keeping customers happy, and trying to turn a profit, things can get overwhelming fast. And if money gets tight, it’s easy to make desperate decisions that lead to even bigger money problems down the road. That’s where merchant cash advance loans and lawyers come in.

How Merchant Cash Advances Work

A merchant cash advance (MCA) is a form of business financing where a company gives you an upfront lump sum of cash in exchange for a percentage of your future credit card and debit card sales.For example, say you’re approved for a $20,000 merchant cash advance with a factor rate of 1.5. This means that every day, the MCA company will collect 1.5% of your credit card sales automatically until you’ve repaid $30,000 – the original $20,000 plus the $10,000 factor fee.The pros of an MCA are that:

  • You get fast access to capital when traditional bank loans would take too long or you wouldn’t qualify.
  • Payments adjust up and down based on sales volume, making it easier to manage when business is slow.
  • Approval is largely based on credit card sales volume rather than personal credit scores.

The biggest con is that the total repayment amount and effective APR is usually much higher than a bank loan. Rates can easily top 100-200% APR when you calculate the total interest paid.This makes it all too easy to get caught in a debt trap if sales drop too much or the payments become unmanageable. And once you default, aggressive collection efforts often follow.

Merchant Cash Advance Horror Stories

Maria’s catering business was slammed with orders and struggling to cover food costs upfront. A merchant cash advance for $15,000 seemed like the perfect solution to hire another cook and purchase more supplies.At first, things went smoothly as sales shot upwards. But when COVID-19 hit a few months later and event orders began mass cancellations, Maria’s sales cratered almost overnight.Despite barely scraping by, she suddenly owed over $1,000 per week to the MCA company – sometimes more than she even made in sales. Collection calls poured in daily as debts racked up, and she feared bankruptcy was inevitable.Stories like Maria’s are all too common with small business financing loans. What starts as a lifeline can quickly spiral out of control.

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How Kansas City Business Lawyers Get You Debt Relief

If you find yourself facing aggressive collections for debts owed on a merchant cash advance or other small business financing loan, don’t panic. Help is available.In Kansas City, business debt relief attorneys like those at Delancey Street specialize in defending clients from predatory lenders. They’ll evaluate your situation and fight to:

  • Negotiate settlements for a fraction of what you owe
  • Drastically reduce crippling interest rates
  • Consolidate multiple debts into more affordable payment plans
  • Invalidate debts from illegal lending practices
  • Stop harassment from collection agencies
  • And in worst case scenarios, develop bankruptcy strategies to discharge debts and start fresh

Delancey Street attorneys offer free consultations to review your options. Call (816) 285-8200 or contact them online to schedule.

4 Defenses Kansas City Attorneys Use to Fight MCA Companies

When negotiating debt relief with merchant cash advance companies, Kansas City attorneys have been successful using four key legal arguments:

1. Unconscionability

If an MCA agreement is so one-sided and unfair that it “shocks the conscience”, courts may rule it unenforceable. By showing how exorbitant interest rates and aggressive collections prey on small business owners’ desperation, settlements for pennies on the dollar are possible.

2. Fraud

Attorneys dig into the underwriting process to see if lenders misrepresented terms or failed to properly assess a business’ ability to repay. If so, the entire agreement can be invalidated.

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3. Breach of Contract

If the MCA company violates provisions like failing to adjust payments downward when sales drop, their entire agreement may be void.

4. RICO Violations

The Racketeer Influenced and Corrupt Organizations Act bans predatory lending practices similar to loan sharking. By proving MCA companies use systematic deception and harassment, triple damages awards are possible.While each case is different, an experienced business attorney knows how to analyze client situations to determine the strongest defenses.

Using Bankruptcy as a Last Debt Relief Resort

Reorganizing debts through Chapter 11 or Chapter 13 bankruptcy filings sometimes offer the best path forward for severely distressed small businesses. This stops collections and wipes certain debts clean so you can rebuild.But because bankruptcies can be complex and emotionally draining, always consult an attorney experienced in this area first. They’ll advise if it’s prudent or necessary.The attorneys at Delancey Street have successfully filed bankruptcies on behalf of many Kansas City small businesses. Reach out for a free case review.

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