MCA - Frequently Asked Questions

• A Merchant Cash Advance is a type of financial instrument used by a funder to provide a business with a lump sum of money in exchange for the right to receive a percentage of the businesses future generated credit card and account receivables. 

• Provided the Merchant Cash Advance is treated by the funder like a true Purchase and Sale Agreement, rather than a loan, it is legal. 
• A competent and dedicated Merchant Cash Advance Attorney can assist in determining if you have been the victim of predatory lending and a MCA scheme.

• Provided the transaction is a true Purchase and Sale Agreement of future receivables, the Merchant Cash Advance Funder is legally permitted to take receivables that far exceed the lump sum it provides the business, this is because the law does not recognize a Purchase and Sale Agreement of future receivables to be a loan.
  
  
• A Merchant Cash Advance Attorney should be qualified and experienced enough to determine the differences and see if any MCA debt relief is available to you.

• A merchant cash advance is generally legal because it is not considered a traditional loan by the law. Rather the transaction is for the purchase and sale of future account receivables such as credit card transactions. The law says that if it’s a purchase and sale, it is not a loan and if it is not a loan, interest does not apply.
  
  
• Not every Merchant Cash Advance is a legal financing instrument. It is important to have your MCA Contract reviewed by a Merchant Cash Advance Defense Attorney who will know all the nuances and MCA laws and regulations.

• There is generally no usury with a Merchant Cash Advance provided it is a true purchase and sale of future account receivables. The law rules that if the transaction is deemed a purchase and sale of future receivables, it cannot be a loan and if there is no loan, legally there is no interest and if legally there is no interest then there is also no usury. 
  
  
• To determine if the MCA Agreement is really a loan in the guise of an MCA contact an MCA Defense and Litigation Attorney for a free consultation.

• Usury is a legal cap on interest that is allowed to be charged for a loan. A loan requires a borrower to repay the lender back absolutely. This means that irrespective of the success of the business, the loan must be repaid. In the case of a loan, usury caps will apply. 

According to New York law, a commercial or business lender is not permitted to charge a borrower interest in excess of 25%

• In New York State charging interest on a commercial loan that exceeds 25% is a crime. In fact, the usury laws are written into New York’s Penal Code and thus it is considered a crime. See section 190.4 of New York’s Penal Code.

• “A person is guilty of Criminal Usury in the Second Degree when, not being authorized or permitted by law to do so, he or she knowingly charges, takes or receives any money or forbearance of any money or other property at a rate exceeding twenty-five per centum per annum or the equivalent interest rate for a shorter or longer time frame.”
  
  
• The determinative factor is whether the financing instrument is a loan and usury applies or if the instrument is in fact and law a Purchase and Sale of Receivables. A Merchant Cash Advance Attorney can help with this determination.

• Traditional FDIC chartered banks do not provide businesses with Merchant Cash Advances. However, it is not uncommon for an MCA Funder to “partner” with an FDIC chartered bank in order to provide usurious loans to borrowers. This scheme is referred to as a “rent a bank” scheme.

• Entities known as Merchant Cash Advance Funders or Merchant Cash Advance Companies or Providers, provide businesses with Merchant Cash Advances. These entities are not FDIC insured nor are they governed by any State, Banking or Charter laws. Therefore, anyone can become an MCA funder at any time without so much as an application or background check.

• A merchant cash advance or MCA does not have the same rules, regulations and requirements of a traditional loan. A loan must be repaid irrespective of circumstance, while the payment of a legal MCA is premised entirely on whether the business generates receivables and has revenue to make repayments.
  
  
• Also, a loan usually requires intense underwriting and requests many documents like tax returns and financial statements. On the other hand an MCA usually underwrites with only 3 months of bank statements and a funding call or video meeting between the funder and business.

• A Merchant Cash Advance may seem at first glance to be a favorable source of business financing due to the speed of funding, ease of underwriting and the acceptance of applicants with poor credit. 
  
  
• However in reality, the requirement to repay the Merchant Cash Advance daily or weekly, coupled with the harassment that may follow, if not repaid, together with the excessive costs and fees, means a Merchant Cash Advance is not worth it.
  
  
• A common trap used by MCA Funders and Brokers is to promise a conventional term loan if a merchant takes out a “small Merchant Cash Advance,” this however is a common case of fraud and deception. It’s a common case of bait and switch.
  
  
• Sadly, this is an all too familiar tale that we at Grant Phillips Law hear from some of our clients.

• A Merchant Cash Advance is extremely expensive and requires repayment on a daily or weekly basis. There are also many expenses and costs related to originating an MCA. These costs are deducted from the net proceeds.
  
