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MCA Defense Lawyers Provide Expert Assistance with Merchant Cash Advance Debt

Merchant cash advances (MCAs) can provide quick access to capital for small businesses. However, the terms of MCA agreements are often predatory, with exorbitant interest rates and aggressive collection tactics. If your business is struggling with MCA debt, specialized legal defense may be needed.

How MCAs Work and Why They Can Be Problematic

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 laws capping interest rates. However, the equivalent annualized interest rate often exceeds 100%.While MCAs provide fast money with minimal eligibility requirements, the payback can quickly become unmanageable. Many companies soon find themselves owing two to three times the original advance amount. The MCA company may then resort to daily debits from the merchant’s bank account or litigation to recoup the debt.

Common Abusive MCA Company Tactics

MCA companies often engage in unethical tactics to pressure merchants into signing unfavorable contracts and to maximize collections. Some common issues include:

• Deceptive teaser rates: The MCA sales pitch focuses on best-case scenarios with lower rates that only materialize under ideal conditions. The actual rates and terms are much worse.
• Misrepresenting legal options: MCA companies may falsely claim that contracts are binding in perpetuity or that merchants have no defenses against collection lawsuits.
• Aggressive collections: MCA collectors often harass merchants with excessive phone calls, lawsuits, threats to contact customers, or attempts to freeze bank accounts.
• Confusing contract terms: Key information on rates, payback amounts, contract duration, and other critical terms is buried in fine print or omitted entirely.

MCA Defense Lawyers Can Challenge Unfair Agreements

Given the predatory nature of many MCA contracts, merchants often have grounds to invalidate or reform the agreements under state and federal consumer protection laws. An experienced business attorney can review the MCA contract and associated documentation to identify potential defenses.Common bases to challenge MCA debt include:

• Deceptive or fraudulent inducement: Evidence showing the MCA company misled the merchant regarding key terms or eligibility requirements.
• Unconscionable contract terms: Interest rates, payback amounts, or default provisions that are excessively one-sided or abusive.
• Violations of state lending laws: Failure to comply with caps on rates and fees or licensing requirements applicable to commercial loans.
• RICO violations: Evidence the MCA company engaged in racketeering or extortion tactics related to collections on the debt.

Negotiating MCA Debt Relief Through Legal Representation

Beyond challenging the enforceability of the underlying MCA contract, a defense lawyer can also negotiate debt relief or settlement agreements. This may involve:

• Settling debt obligations for less than claimed: Demonstrating to the MCA company that litigation to collect the full debt amount has little chance of success.
• Favorable repayment terms: Arranging an affordable monthly payment plan on the reduced debt balance with favorable rates and flexible options.
• Cease and desist orders: Directing the MCA company to halt harassment, freeze interest accrual, or stop reporting negative credit information while disputes are pending.

Skilled negotiation by a legal professional familiar with MCA company tactics levels the playing field and provides the merchant leverage. The MCA company has a strong incentive to reach an agreement rather than risk an adverse judgment.

Selecting the Right MCA Defense Attorney

As MCA debt collection abuse continues escalating nationally, more attorneys are marketing themselves as MCA defense lawyers. However, relatively few have the right mix of experience and skill to effectively represent merchants in these matters.Key credentials to look for include:

• Extensive knowledge of MCA company tactics: An understanding of the predatory tactics used at all stages, from deceptive sales practices to abusive collection methods.
• Mastery of applicable state and federal law: Expertise in consumer protection statutes and case law used to challenge or void MCA contracts.
• Proven track record negotiating settlements: A history of favorable settlements resolving or significantly reducing MCA debt obligations.
• No industry conflicts of interest: Avoid attorneys with ties to the MCA industry that could undermine their loyalty.

Vet any lawyer thoroughly before retaining them. Obtain references from past MCA clients and verify their background. This helps avoid attorneys who make inflated claims of success or who lack the dedication to zealously represent your interests against MCA companies.

Financial Triage – Assessing Business Health and Capital Needs

Before developing a legal strategy to address MCA debt, it is critical to objectively assess your business’ underlying financial health. This involves:

Evaluating business fundamentals

• Realistic outlook for future revenues and profits
• Strength of business model, products/services, and competitive positioning

Accounting for total debts owed

• Accurate tally of amounts owed to MCA companies and other creditors
• Understanding repayment requirements, interest rates, and deadlines

Determining capital requirements

• Identifying unmet funding needs for business operations and growth
• Weighing potential funding sources beyond MCA companies

This financial triage determines whether the business remains viable after shedding the MCA debt burden. The attorney can then tailor negotiations with MCA companies based on your capital needs and ability to repay any remaining debts.

