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Getting Out of A Merchant Cash Advance: What Steps to Take

Getting caught in a predatory merchant cash advance can feel scary and overwhelming. But there are options and people who can help. Here’s an overview of steps to take when trying to get out of a merchant cash advance agreement.

Conduct a Free Consultation

The first step is to consult with a legal professional to fully understand your situation. They will:

  • Review your business finances and all debts owed to gain clarity on the full scope of the agreement
  • Provide advice tailored to your specific circumstances
  • Explain your options for getting out of the agreement

This upfront legal consultation is often free and critical for mapping out the best path forward.

Understand Your Legal Rights

Merchant cash advance companies will pressure and intimidate, but it’s important to know your legal rights in these situations.There are a few key things to understand:

  • High fees and interest rates may be unenforceable if deemed unfair or predatory
  • You may be able to invalidate parts of the agreement that violate state laws
  • If fraud or misrepresentation was involved, the agreement could potentially be void

While the specifics depend on your situation, knowing where merchant cash advance companies overstep legally can reveal openings to fight back.

Send a Dispute Letter

After consulting with a lawyer, an important early step is to send the merchant cash advance company a formal dispute letter.The letter should:

  • Detail any parts of the agreement that are illegal or unenforceable
  • Formally request changes to the terms, lower payments, or cancellation
  • State you will pursue legal action if reasonable terms cannot be reached
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This puts them on notice that you consider the agreement problematic and are prepared to fight it. Their response (or lack thereof) can determine next steps.

File Complaints

If the company does not respond appropriately to your dispute letter, the next step is filing official complaints with relevant government bodies. This includes:

State Regulators

Most states have agencies that regulate lending and can investigate complaints against merchant cash advance companies operating illegally. Filing a report puts pressure on the company to amend the agreement.

Consumer Financial Protection Bureau

The CFPB is a federal regulator that takes complaints on financial agreements. Reporting merchant cash advance abuse helps authorities identify patterns and hold companies accountable.

Better Business Bureau

The BBB allows consumers to file complaints and publicize shady business practices. Enough complaints can lead to lower BBB ratings, hurting the company’s reputation and reach.

Pursue Legal Action

If other resolution attempts fail, formal legal action may be necessary to free yourself from the predatory agreement:

Small Claims Court

For simpler cases with smaller financial stakes, small claims court can provide a quicker and cheaper way to invalidate the agreement and recoup losses.

Civil Lawsuit

For larger, more complex cases, filing a civil lawsuit opens up more extensive legal avenues to fight the merchant cash advance company, terminate the agreement, and potentially obtain financial damages.

Coordinate Class Action

In some instances, forming a class action lawsuit together with other victims of the same merchant cash advance company can create the leverage necessary to force systemic changes and restitution.The legal system provides tools to counteract predatory contracts. While the process varies case-by-case, combining legal pressure with regulatory complaints and public outcry can compel unfair merchant cash advance companies to release victims from abusive agreements.

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Negotiate a Buyout

If you wish to cut ties cleanly, another option is negotiating with the merchant cash advance provider to buy your way out of the agreement.This involves:

  • Having a lawyer draft a settlement letter proposing a lump-sum payment
  • Making clear that continued payments and legal action will ensue without acceptance
  • Structuring the buyout payment so that they receive reasonable compensation while releasing you fully

If positioned strategically, both parties can benefit from closing out the agreement amicably through a negotiated buyout settlement.

Improve Cash Flow

As you work to exit the agreement, also focus on improving business cash flow to stop relying on outside financing.Some ideas that can help free up funds include:

  • Renegotiate vendor payment terms – Extending payment deadlines improves short term cash availability
  • Offer customer incentives – Early payment discounts or loyalty programs can accelerate receivables
  • Reduce expenses – Analyze budgets to identify cuts that don’t sacrifice growth
  • Create payment plans – Allow outstanding customer balances to be paid gradually over time

With more working capital and tighter cash management, the impacts of losing the merchant cash advance line can be minimized as you transition to sustainable financing methods.

Replace with Responsible Financing

Once out of the predatory agreement, it’s important to replace it with responsible financing so that business operations can continue smoothly:

Business Credit Cards

Business credit cards with intro 0% APR periods allow you to temporarily defer financing costs as cash flow recovers.

Line of Credit

Lines of credit tend to offer much lower rates and fees compared to merchant cash advances and provide flexible access to capital.

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Community Development Grants

For very small businesses, non-profit community development grants can provide affordable financing to get back on track.

Crowdfunding

Running a crowdfunding campaign through your customers and community allows you to access capital quickly without burdensome terms.The key is that business financing is likely still needed, so be proactive in setting up alternatives that don’t take advantage like merchant cash advances do.

Don’t Lose Hope!

It’s extremely difficult and emotional trying to escape an abusive merchant cash advance agreement. Unscrupulous sales tactics combined with confusing legalese often overwhelm business owners.Just remember that there are always people willing to help!

  • Consult with legal aid clinics and small business pro bono support groups
  • Talk to other local business owners who have faced similar situations
  • Share your story and find strength in transparency and vulnerability

And through a combination of financial prudence, legal pressure, and community, freedom from predatory contracts is possible. Stay hopeful!

Recap Of Key Steps

Getting out of merchant cash advance abuse takes an orchestrated effort across business operations, law, regulations, publicity and more.In summary, the key steps covered include:

  1. Consult with lawyer to understand rights
  2. Send formal dispute letter
  3. File complaints with regulators
  4. Pursue legal action
  5. Negotiate buyout settlement
  6. Improve business cash flow
  7. Replace with responsible financing

While long and difficult, many small business owners have successfully freed themselves from unfair merchant cash advances using strategies like these. So don’t despair, and focus on that next constructive step forward!

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