Understanding Merchant Cash Advances
Last updated on August 7, 2024
There are many reasons a business chooses to take out a merchant cash advance, but the primary one is this: necessity. The merchant cash advance system is relatively new in the toolbox of financial tools. They’re one of the only options left to small businesses in need of financial help, and they have become predatory.
At Merchant Cash Advance Law Firm P.C., merchant cash advance attorney Dominick Dale takes on the fight for businesses facing the struggles of overcoming merchant cash advances. You and your business have rights, and debt collectors can be extremely aggressive with you. As your lawyer, Mr. Dale will stand up for you and defend your business tooth and nail.
How A Merchant Cash Advance Works
A merchant cash advance is allegedly not a loan. The Merchant Cash Advance companies alleged that It is an “advance” on future earnings in your business attached to your accounts receivable. These companies may go further and place a UCC lien against your profits, which could put you out of business.
Interest rates on these loans are often extremely high, far in excess of what a standard operating loan is, and paying them off is difficult without a settlement.
Why MCAs Are One Of The Few Options For Businesses
Merchant Cash Advances (MCAs) are often considered by businesses for several reasons, although it’s important to note that they may not be suitable for every business, and there are both advantages and disadvantages associated with this financing option. Here are some reasons why MCAs might be considered as one of the few options for businesses:
- Quick Access to Capital: MCAs typically offer a quick and straightforward application process. Businesses in urgent need of capital may find MCAs appealing due to their speed of approval and funding.
- No Collateral Requirement: Unlike traditional loans, MCAs are unsecured, meaning businesses don’t need to provide collateral. This can be advantageous for businesses that lack significant assets or are unwilling to pledge collateral.
- Flexible Repayment Structure: Repayments for MCAs are often tied to daily credit card sales or a percentage of daily revenue. This flexible structure can be appealing to businesses with fluctuating cash flows, as they repay more during profitable periods and less during slower times.
- Approval Based on Revenue: MCAs are often approved based on a business’s daily credit card transactions or overall revenue, rather than traditional credit scores. This can make them accessible to businesses with a less-than-perfect credit history.
- Ease of Qualification: The qualification requirements for MCAs are generally more lenient compared to traditional loans. Businesses with a short operating history or lower credit scores may find it easier to qualify for an MCA.
But, as they say, the Devil is in the details. The easier the process the harsher the penalty. Rest assured, the MCA will make sure it does everything it can to be repaid.
Frequently Asked Questions About Merchant Cash Advances In New York
Here are some commonly asked questions to help you understand merchant cash advances better in the state of New York:
What is usury and when does it apply in New York?
Usury refers to the practice of charging excessive interest rates on loans. In New York, interest rates are heavily regulated to protect borrowers. State laws set strict limits on interest rates that lenders can charge, to prevent exploitation.
Usury laws in New York are particularly stringent to safeguard consumers and businesses from predatory lending practices. These laws aim to maintain fairness in lending transactions by establishing clear boundaries on interest rates that lenders can impose, promoting transparency and consumer protection in financial dealings.
Why do usury laws not apply to merchant cash advances in New York?
In New York, usury laws govern the maximum interest rates lenders can charge on loans to protect borrowers from excessive fees. However, these laws typically do not apply to merchant cash advances.
Unlike traditional loans, merchant cash advances are structured as a contract for the sale and purchase of future receivables, not loans with interest. This distinction allows merchant cash advances to operate outside usury regulations, providing businesses with a different financing option.
How are merchant cash advances legal in New York?
Merchant cash advances are legal in New York because they are structured as sales transactions rather than loans.
By purchasing future receivables at a discounted rate, providers assume the risk associated with fluctuations in the business’s sales volume. This structure falls outside traditional loan regulations, offering flexibility in repayment based on sales performance.
What are the potential drawbacks of a merchant cash advance in New York?
While merchant cash advances provide quick access to funds without requiring collateral or a high credit score, they can be costly compared to traditional loans.
Factor rates or fees applied to the advance can result in a high effective APR, and the repayment structure tied to sales volume may strain cash flows if sales decline unexpectedly.
What Debtor’s Rights Defense Does
Attorney Dominick Dale gets right to work for clients. He learns the details of their case and provides a detailed plan of action for them. Then he gets to work as the tough, bulldog litigator he is to protect you, your rights and your business.
As your merchant cash advance attorney, Dominick Dale will fight for your business with the strength you deserve from your attorney. Reach out for a consultation by phone at 347-588-5590 or send an email using this form.