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New Jersey Merchant Cash Advance Attorney: What Small Businesses Need to Know

Merchant cash advances (MCAs) have become an increasingly popular form of financing for small businesses in New Jersey. Unlike traditional bank loans, MCAs provide quick access to capital by advancing a lump sum in exchange for a percentage of future credit card sales. However, MCAs are largely unregulated and have come under scrutiny for predatory lending practices that take advantage of cash-strapped business owners.In recent years, the New Jersey Attorney General’s office has cracked down on MCA companies accused of charging usurious interest rates and engaging in abusive collection tactics. Small business owners who feel they have been wronged now have legal recourse, but prevention is the best medicine when it comes to predatory lending. This article provides an overview of MCAs in New Jersey, common allegations of misconduct, defenses business owners can raise, and steps entrepreneurs can take to protect themselves when seeking fast financing.

What is a Merchant Cash Advance?

A merchant cash advance provides an upfront lump sum in exchange for a percentage of future credit card receivables. It is not technically considered a loan under New Jersey law, so MCA companies can skirt state usury caps on interest rates.Here’s how it works:

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  • The MCA company provides a cash advance, often $10,000 – $500,000
  • In exchange, the business agrees to pay back the advance through daily debits from credit card sales, typically 10-20%
  • There is no set payback period – the business repays as a percentage of daily sales until the balance is satisfied
  • The transactions are processed through debit authorizations, not personal guarantees or collateral

The easy application process, quick funding, and no collateral requirements make MCAs enticing for cash-strapped businesses. However, the high repayment rates and lack of underwriting have also led to predatory lending allegations.

Common Allegations Against MCA Companies

While not all MCA companies engage in unscrupulous behavior, the NJ Attorney General has accused some of the following violations:

  • Deceptive Marketing – MCAs marketed as “no risk” financing or misrepresenting terms
  • Excessive Interest Rates – Effective APRs over 100% skirt NJ usury laws
  • Overcharging – Taking more than agreed upon percentage of daily credit card sales
  • Harassment – Aggressive collections through excessive calls and threats
  • Unjust Enrichment – Keeping repayments after balance satisfied

These abusive practices prompted NJ to investigate and sue prominent MCA providers like Yellowstone Capital, accused of charging unlawful interest rates exceeding 350% APR.

NJ Settlements & Increased Scrutiny

The NJ Attorney General has ramped up efforts to regulate the MCA industry and protect small businesses through litigation. Major settlements include:

  • Yellowstone Capital – $27 million settlement providing relief to NJ businesses
  • Richmond Capital Group – $858,000 settlement over deceptive marketing
  • Queen Funding – Over $800,000 settlement for usurious lending

These settlements are forcing reforms like lower interest rates, transparency in contracts, and limits on aggressive collections. The increased scrutiny sends a message that predatory lending will not go unchecked.

Defenses Against Abusive MCA Companies

If you feel your business was the victim of an predatory MCA agreement, here are some defenses to explore:

  • Unconscionability – Challenge unjust contract terms that unreasonably favor the MCA company
  • Usury Laws – Argue rates exceed civil or criminal usury caps under NJ law
  • Breach of Contract – Sue for breaches like charging more than agreed upon rates
  • Fraudulent Inducement – Seek to void the agreement if you were deceived about terms
  • Deceptive Advertising – Claim violations of the NJ Consumer Fraud Act

An experienced attorney can review your agreement and business records to craft applicable defenses to fight back against unlawful collections or even void your obligation to repay the advance altogether.

Steps to Protect Your Business When Seeking Financing

The best way to avoid predatory lending is to take steps to protect your interests from the start:

  • Research lenders – Vet MCA companies for complaints and violations before applying
  • Compare options – Consider alternatives like business loans or lines of credit
  • Read the fine print – Review agreements carefully and understand all terms, rates, fees
  • Limit exposure – Only agree to advances you can comfortably repay from sales
  • Monitor payments – Review statements regularly to ensure proper debits
  • Seek legal review – Have an attorney experienced with MCAs review the contract

Following these best practices will help safeguard your business when fast financing is needed. Legitimate MCA companies can provide a valuable lifeline for small businesses, but it pays to be prudent and proactive.

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