Merchant Cash Advances (MCA) provide fast cash for struggling businesses that often do not qualify for traditional bank loans. The company receives a lump sum now and pays it back through daily or weekly deductions over a short period of time, often at extremely high amounts and interest rates. Payments are based on a percentage of historical receipts.
The Potential Debt Trap
High costs and aggressive collection tactics often outweigh the initial benefits of quick capital. These agreements frequently hide extreme interest rates and exorbitant fees behind complex terminology and daily payment schedules.
- The effective annual percentage rate often exceeds one hundred percent
- Daily withdrawals may prevent the business from paying its employees or rent
- Contract terms allow lenders to file legal actions in distant states
- Confessions of judgment let lenders seize assets without a prior hearing
- Often, the lender has already obtained a judgment and issued a garnishment before the company is aware of the out-of-state lawsuit
- The owner of the company is most likely personally liable on the obligation as well
- The lender has filed a lien against some or all of the company assets.
The constant drain on cash flow forces many owners into a cycle of stacking multiple advances. This pattern quickly leads to business failure and personal financial ruin for the owners.
Overcoming the obstacles of MCA lending
Our Firm has successfully helped companies resolve or make their MCA loan repayments more manageable, both in and out of court. This can be done through out-of-court settlements with the MCA lender, a wind-down of the company, or through the filing of bankruptcy. Please contact our Firm to see how we can help you with your MCA loans.