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Last Updated on: 14th September 2023, 12:31 am
Merchant Cash Advance Attorney Texas
Merchant cash advances (MCAs) have become an increasingly popular form of alternative business financing in Texas and across the United States. MCAs allow businesses to receive an upfront lump sum of capital in exchange for a percentage of their future credit card sales. While MCAs can provide quick access to capital for businesses that may not qualify for traditional loans, they also come with some major drawbacks that business owners should be aware of. This article will provide an overview of MCAs in Texas, discuss the pros and cons of these financing arrangements, and explain why it’s important to work with an experienced MCA attorney when considering or dealing with an MCA.
Overview of Merchant Cash Advances in Texas
Texas has a large and thriving small business community. Over 2.7 million small businesses operate in the state, making up over 99% of all Texas employers. Many of these small business owners turn to alternative financing options like MCAs because they may not qualify for bank loans or have maxed out their borrowing limits.An MCA provides capital in a lump sum, usually between $5,000 and $500,000, in exchange for a percentage of future credit card sales. The business repays the MCA by allowing a set percentage of their daily credit card receipts to be debited – often between 10-20% – until the full amount is repaid plus fees and interest.Unlike a loan, an MCA is not a fixed amount that you repay in regular installments. Repayment is tied directly to credit card sales, so if your business has a slow period, your payments to the MCA company will be lower. This flexible repayment structure is one of the major benefits touted by MCA companies.However, MCAs also come with their downsides. The main issue is cost – MCAs are an extremely expensive form of financing with interest rates that often equate to over 50% APR when all fees are included. MCA companies also often engage in aggressive, misleading marketing and sales tactics to get business owners to sign unfavorable contracts.This combination of easy access to capital and lack of regulation has led MCA companies to proliferate in Texas. There are now over several hundred MCA companies operating in the state. As their popularity increased, so have complaints from business owners claiming predatory lending practices.
Pros and Cons of Merchant Cash Advances
Below is an overview of the main advantages and disadvantages of merchant cash advances:
- Quick access to capital – MCA companies promote how fast they can fund businesses, often in as little as 24-48 hours
. This speed appeals to businesses with immediate capital needs.
- Flexible qualifications – MCAs have less stringent approval requirements compared to bank loans, so they may be an option for newer businesses or those with lower revenues or poorer credit.
- Repayment tied to sales – Because repayments fluctuate based on credit card receipts, MCAs can accommodate seasonal businesses or sales fluctuations better than fixed loan payments.
- Very high cost – MCAs are extremely expensive, with total repayment costs between 1.5 to 2.5 times the original advance amount being common. This is equivalent to APRs over 50%.
- Daily repayment requirements – The daily repayment structure can strain cash flow, especially during slow periods. It also means less flexibility than a fixed monthly payment.
- Aggressive collections – MCA companies can engage in aggressive collections tactics like accessing business bank accounts directly if payments fall behind.
- Confusing contract terms – MCA contracts often have vague terminology and lack transparency about total costs, making it difficult for business owners to understand what they are agreeing to.
- Overreliance on credit card receipts – Tying repayment exclusively to credit card sales leaves businesses vulnerable if card processing is disrupted.
Why Work with a Merchant Cash Advance Attorney
With an understanding of how MCAs work in Texas, it becomes clear why seeking legal guidance is so important if you are considering an MCA. An experienced MCA attorney can help in several key ways:
- Reviewing the MCA contract – They will scrutinize the terms of the MCA agreement to identify areas that unfairly favor the MCA company over the business owner. This includes looking for hidden fees, unreasonable default clauses, and other predatory terms.
- Negotiating better contract terms – An attorney can negotiate with the MCA provider to remove or alter contract clauses that are unfavorable to the business owner. This puts you in a stronger legal position.
- Explaining your legal rights – They will inform you of your rights under Texas law as they pertain to MCA agreements and what recourse you have if you run into issues with repayment or collections. Knowledge of your rights is critical.
- Assistance with legal action – If legal action is required to settle a dispute with an MCA company, an experienced attorney has the expertise to represent your interests in court.
- Avoiding scams – Unfortunately, Texas has seen some MCA providers engage in outright fraud. An attorney can help vet MCA companies to avoid scammers.
- Debt settlement – If your business runs into trouble repaying the MCA, an attorney can negotiate a settlement on your behalf to reduce the amount owed.
Having a qualified MCA lawyer review any MCA agreement before signing and representing your interests after the fact can prove invaluable. They can help ensure you fully understand the MCA contract, receive fair terms, and have legal backup if any issues arise.
Texas MCA Laws and Regulations
Compared to traditional bank loans, the MCA industry operates with relatively little oversight and regulation in Texas. However, there are some important state laws and recent legal developments to be aware of:
- No interest rate caps – Texas does not impose maximum interest rates or APRs on MCAs like they do with other loan products. MCA companies can charge exceedingly high rates.
- Disclosure requirements – A 2021 Texas law requires enhanced disclosures from MCA providers about repayment terms, costs, and other contract details. This helps improve transparency.
- Potential usury violations – Some MCA agreements may violate Texas’ usury laws if their fees and interest rates are deemed exploitative. Usury challenges have succeeded in some cases.
- Deceptive trade protections – Texas’ Deceptive Trade Practices Act prohibits misleading marketing, sales tactics, or contract terms by MCA companies. Violations can be pursued in court.
- Recent federal scrutiny – Federal regulators like the FTC and CFPB have started taking a harder look at the MCA industry’s practices nationwide. Tighter federal oversight may lie ahead.