  
• Additionally, an MCA Funder will usually require the business provide it with complete access to its banking accounts as well as an irrevocable power of attorney, a personal guarantee, the posting of collateral and the signing of a security agreement, in order to originate the MCA. 
  
  
• These documents provide near absolute power to the MCA Funder over the business and takes the day to day running of the business away from the owner and puts the guarantor’s personal assets at risk, if there is a default. This includes a guarantor’s house and primary residence and their personal bank accounts.  
• Worse yet, the excessive cost of repaying an MCA and the daily payments, means that after origination, a Merchant Cash Advance will eat away at the business revenues and ultimately the business will suffer massive declines in its total receivables and be in severe debt over a very short period of time. Some businesses are forced to file for bankruptcy relief.
  
  
• If your business is contemplating or already taken a Merchant Cash Advance, it is not too late to change your mind or seek legal advice on settling the MCA Debt.

• At the end of the day, the vast majority of Merchant Cash Advances are really loans that are permitted seemingly by law to charge usurious interest, by merely claiming the transaction is a Purchase and Sale of future receivables. Many legal scholars consider this nuance to be a scam used by hard money and predatory lenders.
  
  
• This legal and seemingly small nuance in New York Law, i.e. between a loan versus the purchase and sale of future receivables, has created havoc in many American small businesses. Also, if the law continues to recognize the MCA structure as legal, it will create additional negative repercussions.
  
  
• For example: Many American businesses have been forced to file for bankruptcy as a direct result of a Merchant Cash Advance. Many of these failed businesses were due to MCA scams and therefore, if the Merchant Cash Advance lending world is left unregulated, it will continue to promote additional scams and force more small business to file for bankruptcy due to an MCA.  
  
  
• For example: (1) the attraction of a “legal hard money loan” attracts bad actors and even people with criminal records to become funders, (2) Also, there is no barrier to entry in becoming a MCA Funder thus making it even more attractive to a hard money lender, (3) There is no governing body or organizations in existence and no application process or background checks to regulate funders.

• The simple reality is that there are plenty of scams that can be incorporated into a Merchant Cash Advance and the costs and risks associated with a Merchant Cash Advance far outweigh the so called benefits.
  
  
• The majority of the risks involve possible scams for example an MCA funder double debiting a business’s accounts or charging more than permitted by contract, or filing UCC liens illegally or freezing bank accounts illegally or sending UCC liens to the business’s clients to embarrass the business and its owners. 
  
  
• Other scams may involve a lender filing a frivolous lawsuit or filing a lawsuit in a State that is not connected to the MCA or the parties involved in the transaction.
  
  
• Another popular scam is for an MCA Funder or Broker to promise a business a conventional term loan, but only if the business first originate a Merchant Cash Advance, the term loan is a complete misrepresentation and false promise and never materializes. Other common scams involve MCA Funders refusing to lower payments for the merchant when the business receivables have actually declined.
  
  
• The MCA industry is wholly unregulated and therefore, very easy to manipulate. Most MCA funders are in fact lenders merely in the guise of MCA funders. Accordingly it is appropriate to consider the majority of Merchant Cash Advances to be scams. 

• New York State, by all accounts the haven State for Merchant Cash Advances, ironically is also one of the first States to enact laws that require certain consumer like disclosures even for several commercial loans.
  
  
• This is significant development since New York’s Commercial Finance Disclosure Law (CFDL) went into effect August 1^st, 2023 and in the law the CFDL has extended disclosure requirements ordinarily required for consumer lending to commercial financing instruments such as a merchant cash advance.
  
  
• The laws apply equally to both MCA brokers and MCA funders.
  
  
• The final rules are a good start, but fall short in several areas. For example an MCA Funder is exempt from full disclosure if they are “partnered” with FDIC insured banks. Another shortfall is the inclusion of a $2,500,000 cap. Thus, commercial financing in excess of $2.5M is exempt from the CFDL. Hardly ideal.
  
  
• Still in comparison to other States that enacted similar laws such as Virginia, California and Utah, the New York law goes a little further.
  
  
• The CFDL was in fact originally passed in 2020 and later amended to include additional commercial financing instruments such as a Merchant Cash Advance.
  
  
• Since 2020, the New York Department of Financial Services NYDFS issued multiple versions of the regulation and the law finally took effect on August 1, 2023.

Significant Adoptions of the CFDL:

• Bank Exception: MCA Entities of which a majority of the voting power or equity interest is owned, directly or indirectly, by a financial institution will be exempt from the CFDL. The most common institution would be a depository bank.
  
  
• New York Nexus: The final rules severely narrow the geography of where a transaction takes place or where the parties are from, in order to trigger the applicability of the CFDL.
  
  
• MCA Recipient Located: The final rules limit the CFDL to transactions where the recipient is directed or managed from New York or is a resident of New York. This is very similar to California’s law. Both NY and CA allow a Merchant Cash Advance Funder to rely on the business address provided by the recipient in its application for financing to make the determination.

