Merchant Cash Advance Attorney Georgia: A Helpful Guide for Small Businesses
Merchant cash advances have become an increasingly popular form of alternative financing for small businesses in Georgia. As a business owner, it’s important to understand how merchant cash advances work, the potential legal issues involved, and when you may need to consult a merchant cash advance attorney in Georgia.This article provides a helpful overview of merchant cash advances in Georgia, including the pros and cons, legal considerations, and defense strategies if you find yourself in a dispute with an MCA company. We’ll also discuss recent trends and developments regarding regulation of the MCA industry in Georgia and nationally.
What is a Merchant Cash Advance?
A merchant cash advance (MCA) is a form of financing where a company provides a business with an upfront lump sum of cash in exchange for a percentage of future credit card and/or debit card sales.The MCA company purchases a portion of the business’s future receivables at a discount. The business then repays the advance through small daily payments which are taken as a percentage of daily credit/debit card sales via auto-debit.MCAs are often appealing to small businesses because:
-- Approval is based on credit card sales, not personal credit scores of the business owner. This allows many businesses who cannot qualify for traditional financing to obtain funding.
- Funding can be obtained quickly, sometimes in as little as 24-48 hours.
- Daily repayment amounts fluctuate based on transaction volume, making it easier to manage cash flow.
However, MCAs also come with some major drawbacks, which we’ll explore throughout this article.
The MCA Industry in Georgia
Georgia has become a hotbed for the MCA industry over the past decade. With Atlanta as a major financial hub in the Southeast, many MCA funders have operations located in GA or specifically target Georgia small businesses.Some of the most active MCA companies making cash advances to Georgia businesses include:
- Kabbage
- CAN Capital
- Pearl Capital
- Kapitus
- United Capital Source
- Yellowstone Capital
- Queen Funding
Nationwide, the MCA industry has exploded in growth over the past 10 years, with MCA volume growing from $8.6 billion in 2012 to over $15 billion in 2018 according to a report by deBanked
.Georgia has certainly been a part of that growth, although exact state-level market size data is not available. As traditional bank lending has declined since the 2008 recession, MCAs have filled the void and now provide a form of quick, accessible financing for thousands of Georgia small businesses.
-Pros of Merchant Cash Advances
For many Georgia small business owners, the speed and ease of obtaining an MCA is the biggest appeal. Here are some of the main pros:
Quick Funding
Unlike traditional bank loans which can take weeks or months to get approved and funded, a merchant cash advance can provide funds in a matter of days or even 24 hours in some cases. This rapid financing allows businesses to seize opportunities and cover short-term cash flow gaps.
Easy Qualification
MCA approvals are based primarily on credit card sales history rather than personal credit scores. Many businesses who cannot qualify for a bank loan due to poor credit or insufficient operating history can obtain an MCA.
Flexible Repayment
Daily payments fluctuate based on credit card sales volume, so the repayment amount is lower on slower business days. This structure helps businesses manage cash flow.
No Collateral Required
MCA companies do not require collateral to secure funding. Only future credit card receivables are used to repay the advance.
-Use Funds for Any Purpose
Unlike a bank loan, MCA money can be used for any business purpose without restriction – marketing, payroll, equipment, inventory, growth opportunities, etc.
Cons of Merchant Cash Advances
While MCAs provide a quick source of financing for businesses who may have no other options, they also come with some significant drawbacks that business owners should consider.
High Cost
The cost of an MCA is extremely high compared to other financing options. Advance providers typically charge 1.2 to 2 times the amount advanced in total payments. This equates to an annualized percentage rate of 60% – 200%
-.
Daily Repayments
The daily repayment structure means a steady drain on cash flow that can be difficult to manage for some businesses if sales decline.
Locked In
Once an MCA contract is signed, the business is locked into making daily payments until the full amount is repaid. There is typically no option to prepay or refinance to lower the cost.
Potentially Predatory
Some MCA companies engage in predatory tactics such as misleading statements about repayment amounts and costs. Many target high-risk industries prone to volatility.
Personal Guarantees
While less common now, some MCA providers still require business owners to personally guarantee the advance, meaning their personal assets are at risk if the business defaults.As you can see, merchant cash advances allow easy access to capital but come at an extremely high long-term cost. Many small business owners regret taking an MCA once they realize the true cost.
MCA vs Business Loan
It’s important for business owners to understand the key differences between a merchant cash advance and a traditional term loan from a bank:MCA
- Based on credit card sales
- Approval in 24-48 hours
- No collateral
- Fixed daily payments
- Cost of 1.2-2X amount advanced
- No early repayment option
Term Loan
- Based on business & personal credit
- Approval takes weeks/months
- Collateral often required
- Fixed monthly payments
- Rates from 5% – 28%
- Option to prepay
While MCAs provide quick access to capital, a bank loan will almost always be a lower cost option over the full repayment period. However, poor credit or insufficient operating history may prevent a business from qualifying for a loan.
