Wyoming Merchant Cash Advance Attorney
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 sum of cash in exchange for a percentage of the business’s future credit card or debit card sales. It is not a loan, but rather the purchase of a business’s future receivables at a discount.
-Here’s how it works:
- A merchant cash advance company provides a lump sum payment upfront to the business owner.
- The business owner agrees to pay back the advance through daily or weekly payments which are automatically withdrawn from their credit card sales.
- The payments are taken as a percentage of daily or weekly credit card sales – usually between 5-20% – until the full amount is repaid.
- There is no set repayment period. The duration depends on the business’s credit card sales volume.
Because MCAs are not considered loans, merchant cash advance companies can skirt state lending laws that cap interest rates. As a result, the equivalent annual percentage rates (APRs) on MCAs are exorbitantly high, often exceeding 100%.
When to Contact a Wyoming Merchant Cash Advance Attorney
If you are struggling to repay a merchant cash advance, it may be time to contact an attorney. An attorney can review your contract and advise you on your rights and options. Here are some common situations when legal help may be needed:
- The MCA company engages in harassment, threats, or aggressive collection tactics.
- You believe the MCA contract terms are deceptive or misleading.
- The company tries to collect payments you do not actually owe.
- Your bank account was frozen by a confession of judgement.
- You cannot afford the daily payments and need to negotiate a settlement.
- You need help defending against a lawsuit brought by the MCA company.
- You want to proactively review your contract before signing.
A knowledgeable merchant cash advance attorney can help you understand your rights under the law. They can also represent you in negotiations or litigation with the MCA company. For example, an attorney may be able to get unfavorable contract terms voided, remove an improper confession of judgement, or work out a settlement for less than you owe.
-Federal Regulation and State Laws
One issue with MCAs is that they are largely unregulated. Since MCAs are structured as commercial transactions rather than loans, they do not fall under federal lending laws like the Truth in Lending Act (TILA). TILA requires lenders to disclose APRs so that consumers can compare costs.1
MCAs are governed by state commercial codes rather than lending statutes. However, some states have passed laws to regulate MCAs:
- New York limits rates to no more than 16% of the advance amount. 2
- California enacted a Pilot Program for Increased Oversight of Merchant Cash Advances. 3
- New Jersey requires cash advance companies to be licensed by the state. 4
Talk to a Wyoming attorney to find out if any state laws offer protections regarding MCA contracts, interest rates, aggressive collections, or other predatory practices.
Tips for Avoiding MCA Problems
To avoid issues if you do enter into a merchant cash advance agreement, follow these tips:
- Review the contract terms closely and negotiate unfavorable provisions.
- Understand the daily/weekly payment amounts and ensure you can afford them.
- Be conservative when estimating your future credit card sales.
- Avoid taking multiple advances that can lead to a debt spiral.
- Consult a lawyer before signing anything or if issues arise.
- Notify the MCA company early if you anticipate problems making payments.
- Maintain clear communication and records of all agreements.
Following these tips can help prevent many of the pitfalls business owners commonly encounter with merchant cash advances.
-The Bottom Line
Merchant cash advances can provide quick access to capital but come with very high costs and risky terms. They should only be used as an absolute last resort for financing. Be sure to explore all other, less expensive options first. If you do pursue an MCA, consult with an attorney to review the contract. And if you have trouble repaying, contact a Wyoming merchant cash advance attorney right away for assistance protecting your rights.