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Looking for business debt relief services? Visit Delancey Street.

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 state lending laws 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, losing customers, or broader economic downturns can cause this.
  • Shorter payment terms than expected – Some MCAs claim to calculate terms based on monthly sales averages. But if actual payments wind up due faster, repayment speed may exceed the business’s cash flow capabilities.
  • Predatory lending practices – Some MCA providers exploit data like average bank balances to issue excessively large advances that businesses cannot realistically repay in full. They profit from default fees and seizing collateral.
  • Unexpected expenses – Illness, lawsuits, supply chain issues – anything that unexpectedly eats into cash reserves can make fixed daily MCA payments difficult to manage.
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Aggressive Collection Tactics Used

When a business falls behind on merchant cash advance payments, many MCA companies resort to aggressive tactics like:

  • Harassing the business owner by phone seeking immediate payment
  • Freezing or seizing funds from connected bank accounts
  • Refusing to modify repayment terms, extend deadlines, or reduce owed amounts
  • Charging steep late fees, default charges, or overlimit penalties
  • Filing lawsuits against the business without attempting other remedies

They often claim these actions are justified per the original contract terms. But some tactics may constitute predatory lending or illegal debt collection practices.

Finding MCA Debt Relief

If your business is facing MCA debt collection pressure, know that you have options and do not need to handle it alone. Some potential paths to relief include:

Debt Negotiation

Hiring an experienced business debt relief firm to negotiate directly with your MCA lender may yield a settlement for less than you owe. This legal financial strategy leverages the fact that MCA companies have already written off your account as likely uncollectible. They may agree to accept a lump sum payment of 20-50% of the debt to avoid further efforts.

Legal Defenses

In some cases, unfair contract terms or illegal lending practices may provide valid defenses against MCA debt repayment. An attorney can review your case and identify any violations of state laws that could invalidate debt obligations. This may include excessive interest rates, insufficient transparency, or abusive collection methods.

Bankruptcy

Filing business bankruptcy stops collections and provides an opportunity to restructure or discharge qualifying business debt under court protection. Chapter 11 bankruptcy lets you propose a repayment plan aligned with earnings, while Chapter 7 bankruptcy liquidates assets to pay creditors. An experienced bankruptcy lawyer can advise if either option suits your situation.

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Business Wind-Down

If your business model is no longer financially viable, the most prudent option may be an organized wind-down. This involves developing a runway budget, selling assets, reassigning contracts, and thoughtfully closing operations. The goal is to maximize value for creditors and avoid personal liability exposure. Legal guidance maximizes the wind-down process and outcome.

How We Can Help

Here at Delancey Street, we have extensive experience assisting small business owners find relief from overwhelming MCA debt. A few key ways we can help:

  • Free Consultation – We will conduct 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.
  • Debt Reduction Negotiations – Our team has high success negotiating debt relief directly with MCA lenders. We leverage their incentive to avoid legal action in order to settle accounts.
  • Legal Guidance – We work with trusted attorneys to explore defenses based on unfair contract terms or illegal lending practices. Violations can invalidate debts.
  • Bankruptcy Evaluation – We have relationships with seasoned bankruptcy lawyers across the country who can advise if Chapter 11 or Chapter 7 filings suit your situation.
  • Business Wind-Down Planning – If closing is the prudent path forward, we can consult on maximizing value for creditors and protecting personal assets.

Key Takeaways

  • Merchant cash advances carry high costs and risks that can quickly snowball for small businesses if sales drop.
  • Aggressive collections tactics compound problems but viable options exist to reduce or resolve debts.
  • An experienced debt relief firm like Delancey Street provides critical guidance tailored to your situation.
  • Through negotiation, legal defenses, bankruptcy or business wind-downs, we can help stop collections pressure and establish financial breathing room.

Delancey Street has spent nearly twenty years assisting small business owners navigate complex debt scenarios. Our dedicated specialists leverage insider expertise to achieve results. We understand the challenges cash flow struggles create and are fully committed to helping you move forward.

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Frequently Asked Questions

What are some early signs my business may struggle to repay an MCA?

  • Fixed daily payments exceed 15% of average daily credit card sales
  • Payback term is shorter than initially projected by MCA provider
  • You struggle to cover daily MCA payments 2-3 times per week
  • Significant customers stop ordering or go out of business

What should I do if served with an MCA debt lawsuit?

  • Remain calm – lawsuits sound intimidating but just mean negotiations now involve courts
  • Consult an attorney immediately to explore defenses before determining response
  • Consider negotiating a settlement or repayment plan before trial
  • Show up on your court date and make your case if settlement talks fail

Can my personal assets or accounts be pursued for unpaid MCA debt?

  • Generally no, creditors can only seize company property or accounts
  • However, personal guarantees, commingling funds or using personal assets as collateral may create exposure
  • Consult a legal professional to understand exact risks to personal assets

What should I prioritize if I decide to wind down my struggling business?

  • Develop a budget to guide decisions and maintain control of the process
  • Keep current with payroll, taxes, rent/mortgage to avoid personal liability
  • Communicate with creditors early and sell assets quickly to maximize value
  • Get experienced legal advice to ensure an orderly exit that satisfies stakeholders

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Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
Leo
$500,000 MCA Restructured Over 3 Years
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Jason
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
Mary
$350,000 MCA Restructured Over 2 Years

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