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Arizona Merchant Cash Advance Attorney

Arizona Merchant Cash Advance Attorney – Your Guide to MCA Loans and Legal Help

So you’re an Arizona small business owner who needs some extra capital to grow your business. You‘ve heard about merchant cash advances (MCAs) and are wondering if it’s the right financing option for you. Well, you’ve come to the right place!This article will give you a comprehensive overview of merchant cash advances – what they are, how they work, the pros and cons, and most importantly, your legal rights and defenses. We’ll also discuss when it makes sense to hire an Arizona merchant cash advance attorney to help you navigate this complex financing product.

What is a Merchant Cash Advance?

A merchant cash advance (MCA) is a form of alternative business financing where a company purchases a portion of your future credit card sales in exchange for an upfront lump sum payment.Here’s a quick rundown of how it works:

• You apply for financing with an MCA company and they assess your credit card sales to determine how much they will advance you. The amounts usually range from $5,000 to $500,000.
• If approved, the MCA company will provide you with a lump sum payment upfront (this is the “advance”).
• In exchange, they take a percentage of your daily credit card sales until the advance is repaid in full plus fees and interest. Typically this is done through auto-deductions from your credit card processor.
• The entire advance and fees must be paid back within 4-12 months. There is no set repayment schedule – the daily payments fluctuate based on your credit card volume.

This quick access to capital can be a lifeline for businesses who need funds fast and don’t qualify for traditional bank loans. However, MCAs come at a steep price and contain provisions that heavily favor the lender over the borrower.

Pros and Cons of Merchant Cash Advances

Pros

• Fast funding – You can get approved for an MCA within days and have the funds deposited directly into your business bank account. Traditional SBA loans can take months.
• Flexible qualifications – MCA companies focus more on your credit card sales history versus your business credit score or financials. Startups and businesses with bad credit have an easier time getting approved.
• No set repayment schedule – Your daily payments fluctuate based on your credit card sales volume, so you pay back more on your good days.

Cons

• Very high cost – MCAs are extremely expensive, with interest rates ranging from 60% – 300% APR when all fees are calculated.
• Daily repayments – The daily deductions from your credit card sales can significantly impact your cash flow, especially during seasonal slow periods.
• No early repayment discounts – Most MCA contracts don’t allow you to pay off the balance early. You must pay the full amount regardless of how fast you repay.
• Personal guarantees required – MCA companies will often require a personal guarantee from the business owner, making your personal assets vulnerable if the MCA defaults.
• Aggressive collections – MCA lenders are quick to sic aggressive debt collectors on borrowers who default. They can freeze your bank accounts or even sue you.

As you can see, merchant cash advances come with major risks and downsides. They should be viewed as an absolute last resort for accessing capital, not your first choice.

Is a Merchant Cash Advance a Loan?

There is an ongoing legal debate over whether MCAs should be classified as loans or not. On one hand, MCA companies adamantly insist that what they offer is not a loan, but rather the purchase of a percentage of future sales.However, when you look at the structure and terms of MCA deals, they essentially function like loans:

• You receive a lump sum of cash upfront
• You pay back the advance plus fees and interest over a defined period of time
• There are set consequences if you default on payments

So while MCA companies may call it a “purchase of future sales“, these transactions walk and talk like loans. Some courts have agreed, ruling that MCAs are in fact loans subject to state lending and usury laws.

If your MCA is legally deemed a loan, that opens up additional protections and rights for the borrower:

• Interest rate caps – State usury laws limit how much interest lenders can charge on loans. This would restrict how much MCA companies could charge.
• Disclosure requirements – Lenders are required by the Truth in Lending Act to disclose APR, payment terms, fees, etc. This would improve transparency in MCA deals.
• Ability to repay evaluation – Lenders must assess a borrower’s ability to repay without taking on excessive financial burden. This could prevent predatory MCA lending.
• Restrictions on collections – There are limits on what lenders can do to collect loan payments. MCA collectors couldn’t be as aggressive.

So far, Arizona courts have not definitively settled the “MCA as loan” debate. But some legal experts argue that MCAs fit the definition of loans under Arizona’s usury laws and should be regulated as such. Until then, MCA companies will continue operating in a gray area without the restrictions imposed on traditional lenders.

Your Legal Rights and Defenses Against MCA Companies

If you do end up taking out a merchant cash advance, it’s important to understand your legal rights and defenses. Here are some of the most common claims made against predatory MCA companies:

• Usury violations – Argue that the MCA’s fees and interest rates exceed Arizona’s usury caps for loans. Usury laws prohibit charging excessive interest on loans.
• Deceptive/unfair trade practices – The MCA company hid or misrepresented key terms and conditions, engaging in deceptive business practices.
• Breach of contract – The MCA company violated terms of the agreement, like taking more payments than allowed.
• Unconscionability – The contract contains unfair, one-sided terms that unreasonably favor the MCA company over the borrower.
• Fraudulent inducement – You were manipulated or tricked into signing the MCA contract through false promises.
• Unauthorized withdrawals – The MCA company took unauthorized payments that exceeded the percentage or amount allowed in the contract.