• Assignment: The law permits a Merchant Cash Advance Funder to assign their rights in the MCA Contract.

• Broker Compensation Disclosure: The final rules require any commercial financing that incorporates a Broker that the MCA Funder must inform the Business receiving the MCA in writing of how and by whom the broker will be compensated.

• Finance Charge Calculation: The final rules provide that the finance charge on a transaction should be calculated and disclosed. This means the fees that the Merchant Cash Advance Funder usually charges for underwriting and origination.

• The State of California enacted a new law known as SB 1235 which like New York requires that certain commercial financiers and Merchant Cash Advance Funders provide certain disclosures to the Merchant and MCA recipient.
  
  
• In fact, California was the first state in the country to enact laws governing commercial loans and Merchant Cash Advances too.
  
  
• The California law is unique for it requires the disclosure of an Annual Percentage Rate (APR). This is in opposition to the use previously of an Annualized Cost of Capital (ACC).
  
  
• California’s law even holds the disclosure requirement is triggered whenever a “rate, cost of financing or price of financing is quoted based on information provided by a potential merchant recipient. As a result some California based Merchant Cash Advance providers have applied for CA lender licenses.

• Legislation aimed at addressing Merchant Cash Advances (MCA’s) provided to Virginia businesses, must comply with VA House Bill 1027 which went into effect on July 1, 2022, the law requires MCA Funders and Brokers of Merchant Cash Advance financing to: (1) Register with the Virginia State Corporation Commission and (2) provide certain pre-funding disclosures to those receiving a Merchant Cash Advance, and (3) Repeals and disqualifies the use of a Confession of Judgments.
  
  
• There is also a requirement to bring any legal action such as a lawsuit in the event of a dispute between funder and the receiving business in the State of Virginia.
  
  
• It can be argued that Virginia’s Merchant Cash Advance Law 1027 is the most protective of small business amongst those states that have passed regulation.
  
  
• However, like its sister States, there are exceptions to the VA Merchant Cash Advance law for Banks and Credit Unions as well as for Merchant Cash Advances in excess of $500,000.00. There is also an eye raising exception provided to an MCA Funder or Broker that finance less than five (5) deals annually.

• Utah like Virginia, enacted regulation governing Merchant Cash Advances and MCA Funders and Brokers alike. Like VA, UTAH now requires that MCA Funders and Brokers register as Merchant Cash Advance Providers. They must register with the UTAH Department of Financial Institutions.  
  
  
• UTAH’s new MCA regulation went into effect January 1^st, 2023 and is known as the Commercial Financing Registration and Disclosure Act or (CFRDA).
  
  
• Beyond the registration component of the law, there also exist certain disclosure requirements like VA, CA and NY States.
  
  
• The CFRDA’s registration and disclosure regulations apply to Providers and a “Provider” is defined as “a person who consummates more than five commercial financing transactions in [Utah] during any calendar year.”
   
• The interesting component of the UTAH MCA Law is that the CFRDA addresses bank partner programs by defining “provider” to include “a person who, under a written agreement with a depository institution, offers one or more commercial financing products provided by the depository institution via an online platform that the person administers.”
  
  
• An “accounts receivable purchase transaction” is defined as “a transaction in which a business forwards or otherwise sells to a person all or a portion of the business’s account…or payment intangibles…at a discount to the accounts’ or payment intangibles’ expected value.”
  
  
• Entities to which the CFRDA does not apply include Banking Depository Institutions, nor to subsidiaries of a depository institution. The CFRDA also doesn’t apply to Merchant Cash Advances that are secured by real property
  
  
• The CFRDA requires that an MCA Funder or Broker provide a business contemplating the origination of a Merchant Cash Advance “the total dollar cost of the commercial financing transaction,” but unlike Virginia, Utah do not require an Annual Percentage Rate or APR disclosure, similar to New York’s Merchant Cash Advance laws and regulations.

• The biggest Merchant Cash Advance Funders are in fact the platforms a business owner will likely use for E-commerce and or for payment processing. Since these giant conglomerates have a massive amount of data on the business and know what revenues the business is making, they are well equipped to offer MCA’s. Examples of the largest players include but are not limited to:
  
  
• Shopify, Amazon, Square, Stripe, Intuit, OnDeck Capital, PayPal Working Capital, Rapid Finance, Fox Funding, Credibly, Kapitus, National Funding and Fundbox.
  
  
• Despite their obvious size and name, these are still Merchant Cash Advances and one must be prudent and careful not to originate these predatory instruments.

