Predatory merchant cash advances (MCAs) wreak havoc on New York’s small businesses. It often feels like these companies must be breaking the law, pushing entrepreneurs to the brink with sky-high fees and relentless repayment terms. If you’re a small business owner in New York City, you need to know if these companies are breaking the law with their outrageous practices.
What is usury and when does it apply in New York?
Usury is the practice of charging much too high interest rates on loans. In New York, laws and regulations set limits on interest rates to try to shield borrowers from exploitation and ensure fairness in financial transactions. Generally, a loan cannot exceed a 16 percent annual rate.
Why do usury laws not apply to merchant cash advances in New York?
Here’s the kicker: New York’s usury laws don’t typically apply to merchant cash advances. Why? Because MCAs are not considered traditional loans. Instead, they are structured as contracts for the sale and purchase of future receivables. This means when you take out an MCA, you’re technically selling a portion of your future sales, not taking out a loan with traditional collateral like your building.
This legal loophole allows MCA companies to sidestep the stringent interest rate caps imposed by usury laws. It gives them the freedom to charge often exorbitant fees that can leave small business owners in financial ruin. This distinction between loans and receivables contracts is crucial, and it’s why MCAs can operate outside the usual regulatory boundaries.
Take action if you’re struggling with an MCA
If you’re struggling to repay a merchant cash advance, don’t wait until it’s too late. Consult a lawyer who understands New York’s financial laws and MCAs, and can help you navigate your options. Your business deserves protection, and you need someone in your corner ready to fight for your rights. Don’t let these predatory practices go unchecked — seek legal advice now.