Legal Considerations & Regulatory Status
The legal and regulatory status of merchant cash advances in Georgia is complex. MCA companies contend that they are providing business financing, not loans, since there is no set repayment term or amount.However, some legal experts argue that MCAs should be subject to state lending and usury laws based on their structure. Usury laws cap interest rates on loans, which would make MCAs illegal.The debate largely centers around whether an MCA constitutes an extension of credit or the purchase of future receivables. So far in Georgia and most states, MCAs have avoided being subject to lending regulations.However, some recent legal developments could signal tighter regulation ahead:
- California: Recently imposed a cap on total MCA costs at 2.5 times amount advanced over 24 months.
- New York: Requires MCA companies to be licensed lenders.
- FTC: Recently won a settlement against a large MCA firm for deceptive practices. Indicates greater federal scrutiny of the industry.
So while MCAs remain unregulated in Georgia for now, business owners considering an MCA should understand the legal gray area they currently operate in.
Georgia Merchant Cash Advance Attorney
Given the high costs and legal uncertainties around MCAs, it’s advisable for Georgia businesses to consult with a merchant cash advance attorney prior to signing any contract.An attorney can help you:
- Analyze the MCA agreement to identify areas of concern
- Negotiate more favorable terms and rates
- Develop the strongest defense strategy if a dispute arises
- Navigate bankruptcy or debt settlement if unable to repay
Having an attorney review the full MCA contract and explain it to you in simple terms helps ensure you fully understand what you’re getting into. They will also look out for your best interests if the MCA company engages in any predatory or deceptive practices.
Common MCA Legal Issues in Georgia
Some of the most common legal issues that can arise with Georgia MCA contracts include:
Misleading Statements About Costs
MCA companies often misrepresent the total cost by emphasizing the “fixed” daily payment amount rather than the total repayment multiplier. An attorney can help determine your true expected costs.
Manipulation of Repayment Percentages
Some MCA funders unlawfully increase the percentage taken from daily credit card receipts, resulting in repayment amounts higher than contracted.
Improper ACH Debits
There have been cases of MCA companies improperly debiting business bank accounts in excess of the agreed upon amounts.
Lack of Proper Disclosures
Most MCA agreements lack proper Truth in Lending Act disclosures about APR and total costs. An attorney can ensure your rights are protected.
Unjustified Price Inflation
Some Georgia businesses have alleged unlawful price inflation, where the MCA company exaggerates the value of the future receivables purchased. This results in an advance amount lower than what should be expected based on the business’s credit card sales.Having an attorney review the agreement helps identify any areas where the MCA company is overreaching or failing to make proper disclosures. They can then work to negotiate better terms or exercise legal options if breaches occur.
Georgia Merchant Cash Advance Defenses
If a legal dispute does arise with an MCA company, there are several defenses Georgia businesses can potentially assert:
- Usury – Argue the MCA is an extension of credit above state usury rate caps
- Unconscionability – Terms of the agreement are unlawfully unfair or deceptive
- Breach of Contract – MCA company violated terms of the agreement
- Fraudulent Inducement – False statements were made to induce signing of the contract
- RICO Violations – Allege MCA company engaged in racketeering activity
- Violations of State/Federal Lending Laws – Argue the MCA failed to follow legal lending requirements
The viability of these defenses can depend on specific terms of the MCA agreement and the nature of the dispute. Having an attorney experienced with MCA contracts will ensure the strongest defense position.
Recent Trends & Developments
The MCA industry is constantly evolving, and Georgia business owners considering an MCA should be aware of recent trends and developments that could impact them:
- Increased Scrutiny of Industry – Regulators like the FTC are taking a closer look at MCA companies and imposing penalties for unlawful practices. This could mean tighter regulations ahead.
- Consolidation of MCA Companies – Larger players are acquiring smaller providers, leading to less competition. This allows the remaining companies to charge higher rates.
- Shifting Underwriting Criteria – MCA funders are relying less on credit card sales as more merchants have failed. Instead they are increasingly scrutinizing business fundamentals.
- Bank Partnerships – Some banks are now partnering with MCA companies to offer cash advances. This could make MCAs seem less risky to potential borrowers.
These trends indicate that oversight of the MCA industry is increasing, but funders are also adapting their practices to maximize revenues. Georgia businesses need to enter into any MCA agreement cautiously.
Conclusion
In summary, merchant cash advances can provide quick financing for Georgia small businesses who struggle to qualify for traditional funding. However, the high costs and legal uncertainties surrounding MCAs mean business owners should exercise extreme caution before signing any contract.Seeking guidance from an experienced Georgia MCA attorney is highly recommended to help fully understand the terms of the agreement and protect your legal rights and defenses. With proper legal review, a merchant cash advance may be a viable short-term financing option for Georgia businesses in need of capital.