• In the event of a default, a Merchant Cash Advance Funder can either (1) File a UCC lien with the businesses clients, its bank accounts and those bank accounts belonging to the personal guarantor. Additionally, an MCA Funder may (2) Commence a lawsuit under the theories that the MCA Contract was breached and that the money the business received creates a situation of inequity which is expressed in legal terms as “unjust enrichment.”
  
  
• It is important to note that the filing of a lawsuit and a UCC Lien are independent remedies and the MCA Funder is free to file one or both simultaneously.

• Except for blatant fraud and illegalities, a business, the merchant and Guarantor are required to repay their Merchant Cash Advance. Pursuant to the majority of MCA Contracts, in the event the MCA is not repaid, the MCA Funder is free to: (1) File UCC liens with the businesses clients, banks and file a lawsuit against the business and guarantor. In every Merchant Cash Advance Contract is a clause that covers the non-payment and it is considered an immediate breach of the Contract, permitting the MCA Funder to file the above.

• Twenty (20) years. In the event an MCA creditor wishes to pursue the judgment against the Merchants Real Estate the judgment is valid for ten (10) years and renewable for another ten (10) years thereafter.
  
  
• Under NY statute a judgment will accrue legal fees and interest of 9% per annum.
  
  
• It is important to know that it is never too late to remove or satisfy a Merchant Cash Advance judgment. Even one that is years old can be settled or vacated due to fraud by a well-qualified Merchant Cash Advance Attorney.
  
  
• An experienced Merchant Cash Advance Attorney should offer a review of your case for free.

• Yes, in the event the businesses receivables have DECLINED since origination of the MCA. In such a case the business and guarantor are contractually permitted to seek what is known as a reconciliation.
  
  
• A reconciliation is a financial calculation otherwise known as a “true up” whereby the actual receivables generated post origination are reconciled with the estimated daily or weekly payment so that in the event of a decline to revenues, the business and guarantor are legally only required to pay an amount that includes into the equation those receivables actually generated and not those contemplated.
  
  
• Most MCA contracts contain a Reconciliation clause, but many merchants are unaware of this right or when seeking such right the funder simply ignores them. Another popular scam with a Merchant Cash Advance reconciliation is the permission to obtain one is held entirely by the Funder and they alone can permit or deny one. An experienced and qualified Merchant Cash Advance Debt Relief Attorney will know this and seek to obtain a reconciliation.
  
  
• Another form of recourse is when the business has been defrauded by the MCA Funder or those related to the funder. Fraud is broad and will incorporate a funder breaching its own contract, misrepresentation, harassment and deception.
  
  
• While a Merchant Cash Advance is far from an ideal form of business financing, an experienced and dedicated Merchant Cash Advance Defense Lawyer can assist in finding breaches and illegalities in order to provide MCA debt relief.

• In cases of Merchant Cash Advance fraud or misrepresentation of a Merchant Cash Advance, threats, harassment and a decline in the businesses receivables all bring MCA debt relief to a borrowing business and its guarantor. Another example to get out of paying a Merchant Cash Advance is when the MCA Funder incorporates illegal clauses in its contracts for example a Confession of Judgment or Agreed Judgment or engages in Forum Shopping (a legal tool to choose where it may or may not bring a lawsuit).
  
  
• The best advice is to steer clear of originating an MCA altogether. An experienced Merchant Cash Advance Attorney will be able to spot any irregularities or issues with your Merchant Cash Advance Contract.

• An MCA reconciliation clause is a must for any MCA Funder to include in their contract. This is because the entire legality of a Merchant Cash Advance is premised on the possible generation of future receivables. If those future contemplated receivables do not materialize, or are far less than what was contracted for, the MCA funder is obligated to offer a reconciliation since they have assumed the risk of a business failure or slowdown.
  
  
• Ironically most MCA Contracts have a clause that states the MCA Funder is assuming these risks. While it may be written into the contract, it’s a different matter if the MCA Funder will in fact honor it.
  
  
• No one can know the future and thus receivables may never be generated and the business could even file for bankruptcy protection. It is because of this risk that is supposed to be assumed by the funders that permits them to charge exorbitant pay back amounts that ordinarily if a loan would be usurious.

• Changing Bank Accounts from the account funded to a new account.
  
  
• Blocking any debits attempted by the MCA Funder, provided such debits are for the agreed amount and on a day agreed upon.
• More than two or three NSF / Insufficient Funds transactions.
  
  
• The opening of a new business account.
  
  
• The opening of a new business entity such as an LLC
  
  
• The closing of the bank account used by the MCA Funder to debit via ACH.
  
  
• Paying less than was agreed to in the Merchant Cash Advance Agreement. This may be overcome in the event of a reconciliation or a decline in the businesses receivables.

