New York state laws, including the Uniform Commercial Code (UCC), protect against unconscionable contracts. Unconscionability is a legal concept that means a contract is unfair or oppressive to one party, suggesting abuses during its formation. By preventing severely one-sided agreements, these laws ensure that you receive fair treatment in business dealings. If you signed or are planning to sign a merchant cash advance (MCA) agreement, understanding unconscionability could help protect your business.
What makes an agreement unconscionable?
Courts in New York look at two main factors when determining if an MCA agreement is unconscionable. First, they examine the circumstances surrounding the formation of the agreement. Second, they review the actual terms of the agreement. Here are some factors that may raise red flags:
- Rushed signing process: The MCA provider pressured you to sign quickly without reviewing terms.
- Unclear terms: The MCA provider failed to clearly explain important details about payments or fees.
- Excessive payments: The daily or weekly payments make it impossible to keep your business running.
- Harsh penalties: The agreement includes extreme consequences for late payments.
- Missing information: The MCA provider did not clearly disclose the total cost of financing.
- One-sided terms: You had no real opportunity to negotiate the agreement.
When determining unconscionability, courts examine each case carefully, looking at specific details about the situation. They may consider your business experience, how clearly the MCA company explained the terms and whether the payments are reasonable compared to industry standards.
Owning and running a business can be challenging. At the time, signing an MCA agreement may have been what your business needed. However, it’s crucial to watch for signs that your MCA agreement might be unfair. If you can’t maintain basic business functions because of the payments, or if you discover fees that weren’t explained clearly, consider consulting with a lawyer about your next steps.
Protect the future of your business
If you recognize any of these warning signs in your MCA agreement, don’t wait until your business is at risk. Speaking with an attorney can help you understand your rights and options.