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The Legal Pitfalls of Merchant Cash Advances: What Businesses Need to Know

You think a merchant cash advance will solve your business’ cash flow problems, but: have you considered the risks? Don’t leave your future to chance – dive into the seedy underbelly with me.

What Even Is a Merchant Cash Advance?

A merchant cash advance: not a loan, but cash upfront, in exchange for a slice of future revenues. Simple – or is it?

Merchant lenders lure you in with promises of easy money: no credit checks, no APRs. Don’t be fooled – you’re signing away tomorrow’s hard-earned sales, today.

A Wolf in Sheep’s Clothing

Let’s strip away the sugary sales pitch, shall we? Structured as a lump sum purchase of future receivables – at a hefty discount, of course.

The lender buys a percentage of each credit card batch, until they recoup their investment, plus profit: typically double the advance amount, sometimes triple.

Sound expensive? Wait: there’s more…

Reading the Fine Print

Scrutinize every clause with a magnifying glass, because the devil’s in those diabolical details:

Infinite Terms
No set payback period – you’re on the hook until that advance, with heaping fees, is repaid.

Stacking
Think you can take another advance elsewhere? Not so fast: many prohibit further financing.

Excessive Punishment
Missed payments? Say hello to spiking interest rates – sometimes over 40% – and full payback demands.

All-Encompassing Collateral
Not just a lien on receivables, your personal assets may be fair game: homes, cars, you name it.

Binding Confessions
You could be forced to pre-sign a confession of judgment, letting them sidestep court…and seize assets.

See also  NYC MCA Lawyers - NYC Business Debt Settlement Lawyers

It’s the wild west out there, partner. Are these risks worth it?

A Legal Minefield

Usury laws vary state-to-state, but: many MCAs thread that needle between civil and criminal territory. So, what do you do – if you get ensnared in this trap?

Imagine this: you’re a restaurant looking to expand, riding high off stellar reviews. That MCA cash injection seems vital – but could cost you the whole business.

You miss payments during renovations, then: boom. Interest compounds, fees mount, and before you know it: you’ve tripped enforcement wires.

Assets frozen, legal bills skyrocketing, lawsuits flying – your dream turns into a legitimate nightmare. Is it worth the risk?

Know Your Rights, Spell Out the Terms

Avoiding MCA hell is simple: educate yourself thoroughly, and negotiate every facet in writing:

  • Explicitly cap all fees and interest rates upfront
  • Disallow confessions of judgment
  • Limit collateral strictly to business assets
  • Mandate exact payback amounts and schedules
  • Include allowances for temporary payment reductions
  • Prohibit stacking additional financing

A bit of due diligence upfront means less chance of financial – and legal – ruin down the road.

Or, counterpoint: just take a traditional bank loan, and avoid this entire mess altogether.

When to Lawyer Up

If deception occurred during sale, usury limits were breached, or any illegal provisions surface: it’s time to call a litigator, pronto.

They can comb through the contract language, assess your rights, and determine if any laws were violated. If so: a lawsuit against that MCA provider could recoup losses and fees.

Don’t try handling this alone – these lenders have attorneys on retainer, too. You’ll need expertise in truth-in-lending statutes and consumer finance laws to stand a chance.

See also  Baltimore Business Debt Settlement Lawyers

The Bottom Line

A merchant cash advance sounds innocuous – easy money for your business, no strings attached. But make no mistake: this is a high-risk, potentially ruinous form of financing.

Tread carefully, read every syllable, and know your rights. Because while an MCA could rescue your business, it could also sink it into an inescapable legal quagmire.

Is short-term relief worth mortgaging your life’s work? You decide – but don’t ignore the alarms, once that Pandora’s box is opened. The pitfalls could prove disastrous.

Delancey Street is here for you

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.

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$500,000 MCA Restructured Over 3 Years
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$350,000 MCA Restructured Over 2 Years

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