• An MCA Settlement provided for by Grant Phillips Law usually incorporates payments that are made monthly and free of ACH. Gone are the days of daily or weekly ACH’s, and replaced with a fixed payment amount on a monthly basis that does not accrue legal fees, costs or further interest. Sometimes depending on the specific facts of your MCA, the settlement may include principal reduction. Further we will draft or review the Settlement Agreement to make sure all your rights are protected.
  
  
• Additionally we will obtain a zero balance letter and make certain the MCA Funder files a UCC-3 which is a termination of the UCC-1 it filed when you originated your Merchant Cash Advance.
  
  
• Finally, in the event you do not want the funder accessing your accounts, you may wire your payment to the Grant Phillips Law client escrow account after which we will wire the monthly payment to the MCA Funder or their collection attorneys, free of charge as a courtesy to our clients.

• The term “New York Merchant Cash Advance” is most often used to describe a New York domiciled MCA Funder that purchases a fixed daily or weekly percentage of a business’s future generated account receivables such as credit and debit card receipts that are generated by the business during its normal course of daily operation. It is most often structured as a New York based MCA Funder delivering a lump sum of cash to a business in exchange for the MCA Funder to be given the right to receive a percentage of the businesses future generated account receivables.
  
  
• The most common of New York Merchant Cash Advances are short term in nature and allow an MCA Funder to debit the business account of the business on a daily or weekly basis. At the end of a Merchant Cash Advance deal, the business will have paid back the lump sum, PLUS a large amount in excess of the lump sum the MCA Funder provided to the business it originated the MCA with. While not all MCA’s are scams, many are structured like short term / hard money loans.
  
  
• Speak to an experienced MCA Debt Relief Lawyer to determine the structure of your MCA Agreement and if there is legal leverage to be used against the MCA Funder in trying to reach a possible settlement or payoff.

• A Confession of Judgment or “COJ” in New York is a legal way for a creditor or MCA Funder to obtain a complete judgment against a debtor or debtor business, without the need to bring a lawsuit. Think of a final judgment being obtained against you without you even having the chance to defend yourself or a simple day in Court.
  
  
• The document requires that the Merchant Guarantor and the business that originated a debt such as a Merchant Cash Advance, retroactively provide permission by means of an Affidavit or sworn statement from the debtor parties. Both a debtor and a debtor company can provide such an affidavit.
  
  
• Thankfully, Confessions of Judgment were banned in New York State in September of 2020 when the MCA Funder is located in New York and the Merchant, Guarantor and or the Business is located in any other State but New York.
  
  
• Unfortunately, therefore a New York MCA Funder may still use the legal instrument known as a Confession of Judgment against a business, merchant and or guarantor to an MCA where they are also domiciled and reside in New York State.
  
  
• Make certain you are not signing a Confession of Judgment if your Merchant Cash Advance is from a New York based MCA Funder.
  
  
• A cursory review of your Merchant Cash Advance Agreement will reveal if a COJ was illegally solicited by the MCA funder. The mere act of soliciting a business and merchant guarantor to sign a COJ is an illegal act in New York and may provide legal leverage against an MCA Funder in the event an MCA Default Lawsuit is filed or when trying to settle the Merchant Cash Advance.

• An Agreed Judgment is virtually identical to a Confession of Judgment and its primary goal is for the Agreed Judgment to be used in the event a Merchant Guarantor and or business breach or default on their Merchant Cash Advance. In fact, an Agreed Judgment is merely another name for a Confession of Judgment.
  
  
• Many New York Funders incorporate Agreed Judgments in their Merchant Cash Advance Agreements with the hope that it will not trigger a review or questions from an MCA merchant guarantor and or business, since it doesn’t incorporate the words “Confession of Judgment.”
  
  
• Beware, an Agreed Judgment is nothing more than a Confession of Judgment in the guise of a so called Agreed Judgment. The resulting effects of signing an Agreed Judgment are virtually identical to that of a Confession of Judgment and accordingly its use by a New York Merchant Cash Advance Funder for example in a MCA Default Lawsuit, is ostensibly illegal, just like the use of a COJ.
  
  
• Your MCA Debt Defense Law firm will be able to spot such an illegality from a review of the actual Merchant Cash Advance Agreement and Addendums.

• A forum is generally the place including city and state where a Court sits. Every Merchant Cash Advance has a Forum Selection clause of which the majority list New York State as the Forum or venue for any dispute between the MCA Funder and Merchant.
  
  
• Forum Shopping is the illegal selection of a Court sitting in a city or state that has laws more favorable to the Merchant Cash Advance Funder, however no legal nexus or legal connection exists between that city and state and the MCA transaction or where the MCA Agreement lists a city and state in the Merchant Cash Advance Contract only to change the forum (city and state where a Court is located) later in the same Agreement.
  
