What Is Merchant Cash Advances?
Dealing with merchant cash advance (MCA) debt can feel like you’re trapped in a never-ending cycle. Does it sometimes feel like the harder you work, the harder it gets to stay ahead? This may be because you haven’t explored your debt relief options yet.
At Colonna Cohen Law, we know how MCA debt relief works and we’ve applied this knowledge to help countless large, medium, and small business owners just like you find their way back to stability and peace of mind.
Do you feel like you’re stuck? What if we tell you that your MCA debt isn’t as scary as you think? Our team is here to explain your MCA debt relief options so you know what you can do to get a fresh start.
Understanding Merchant Cash Advance Debt
Merchant cash advances provide small businesses with fast access to cash for immediate needs. They are often marketed as a lifeline for businesses facing cash flow challenges, offering funds without the lengthy approval processes of traditional loans. However, this convenience comes with a number of hidden costs and aggressive repayment terms that can strain a business’s finances.
Unlike traditional loans, MCAs are based on a business’s future sales. Lenders provide a lump sum upfront, and repayment is typically made through daily or weekly deductions from the business’s revenue. This repayment structure means that if sales slow down, the financial pressure doesn’t let up.
The costs of MCAs can quickly escalate due to high fees and factor rates. Factor rates usually range between 1.2 and 1.5 times the amount borrowed. For example, if you receive a $50,000 advance with a factor rate of 1.4, you will need to repay $70,000—often within months. When businesses take out multiple advances to manage cash flow, these costs can spiral out of control, creating a cycle of dependency on expensive financing.
The Risks of MCA Debt
Merchant cash advances might seem like an easy solution at first, but they can quickly become a heavy financial burden. If your business is struggling to keep up with daily or weekly payments, tMCA agreements can pose serious risks to a business’s financial health. Many business owners don’t realize this when they take out a merchant cash advance. And, sadly, no one tells them about those risks—certainly not lenders who care about their profits and nothing else. So what are the possible risks?
1. High Interest Rates and Frequent Repayment Schedules
Merchant cash advance repayment terms often involve daily or weekly deductions, which can quickly strain your cash flow and leave little room for other essential expenses like payroll or inventory.
- Example: A restaurant owner takes an MCA to cover renovations, but daily repayments soon eat into their operating budget, making it hard to pay suppliers and staff.
2. Risk of Default
Missing payments can lead to severe consequences, including default. Defaults often escalate into legal action, frozen accounts, or even the seizure of business assets.
- Example: A retail store owner falls behind on MCA payments during a slow sales season and faces a lawsuit from the lender, resulting in a frozen business bank account.
3. Confessions of Judgment (COJ) Clauses
Some merchant cash advance agreements include COJ clauses, which allow lenders to bypass traditional legal proceedings. This can lead to abrupt account freezes or asset seizures, giving business owners little time to respond.
- Example: A small marketing agency signs an MCA with a COJ clause, and when a payment is late, their accounts are suddenly frozen.
4. Unpredictable Cash Flow
High factor rates and frequent repayment schedules can disrupt your cash flow, making it difficult to plan for future growth or handle emergencies.
- Example: A seasonal business owner takes out multiple MCAs to prepare for a busy period. However, the repayment terms are so aggressive that during the slow season, they can’t cover basic expenses, putting the business at risk of closure.
The combination of high factor rates and daily or weekly repayment schedules can disrupt a business’s financial stability. As a result, cash flow becomes unpredictable, making it harder to plan for future growth or emergencies. Sounds like a recipe for disaster, doesn’t it?
MCA Debt Relief Options
All is not lost if you struggle with MCA debt. Relief is possible through several strategies tailored to your business’s needs. Here are three common approaches:
- MCA debt consolidation: This involves taking out a lower-interest loan to pay off one or more existing high-interest MCAs.
- MCA debt settlement: Settlement is a negotiation process where you and the lender agree on a reduced payoff amount. If you let your lawyer negotiate on your behalf, you may be able to settle your business debt for less than the full amount owed.
- MCA debt restructuring: This option involves renegotiating the terms of your merchant cash advance with the lender. A lawyer can work to secure lower payments, extended repayment periods, or other adjustments that align with your business’s finances.
