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Merchant Cash Advance Business Debt Relief

Merchant cash advances (MCAs) can provide quick access to capital for small businesses, but they also come with high costs and risks. If your business has struggled to repay an MCA, you may be facing aggressive collection tactics or threats of legal action. However, there are options to resolve MCA debt and achieve relief.

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 is not technically a loan, so MCA companies can bypass small business lending regulations and charge higher fees.Here’s a quick rundown of how merchant cash advances work:

  • You receive an upfront sum of cash, usually between $5,000 – $500,000
  • The MCA company takes a fixed percentage of your daily credit card sales – typically 8-20%
  • You make payments until you pay back the advance plus fees, which often equates to an APR between 60-400%

This structure allows fast funding but can become problematic if sales drop. You still owe fixed daily payments regardless of actual sales volume. Delinquency triggers aggressive collections aimed at seizing business assets and bank accounts.

Common Causes of MCA Debt Problems

There are a few common reasons why businesses struggle to repay merchant cash advances:

  • Lower than expected sales – If sales drop, fixed daily payments become harder to cover. Seasonal business cycles or economic downturns often catch businesses off guard.
  • Predatory lending practices – Some MCA companies do not adequately assess repayment ability. They lend too much relative to sales volumes.
  • Repeat borrowing – Struggling businesses sometimes take out additional advances to repay existing ones, compounding overall debt.
  • High fees and rates – Interest rates between 60-400% mean that even a small advance can become extremely expensive over an 18-24 month term.

These factors can quickly spiral a business into unmanageable MCA debt even if it was once stable and successful.

Aggressive Collections and Legal Threats

Merchant cash advance companies utilize aggressive tactics to collect from delinquent accounts, including:

  • Harassing phone calls – MCA collectors will call business owners relentlessly, even contacting friends, family and customers.
  • Freezing bank accounts – They can seize business bank accounts and funds without notice.
  • Threatening lawsuits and charges – Collectors threaten business owners with criminal charges or civil lawsuits.
  • Reputation damage – They may contact vendors and staff about missed payments.
  • Locking credit card processors – MCA companies can suddenly cut off a business’s ability to process sales.
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These strategies exert intense pressure on struggling business owners. However, some claims made by collectors violate federal law. It is important to understand your rights.

Federal Protections Against Predatory Collections

While merchant cash advance companies are not directly regulated as lenders, some federal laws still govern their collection activities:

  • Fair Debt Collection Practices Act (FDCPA) – Prohibits abusive tactics like harassment, profanity, or making false statements.
  • Telephone Consumer Protection Act (TCP) – Restricts autodialing cell phones without consent and repeated calling with intent to annoy.
  • Truth in Lending Act (TILA) – Requires disclosure of annual percentage rates so that business owners understand the true cost of capital.

Documenting violations through recordings or written logs can help in disputing the debt or negotiating settlements.

Is Bankruptcy a Viable Solution?

Many business owners facing MCA trouble wonder if bankruptcy can eliminate the debts. Unfortunately, filing Chapter 7 or Chapter 11 may not discharge or cancel your obligations.MCA companies exploit legal loopholes that allow them to argue their advances constitute business “purchases” rather than loans. Courts often agree, preventing the debt from being erased in bankruptcy.However, Chapter 11 or Chapter 13 filings can still benefit troubled companies by:

  • Freezing collections during proceedings
  • Establishing structured repayment plans
  • Discharging interest and fees in some cases
  • Allowing owners to retain assets like homes or cars

Working with an experienced bankruptcy lawyer is essential to understand if it is a worthwhile approach.

Alternative Strategies for Merchant Cash Advance Relief

If bankruptcy does not make sense or you want to avoid it, there are alternative methods our legal team can pursue to help resolve MCA debt:

Debt Validation and FDCPA Violations

Collectors must provide proof if you dispute or request validation of the debt. Any violations found in the process may invalidate their legal standing. You can also report violations of collection laws. This can force the MCA company to cease and desist contacting you.

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Payment Plans and Settlements

If unable to pay as agreed, we can try to negotiate reasonable payment plans based on actual sales and revenue. One option is splitting available funds across multiple creditors until the debts are settled. Settlements for 30-50% of balances may also be possible.

Credit Card Receiverships

This strategy involves working with a third party that takes control of credit card processing. They distribute funds first to operating expenses, payroll, etc. Remaining proceeds then flow to creditors in order of priority until all accounts are settled. This limits an MCA company’s ability to freeze accounts unilaterally.

Unsecured Creditor Status in Bankruptcy

If MCA agreements did not include specific liens, we may dispute their status and attempt to discharge debts in bankruptcy. By filing an adversary proceeding, we can argue the cash advance should be treated as an unsecured loan. If successful, this can relieve the obligation entirely.

Consult with a Business Debt Relief Lawyer

The first step in pursuing any of these strategies is conducting a free consultation with our legal team. We will perform an in-depth review of your business finances to gain clarity on the full scope of debts owed. This allows us to provide specific advice tailored to your unique situation.To schedule a free case review, contact our office today. Our team understands the intricacies of merchant cash advance agreements. We can walk you through all alternatives to find the debt relief solution that makes the most financial sense.

Common Legal Defenses Against Merchant Cash Advance Lawsuits

If an MCA company files a civil lawsuit, there are defenses our lawyers may use to contest their claims. Which arguments apply depend on the specifics of your agreement and situation.

No “Borrower” Status

A basic element the plaintiff must prove is that you are a “borrower” legally obligated to repay funds. We scrutinize the language used in MCA contracts to determine if definitions actually establish a lending relationship. Many agreements fail to adequately demonstrate this.

Unconscionable and Confusing Terms

MCA companies often bury key information in small print legalese. We argue these “gotcha” clauses that obscure rates and obligations are invalid. If terms are confusing or unreasonably unfair, the entire contract may be voidable.

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Breach of Covenant of Good Faith

Plaintiffs must demonstrate “good faith” efforts to collect debts fairly. We investigate whether overly aggressive lawsuits, harassment tactics, or deceitful conduct occurred. Evidence showing collectors acted in bad faith can defeat their claims.

Usury Violations

Though MCA agreements claim to not be loans, some essentially function as such. We calculate effective interest rates to identify potential state law usury cap violations. Excess rates strengthen arguments to invalidate debts.

Time Barred Claims

Debt collection lawsuits must be filed within statute of limitations periods based on contract types. We determine if plaintiffs missed deadlines to take legal action. Dismissing cases as time barred completely eliminates repayment obligations.

What Compensation Could You Recover?

Beyond defeating lawsuits or settling debts, our lawyers also explore if any compensation is justified for illegal collection activities suffered. Damages we may seek include:

  • Actual financial losses from account seizures
  • Emotional distress and reputational harm
  • Attorney fees and court costs
  • Punitive damages to deter future misconduct
  • Statutory damages under consumer protection laws

Recovering these costs allows you to not only resolve debts but holds predatory MCA companies financially accountable for the real impacts of their behavior.

Let Our Team Fight For Your Business Today

Defending against aggressive merchant cash advance collectors is complex. To succeed, you need attorneys knowledgeable in consumer protection laws, financial contracts, debt collection practices, and bankruptcy alternatives. Our lawyers have the experience required across all these areas.We invite you to schedule a free case consultation by calling us today. We are dedicated advocates for small business owners facing financial hardship. By reviewing your situation, we can then discuss affordable legal strategies tailored to your circumstances. Our goal is equipping you with the best possible chances of achieving permanent debt relief while also recovering maximum compensation permitted by law. Don’t wait – contact our office now so we can start helping you regain control of your business’s future

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