  
• Forum Shopping is frowned upon by the law but is common practice amongst Merchant Cash Advance funders.
  
  
• An example would be a New York MCA Funder that originates an MCA for a merchant and business that reside in California. In this example the MCA Contract selects New York State as the Forum State and Nassau County as the City within the State of New York.
  
  
• Later however in the MCA Contract there may be a clause involving a breach or default of the MCA whereby the Funder is seeking legal fees or a judgment that is easier to obtain in the States of Connecticut and or Texas. This is a typical example of Forum Shopping.
  
  
• A Merchant Cash Advance Defense Law Firm can easily spot such a legal infraction by reviewing your MCA Contract and 99% of the time the reading of the MCA Agreement should be part of a free and comprehensive Legal Consultation that includes a review and reading of your Merchant Cash Advance Contract.

• A Merchant Cash Advance or MCA is a type of financial lending instrument that an MCA Funder originates in order to provide a business and its merchant with a lump sum of cash today, in exchange for this Funder receiving the legal right to collect a fixed percentage of the borrowing businesses future generated account receivables, such as the businesses credit and debit card receipts earned in the normal course of running its business.

• A Merchant Cash Advance or MCA is a type of financial lending instrument that an MCA Funder originates in order to provide a business and its merchant with a lump sum of cash today, as working capital, in exchange for this Funder receiving the legal right to collect a fixed percentage of the businesses future generated account receivables, such as the businesses credit and debit card receipts earned in the normal course of running its business.

• The “best” merchant cash advance will depend on multiple factors including the business cash needs and what the capital infusion is required for such as payroll or for extra inventory. At Grant Phillips Law we believe there is no such thing as an “ideal MCA” and that it imperative and prudent that a business avoid taking out such a predatory lending instrument.
  
  
• If a merchant has absolutely no other choice but to originate an MCA, there are some critical factors to consider when choosing the best Merchant Cash Advance; For example:
  
  
• Confirm the amount of funding the business needs. Obviously, the least amount borrowed the better.
  
  
• Checking the MCA lender can fund the amount of cash the merchant is seeking.
  
  
• Reading and understanding all the terms and conditions within the Merchant Cash Advance Agreement.
  
  
• Confirming the MCA funder lends to the industry the business is involved in.
  
  
• Confirming the fixed daily amount to be pulled via ACH in other words knowing what the estimated percentage is in a dollar amount.
  
  
• Knowing, understanding and calculating how much your factor rate In other words the rate your loan is calculated at. The lower the factor rate the cheaper the Merchant Cash Advance
  
  
• Knowing and understanding how your factor rate governs the interest rate or your APR / cost of financing that the borrowing business is required to repay. We also refer to this as interest.
  
  
• Confirming there is an opportunity to “true up” or conduct a reconciliation between actual receipts generated by the business juxtaposed with the fixed daily amount being withdrawn from the merchant by the MCA Funder. It is worth noting that the daily amount being pulled is only a “good faith” estimate created at the beginning of the origination. Therefore all merchants are encouraged to invoke their right to a reconciliation.
  
  
• Compare the costs, origination fees and underwriting costs between to different Merchant Cash Advance Funders.
  
  
• Compare at least three (3) different MCA lenders offers, be mindful of whom you give your Merchant Cash Advance Application to, and with whom they share your confidential information with.
  
  
• If you used a Merchant Cash Advance broker be extra careful that they don’t “shop around” your MCA application or send it to every MCA funder on mass, thereby revealing your confidential banking information and your social security to obscure Merchant Cash Advance Funders. A typical Merchant Cash Advance Broker Application contain a merchant’s private banking information, social, DOB and other confidential info.

• The repayment of a Merchant Cash Advance is usually on a daily basis or sometimes weekly. Weekends and national holidays are excluded. The most common manner by which payment of receivables is effectuated is via the use of electronic debiting of the businesses account, otherwise commonly referred to as an ACH.

• In a Merchant Cash Advance transaction, the so-called “Daily Percentage,” means the estimated percentage of the businesses future generated receivables that the MCA Funder is entitled to take per the MCA Agreement.
  
  
• This Daily Percentage of future receivables an MCA funder debits or pulls from the business is merely an estimate and frequently a creation out of thin air by the funder. Later in the MCA Agreement the MCA Funder will likely include an Addendum that converts this estimated percentage into a fixed dollar amount.
  
  
• This is why a merchant and business must be legally entitled to seek a reconciliation or true up of the receivables versus the percentage that was converted to a fixed dollar amount.
  
  
• It is worth noting that many MCA cases litigated in New York have found that the conversion of an estimated percentage to a fixed dollar amount is an act more akin to a conventional loan rather than the purchase and sale of future receivables.
  