Exploring Alternative Funding Options

If the business evaluation shows capital needs MCA products cannot sustainably meet, consider alternative funding sources. Typical options include:Traditional small business loans

• Banks, credit unions, SBA loans
• Lower rates, predictable payments
• Approval based on business fundamentals

Alternative online lenders

• Kabbage, Ondeck, Fundbox
• Automated approvals, very fast funding
• Higher costs than bank loans

Invoice factoring

• Sell outstanding invoices for immediate cash
• Interest until customers pay invoices
• Flexible limits based on unpaid invoices

Crowdfunding

• Raise small amounts from many backers
• Useful for niche products with loyal customers
• Marketing effort required to attract backers

Bootstrapping

• Fund operations from existing cash flow
• Avoid borrowing, tighten expenses
• Slow growth, higher chance of failure

Comparison shop alternative funding options before revisiting MCA products. Debt consolidation or refinancing may also help relieve repayment burdens if credit permits.

Developing Sustainable Cash Flow Management Habits

Addressing problem MCA debt provides an opportunity to implement financial best practices that support stability going forward. Attorney-assisted efforts to boost cash flow management include:Tightening receivables management

• Accelerate invoicing cycles
• Streamline collections outreach
• Consider third-party collections assistance

Extending payables schedules

• Renegotiate payment terms with vendors and suppliers
• Take advantage of early payment discounts
• Avoid late fees

Cutting discretionary expenses

• Review budgets for unnecessary spending
• Freeze new hires, capital expenditures
• Institute strict approvals for major purchases

Ongoing cash flow forecasting

• Detailed projections of cash inflows and outflows
• Allows alignment of capital and expenses
• Surfaces warning signs of new imbalances

These sustainable working capital management tactics reduce liquidity risk. The business can then fund operations and growth initiatives from reliable sources less likely to trigger new debt crises.

Deciding Between Bankruptcy and MCA Debt Settlement

Some merchants consider business bankruptcy as the only solution once MCA debts become unmanageable. However, bankruptcy may not be the best path forward. Talk of bankruptcy:

• Damages business relationships – Suppliers, customers, and creditors grow wary
• Invites legal challenges – Trustees examine transactions seeking recoverable assets
• Delays resolution – Bankruptcy legal process involves months of court procedures

A skilled attorney can often negotiate debt relief outside bankruptcy while enabling the business to continue operating. Settlements reached quickly help stabilize cash flow and supplier relationships as the business works toward recovery.However, bankruptcy does make sense in some situations, such as:

• Lawsuits have progressed too far – Default judgments or asset seizures bankrupt the business
• Creditors won’t negotiate – MCA companies or other creditors refuse reasonable settlements
• Business model has failed – Declining revenues and insurmountable debts

Seeking qualified legal advice early on alternative options prevents hasty bankruptcy decisions. The attorney explores if positive outcomes remain feasible before the nuclear option.

Executing a Long-Term Business Turnaround

Shedding predatory MCA debt should be the starting point for meaningful business model upgrades and operating improvements:Mission redefinition

• Reevaluating target customers and offerings
• Focusing on products and segments delivering profits

Sales expansion

• Diversifying marketing channels
• Creating recurring revenue streams

Cost control

• Boosting productivity and efficiency
• Renegotiating expenses like rent and suppliers

Financial planning

• Instituting reliable forecasting processes
• Conservative budgeting for stability

With sustainable cash flow and a solid plan for profitability, the business can move forward stronger than ever. The crisis intervention to address MCA debt creates space for this operational transformation.

FAQs on MCA Defense Attorneys

Q: How much does hiring an MCA defense attorney cost?The cost varies based on the attorney’s time required and the complexity of the legal issues involved. However, skilled MCA lawyers are often willing to offer flexible or contingency-based fee structures. The high settlement success rate enables affordable options.Q: Can an MCA company still sue my business after I hire a lawyer?Yes. Hiring an attorney does not automatically stop collections lawsuits. However, the lawyer sends cease-and-desist orders asserting possible legal claims. This may prompt the MCA company to suspend lawsuits and enter settlement talks instead.Q: What portion of MCA debts do lawyers typically get waived?Experienced MCA defense lawyers regularly negotiate settlements reducing debts by 60 to 80 percent. The waived amounts often reach into the tens of thousands or higher. Settlement specifics depend on case circumstances and the merchant’s ability to pay any remaining balance.Q: How long does the legal process take to resolve MCA debts?The timeline varies based on case complexity and other factors. However, skilled MCA lawyers prioritize fast resolution to stabilize merchant finances as quickly as possible. Settlements or alternative agreements often finalize within 2 to 3 months after retaining counsel.

Conclusion

Predatory MCA companies exploit small business capital needs, sinking merchants into debt traps destroying otherwise viable businesses. Fight back with experienced legal defense counsel by your side leveraging consumer protection laws. Regain control of your financial future through favorable settlements or debt restructuring so your business can thrive.