What Is a Merchant Cash Advance Lawsuit?
- July 7, 2022
Small businesses are constantly buying and selling their inventory. Some need a short-term loan to cover costs before the customer purchases the items. This is called a merchant cash advance. When disputes arise about these cash advances, a lawsuit may occur.
As a provider, you deserve to get paid for the cash you advance. Global Legal Law Firm represents companies in merchant cash advance lawsuits to collect on underperforming or unpaid debts. We know how to work with debtors when we can, and file a lawsuit when they still refuse to pay. Our attorneys are the best option to get your money back.
Explaining a Merchant Cash Advance (MCA)
A merchant cash advance allows small businesses and other companies to obtain a short-term loan. This loan is meant to cover the costs of inventory before customers purchase the items. It is typically a lump sum of money the company can use toward future sales.
There are many types of stores that rely on these cash advances to help supply their inventory, such as:
- Hair salons and spas
- Retails stores
- Healthcare facilities
- Businesses with a low credit score
- New businesses
How Does an MCA Work?
An MCA works differently than other types of loans. In reality, it is an advance on future sales rather than an actual loan. The borrower receives funds upfront from the provider. Repayment then occurs in one of two ways:
- Fixed Withdrawals. This method allows the lender to take out a fixed amount from the borrower’s business account. This fixed amount is removed daily, weekly, or monthly. This helps the lender receive a fixed return on their investment.
- Percentage of Sales. Another repayment method is to collect a percentage of the borrower’s credit and debit card transactions. This percentage is taken until the borrower is able to pay their full borrowed sum plus any applicable fees.
Borrowers will usually pay a fee based on a factor rate instead of the usual interest rate. A factor rate lets a provider earn income from the borrowed sum. Borrowers must pay their original borrowed sum and the factor rate before the merchant cash advance is paid back in full.
Most loans must be paid back in full in a relatively short period, often within 12 to 18 months. If borrowers fail to pay on time or meet their other obligations may be subject to debt collection and a merchant cash advance lawsuit.
When Merchants Default on Payment Obligations
Inevitably, some merchants will default on their debt. When they fail to pay or abide by other obligations of their merchant cash advance, you can take steps with the help of qualified attorneys. These steps can help you see a return on your investment and hold businesses accountable for the promises they made to you.
Debt Collection and Negotiation
The first step is to hire an attorney to begin debt collection proceedings. Debt collection can be legally hazardous if you do it incorrectly. There are strict federal laws that govern how you can contact a debtor, seek payment from them, and much more. Trusting a skilled legal team protects you from the high fines and other punishments possible if you perform the collection improperly.
The team at Global is highly experienced in working with debtors. We start with soft collection efforts and negotiation. This often resolves issues without the need for intensive debt collection or costly litigation. Avoiding a lawsuit is always the best step when possible.
We next move to more aggressive efforts that still fit within appropriate law. We utilize tried and true debt collection techniques to seek compensation for you. We work to compel merchants to pay promptly after a default.
Filing a Merchant Cash Advance Lawsuit
When debt collection or negotiation fails to do the job, it is time to file a merchant cash advance lawsuit. When merchants refuse to comply they become debtors and are subject to legal enforcement of your claim. There are several ways to collect on a merchant cash advance depending on your specific situation.
Confessions of Judgment
Merchant cash advance providers commonly add a confession of judgment to their loans. A person that signs a confession of judgment effectively signs away their right to defend against a claim of breach of contract when they fail to make payments. It accepts the liability and the amount of damages that may be owed. The same may be accomplished through the use of a cognovit note.
This prevents, in many cases, the need for a full lawsuit on the matter. Your legal team can simply take the confession of judgment to court and get a judgment. This can often happen even without the judgment debtor present for the court proceedings. Knowing how to use this process is complicated and should be handled by a qualified attorney.
A lien is a legal claim or right against assets to secure repayment of the debt. In many situations, a lien exists or is possible against the merchant’s assets to help secure repayment of the loan. This may help ensure that the cash you advanced for payment of inventory is not sold without you getting your due.
A garnishment is a court order that collects a sum or percentage of money from an account over a period of time. These are often attached to business accounts or payment systems to ensure you get the money you are owed.
In addition to the remedies listed above, an MCA claim is often a breach of contract lawsuit. You have the rights and remedies available to you under this area of law as well. It is important to have trained legal counsel that fully understands the law surrounding cash advances, the Uniform Commercial Code (UCC), and much more.
File a Merchant Cash Advance Lawsuit with Global Legal Law Firm
Global Legal Law Firm knows how to deliver. We fully understand merchant cash advance lawsuits and how to obtain a judgment for your company. You deserve to be paid back for the money you lent a small business or other company.
We specialize in electronic payments litigation locally and across the nation. Our skilled attorneys are complex litigation experts who represent processors, lenders, card brands, and much more. Contact us for a consultation of your case.
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