  
• In other words, the actual daily dollar amount being debited is expressed in the MCA Agreement as a percentage of the daily receivables generated by the business and is really nothing but a guess by the MCA funder at the time of originating the Merchant Cash Advance.
  
  
• Beware, a true and bona fide Merchant Cash Advance will neither have a fixed dollar amount to be paid irrespective of circumstances, nor a fixed time period to pay the MCA Funder from the business receivables.
  
  
• If you believe your MCA is in fact a loan, contact a Merchant Cash Advance Attorney to assist you with uncovering the legal realities.

• A Merchant Cash Advance is an alternative form of financing a business and most often originated by a business who cannot qualify for a conventional bank loan.
  
  
• A legal MCA must look, act and be managed as a true purchase and sale of future business receivables and where repayment is contingent completely on the success of the business, unlike conventional loans that are repayable irrespective of the success or failure of the business.
  
  
• While a Merchant Cash Advance may mean quick access to a lump sum of cash for use towards business expenses or working capital, it is extremely costly, burdensome and its requirements are extremely arbitrary and capricious.
  
  
• In reality an MCA is not right for your business and for that matter any business, unless the business is sure it can afford to make the repayments from its future receivables, without breaking the business and its guarantors.
  
  
• The requirements in obtaining a Merchant Cash Advance are so onerous that it is often argued that the day to day control and running of the business is taken away from the business owner for the benefit of the MCA Funder. This is never right for any business, irrespective of its desperation for capital.
  
  
• Additionally there are legal weapons that an MCA Funder can employ that will almost definitely destroy the business, thus making a Merchant Cash Advance less than ideal for a business’s financing needs. Such weapons include the filing of a Merchant Cash Advance Lawsuit, the filing of a UCC lien with the businesses clients and customers as well as the business and merchant guarantor’s personal bank accounts.
  
  
• This is hardly an ideal situation and more often than not are tools designed to force repayment via receivables or even from the personal assets of an MCA Guarantor. This too means an MCA is not right for your business financing.
  
  
• Couple all of the above together with the excessive fees and costs which are deducted from net proceeds and the risks and costs of a Merchant Cash Advance far outweigh any positives such as same day funding. Simply put, a Merchant Cash Advance is not right for your business financing requirements.
  
  
• Moreover, the typical New York MCA Agreement provides the right to a New York MCA Funder, in the event of a merchant default, to charge up to 40% in legal fees, file UCC liens with a merchants, bank, payment processors and even its customers and clients, instructing them to circumvent the merchant and pay the MCA funder instead. This is also a way to embarrass the merchant with its customers.
  
  
• Being the subject of a UCC lien or Merchant Cash Advance Lawsuit is not only embarrassing to a business but can lead to key customers, even long term clients of the business, to terminate their relationship. This is yet another reason why an MCA is not right for your business capital needs.
  
  
• Along with these worries, also comes the threats and constant harassment for payment and even in some cases a face to face visit by an MCA Funder or their henchman to the merchant’s place of business and even the guarantor’s primary residence. This form of financing can lead to terrible outcomes for the business and places immense stress and anxiety on the business owner. Accordingly, an MCA is not right for you or for your business.
  
  
• For all the above reasons, a business should try at all costs to avoid originating a predatory lending instrument such as a Merchant Cash Advance. The terms and conditions are simply too prohibitive, burdensome and totally unreasonable.

• If you took out a Merchant Cash Advance and defaulted and breached the Agreement, a MCA Funder may sue you by bringing an MCA lawsuit in the forum or jurisdiction stated within the MCA Agreement.
  
  
• The lawsuit may be served upon the Merchant either by mail or in person. If served by mail, you will have thirty (30) days to file an official Answer to the Lawsuit Complaint or face a default judgment. If you were served the Merchant Cash Advance Lawsuit in person, you have 20 days including weekends and holidays to file an Answer. Ignoring a Merchant Cash Advance Lawsuit is never a good idea. This is because by failing to file an Answer in a timely fashion could lead the Funder to obtain a Default Judgment.
  
  
• Find yourself a law firm dedicated to defending Merchants from Merchant Cash Advance lawsuits. Speak with a Merchant Cash Advance Attorney and make sure to answer the lawsuit. After answering the lawsuit your attorney can begin negotiations to settle your Merchant Cash Advance with the MCA Funder’s collection attorneys.

• These fixed payments are often referred to as pulls or debits and are more often than not transacted daily, but for weekends and national holidays.
  
  
• The percentage of future receivables an MCA funder debits or pulls from the business is merely an estimate and frequently a creation by the funder out of thin air. In other words, the actual daily dollar amount being debited is expressed in the MCA Agreement as a percentage of the daily receivables generated by the business and is really nothing but a guess by the MCA funder at the time of originating the Merchant Cash Advance. It is well known that a bona fide legal MCA has neither a fixed dollar amount, nor a fixed time period to repay.
  
