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Getting Legal Help for Minnesota Merchant Cash Advances

Merchant cash advances (MCAs) can seem like an easy way for small businesses to get quick funding, but they often come with predatory terms and sky-high interest rates. If your Minnesota business took out an MCA and is now facing legal issues or overwhelming debt, you may need legal help to negotiate a settlement or defend against a lawsuit. This article covers the basics of MCA laws in Minnesota and how an experienced business attorney can assist you.

Understanding Merchant Cash Advances in Minnesota

A merchant cash advance is a form of business financing where a lender provides a lump sum of cash in exchange for a percentage of future credit card sales. It’s not technically a loan under Minnesota law, so MCA companies can charge outrageously high interest rates without violating state usury caps. Rates of 50-200% APR are common!The way MCAs work is that the business agrees to pay back the advance through daily or weekly debits from their credit card receipts. The payments are taken automatically as a percentage of sales until the full amount plus fees and interest are repaid. This can take months or even years.If sales drop for any reason, the business still owes the same high fixed payments, which drives many into a debt spiral. Non-payment of the MCA can result in the lender suing the business or charging steep penalties.

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Common Legal Issues with Minnesota Merchant Cash Advances

There are several ways an MCA can create legal and financial headaches for Minnesota small businesses, including:

  • Excessively high interest rates – While not technically loans, MCAs carry implied interest rates far beyond Minnesota’s criminal usury cap of 8-17% APR depending on the amount borrowed. Their unregulated status leaves room for predatory lending.
  • Deceptive terms – MCA companies often downplay or outright misrepresent the actual cost of borrowing in their marketing materials and contracts. Key terms like the payback percentage, daily debit amount, fees, etc. may be buried in fine print.
  • Violation of trade group best practices – Industry groups like the American Factoring Association publish suggested best practices for ethical merchant cash advance activities. However, many MCA lenders completely disregard these, instead relying on loopholes in state laws.
  • Aggressive collections – When a business struggles to make payments, MCA lenders are quick to threaten or impose steep penalties, defaults, and even lawsuits, often irrespective of the financial hardship faced by the borrower.
  • Personal guarantees – MCA contracts often require a personal guarantee from the business owner, meaning their personal assets are on the hook if the business can’t pay. This can result in judgments, bank levies, and credit damage for the owner.
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Working with a Minnesota Business Attorney

If you’re facing legal action over an MCA or are overwhelmed by payments and fees, contacting an experienced Minnesota business attorney is critical. Here are some of the ways we can help:

  • Reviewing the MCA contract – We’ll thoroughly analyze the agreement to spot any deceptive, confusing, or unenforceable terms that may provide defenses against a lawsuit.
  • Negotiating a settlement – If default or bankruptcy is imminent, we can negotiate directly with the MCA lender to try to reduce the payoff amount to something more affordable. Settlements of 50 cents on the dollar or less are often possible.
  • Defending against lawsuits– If sued, a seasoned lawyer can raise substantive defenses around usury laws, deceptive trade practices, contract issues, and more. We also understand compliance requirements and deadlines to avoid default judgments.
  • Protecting personal assets – If the MCA requires a personal guarantee, we work to shield your personal assets like bank accounts, investments, real estate, and retirement funds from seizure, liens, and creditors.
  • Navigating bankruptcy – While bankruptcy carries long-term consequences, it may be a last resort to eliminate or restructure an unpayable MCA balance. An attorney guides you through the complex process.
  • Avoiding criminal usury – In egregious cases of predatory lending, we help build a case to seek criminal usury charges, restitution, and contract cancellation under Minnesota statute 609.82.

Selecting the Best Attorney for Your Situation

As you vet business lawyers in Minnesota, make sure to understand their specific experience helping clients dispute merchant cash advances. Key credentials to look for include:

  • Knowledge of MCA contracts – They should thoroughly grasp the structure of MCA deals, common pitfalls for borrowers, and the full implications of personal guarantees, confession of judgment clauses, and more.
  • Courtroom experience – Have they actually litigated and won MCA cases in Minnesota courts? Check their case records and client reviews. Inside knowledge of various judges and their leanings is invaluable.
  • Settlement skills – Even without a lawsuit, negotiating an affordable MCA settlement directly with lenders involves special skill and tenacity. Find a lawyer with a proven record of settlements.
  • Rapport with MCA lenders – The best attorneys have working relationships with MCA companies, understand their internal processes, and can use that understanding to advocate more persuasively for their clients.
  • No upfront fees – Reputable business lawyers work on a contingency basis for MCA cases, only collecting if money is saved via settlement or legal action. Beware any who ask for retainers upfront.
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Also prioritize lawyers who make you feel heard, understood, and give thoughtful guidance. This is an emotional and stressful situation, so having an attorney you trust and can communicate openly with makes all the difference.

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Overcoming MCA Debt With Legal Help

Dealing with a merchant cash advance gone wrong can negatively impact your Minnesota small business for years. But facing the MCA lender’s aggressive collections or lawsuits on your own rarely ends well, usually resulting in unfavorable settlements, drained savings, and ongoing stress.Partnering with an experienced attorney levels the playing field when challenging unfair MCA contracts in court or negotiating reduced payoffs. They have the knowledge and resources to compel settlements that ease your debt burden so you can move forward. Don’t hesitate to schedule a consultation if you have any questions or want to discuss your situation in more detail. We’re here to help provide a path forward.

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