Each of these options has its own unique benefits. But which one aligns with your business goals? Figuring this out can be tough, which is why you might want to consider scheduling a consultation with a lawyer.
Benefits of MCA Debt Relief Solutions
Merchant cash advance relief isn’t just about cutting down what you owe—it’s about creating breathing room and giving your business the opportunity to thrive again. If you are feeling trapped by overwhelming debt, imagine what your life could look like with less financial stress. That sense of relief can be life-changing.
One of the biggest advantages of MCA debt relief is the immediate improvement to your cash flow. By reducing high fees and interest rates, you will have more room to handle your daily operational expenses and focus on growth instead of survival.
Debt relief also protects your business from the risks of defaulting on merchant cash advances. Legal action, frozen accounts, and asset seizures can put everything you have built at risk. The sooner you address your situation, the more likely you are to avoid these worst-case scenarios and safeguard your business’s future.
How MCA Debt Relief Works in New York
All is not lost if you struggle with MCA debt. Reliburden. At Colonna Cohen Law, we help business owners find MCA debt relief through the following steps:
- Initial financial assessment: Relief starts by taking a closer look at your business’s finances. What’s working? What’s not? This assessment includes evaluating cash flow, debts, repayment schedules, and other obligations. The goal is to get a clear understanding of your business’s financial health and pinpoint areas that need improvement.
- Customized plan development: After the assessment, we create a tailored debt relief plan to address your unique needs. This could include negotiating with lenders to extend repayment terms, reduce payment amounts, or consolidate multiple debts into a more manageable payment. The goal here is to ease financial pressure and restore stability.
- Negotiation with lenders: Then, we work directly with lenders on your behalf. We focus on restructuring terms to align with your business’s cash flow, ensuring you’re not burdened by daily or weekly payments that drain resources.
- Implementation and follow-up: Once the plan is agreed upon with lenders, the new terms are put into place. Regular follow-ups help ensure that your business stays on track and that the plan is working as intended.
Imagine running your business without the constant worry of repayments and the ability to focus on growth. Isn’t that worth striving for? With us by your side, that may be a possibility.
Merchant Cash Advance Lawyer Frequently Asked Questions (FAQs)
A merchant cash advance is a form of financing where you receive a lump sum upfront in exchange for a percentage of your future sales. It’s not a loan, but a purchase of your revenue, repaid daily or weekly.
Not always. MCAs are structured as revenue purchases, so they are often exempt from traditional lending laws. However, some states, like New York, have regulations to protect businesses from unfair MCA practices.
Yes. If your MCA agreement includes excessive fees, unclear terms, or illegal clauses, you may be able to challenge its enforceability. A merchant cash advance lawyer can review your contract and identify areas to dispute.
A confession of judgment clause allows the lender to get a court judgment against you without a trial if they claim you defaulted. These clauses are often buried in MCA agreements and can be devastating, but some states, like New York, restrict their use.
You have several options, including negotiating for lower fixed payments, disputing excessive fees, or challenging the agreement’s enforceability. In extreme cases, bankruptcy may also be an option to consider.
An attorney can help you challenge unfair agreements, negotiate better terms, stop aggressive collection tactics, and protect your business from legal threats. They will also guide you through the appeals process if a lender refuses to cooperate.
The enforceability of your agreement depends on factors like whether the terms comply with state laws, if fees are reasonable, and if the contract was transparent. A lawyer can analyze your agreement to determine its legal standing.
Yes, many merchant cash advance companies are open to negotiation. Settling the debt often involves paying a reduced lump sum or agreeing to new terms that work for both parties.
If your lender is using aggressive tactics like constant calls, threats, or illegal actions, an attorney can step in to protect your rights and stop the harassment.
The sooner, the better. MCA problems can escalate quickly, leading to frozen accounts, seized assets, or mounting debt. Acting fast gives you the best chance to resolve the issue and protect your business.
Contact Us Now
If your business is struggling with Merchant Cash Advance lawsuits, frozen accounts, UCC liens or collection actions, please contact Colonna Cohen Law to provide relief and protect your livelihood.