  
• Notwithstanding the forgoing, every Merchant Cash Advance Agreement will include an addendum, whereby the MCA funder requires the percentage of receivables it has purchased to be reflected as an actual dollar amount, payable in equal daily installments. These actions are more indicative of a loan instrument rather than that of a purchase and sale transaction of future account receivables.

• Stacking is when a Merchant originates multiple positions or Merchant Cash Advances. They are often originated on the same day but one is “guilty” of stacking even if a second, third, fourth etc… Merchant Cash Advance Position was originated on a different date.
  
  
• Accordingly, stacking is simply the act of taking out a new MCA in the hope of receiving the maximum amount of money via a Merchant Cash Advance and or in the hope of the second position paying off the first. Stacking is an awful business decision. A merchant will take out a second Merchant Cash Advance without informing the first position MCA Funder.
  
  
• Most MCA Agreements have an anti-stacking clause in the Merchant Cash Advance Agreement. There is also a penalty often in an amount ranging from $5,000.00 to $25,000.00.
  
  
• Rather than take out additional MCA’s, a Merchant is encouraged to seek Merchant Cash Advance Debt Relief by speaking to as Merchant Cash Advance Debt Relief Lawyer.

Merchant Cash Advance Debt Consolidation, sometimes referred to as a Reverse Consolidation, is the process of combining multiple merchant cash advance positions (MCAs) into one single MCA position.

Typically an MCA Funder will fund in position 2 or 3 or later. This MCA Funder will then deposit money weekly into the account of the Merchant with the funds to be used to pay off position 1 and 2 etc. The MCA Funder providing the funds will then take from the Merchants account that money it is owed for its own position.

A consolidation very rarely works. This is because the earlier positions are unaware of the later position and its consolidation and there are Stacking Penalties if they discover the Merchant Cash Advance Consolidation. Moreover, the consolidating funder STILL takes out for their own position and usually more than it ordinarily would if there was no consolidation.

A Merchant Cash Advance Consolidation or Reverse Consolidation may seem like an attractive option for a merchant, however this law firm strongly recommends against originating an MCA Consolidation for the reasons already explained.

There are primarily two types of Merchant Cash advance Consolidations:

• Asset-based consolidation: These MCA’s are often secured by the business’s assets, such as real estate or equipment. This is particularly dangerous as it means that the business risks losing its assets if it defaults on the Merchant Cash Advance Consolidation.
• Non-asset-based consolidation: These Merchant Cash Advances are not secured by assets.
• While a Merchant Cash Advance Reconciliation can potentially reduce the overall repayment through consolidating multiple MCAs into one position, the repayment period may be condensed, placing additional pressures on the business and the factor rate to calculate the consolidating funders repayment may be exceptionally high, meaning the business will in fact end up paying back even more than before the consolidation, making a default even more probable. 

• A Merchant Cash Advance Broker is an entity or individual that connects a business in need of capital with Merchant Cash Advance Funders.
• Merchant Cash Advance Brokers work on commission. More often that not the commission is deducted from the Net Proceeds allotted to the business.
• It is important to differentiate between a Broker that makes the introduction to an MCA Funder and the Funder itself. A broker will not provide funding. The MCA Funder provides the financing. A broker can be anyone and can open anywhere.
• There is no barrier to entry and therefore one should be very careful in working with and providing ones confidential information to a broker.
• Brokers are often responsible for offering fake term loans in exchange for a business originating a Merchant Cash Advance. These lies and deceptions are illegal, however rarely can a business go after a broker for such deception as they don’t use real names and can work from their basement if they so choose.
• Many MCA Funders have a clause in their MCA Agreement that anything promised or warranted to a business from a broker is not the responsibility of the MCA Funder.
• Brokers begin the MCA funding process by taking an application which details all the private and confidential information of the business and the personal guarantor and owner of the business. This application is then shopped around to a multitude of funders that will review and underwrite the business in the event the funder wishes to finance the business.
• Along with the Merchant Cash Advance Application, an MCA Funder will seek a minimum of three (3) months bank statements. These statements are used to determine the businesses monthly revenue.
• Note a MCA Funder and Broker do not care if the business is profitable.They only care about credit card payments being made regularly and seeing the business generates receivables/revenues.
• Many MCA Funders employ their own group of brokers/salesman and in such an instance any deception and lies by the broker can be addressed legally since the Funder is responsible legally for the behavior and acts of their internal Brokers.
• If the MCA Funder wishes to finance the business, they will hold a Funding Call. This is usually a Zoom or Team’s video conference where the funder checks the bank account of the business seeking the advance and verifies the bank statements and MCA Application.