Navigating Business Debt Settlement as an MCA Company

Getting hit with a lawsuit from a merchant cash advance (MCA) company can feel totally overwhelming. The aggressive legal threats, complicated contract terms, and short timelines given to respond or settle debts can leave any small business owner feeling scared, confused and alone.But there are options and people who can help. I wanted to give a quick rundown on working with business debt settlement lawyers to negotiate MCA debts, defend against lawsuits, and get your business back on track. My goal here isn’t to judge or take sides – it’s to empower business owners with knowledge and connect you with the legal resources needed to make informed, strategic decisions.

Understanding Merchant Cash Advances

Let’s start with a quick overview of how merchant cash advances work, since the model can seem deceivingly simple at first glance.

• MCA companies provide lump sum cash payments to businesses in exchange for a percentage of future sales over a set period of time. This can help businesses access capital quickly without some of the more rigid requirements of bank loans.
• However, the equivalent interest rates and fees on MCA agreements are often extraordinarily high, ranging from 30% APR to well over 100% in some cases. And the terms can change if sales drop, extending payback periods longer and longer.
• Many companies fail to fully explain these risks upfront or bury key details in complex legal agreements. Some use aggressive, intimidating sales tactics targeting desperate business owners who feel they have no other funding options.
• Over time, repayment amounts well exceed the original advance. Attempts to negotiate better terms or exit contracts often result in threats of immediate default demands for the full remaining balance.

This landscape leaves lots of room for predatory behavior that takes advantage of small business owners already struggling to survive challenging circumstances. And it sets the stage for the lawsuits and debt collection efforts MCA companies unleash after the breaking point.

Common Legal Threats Facing MCA Recipients

When businesses inevitably fall behind on payments or attempt to exit MCA agreements early, lawsuit threats soon follow. While specifics vary between companies, below are some of the most common legal actions:

• Breach of Contract Lawsuits – These lawsuits argue business owners violated the terms of MCA contracts by missing payments or trying to exit agreements early. They typically demand immediate payment of the full outstanding balance rather than the original monthly amounts.
• Confession of Judgement – Many MCA contracts contain these clauses that allow companies to obtain judgements against business owners without even notifying them. Agents simply present signed contracts and affidavits to courts claiming default.

• Wage Garnishments – MCA creditors use lawsuits and confessions of judgement to access legal mechanisms that divert percentages of business owners’ wages, bank balances and merchant sales to debt payments. This freezing of accounts and income sources cripples cash flow.
• UCC Filings – MCA companies place blanket liens on all business assets and equipment to claim collateral if debts aren’t repaid. This scares off potential investors and lenders who don’t want to inherit legal disputes around asset ownership.
• Personal Guarantees – These clauses in MCA agreements expose not just business accounts, but owners’ personal assets like houses and investments to legal collection efforts for business debts.

Facing potential court judgements that could drain business and personal bank accounts, garnish wages, and place liens on homes and retirement funds is terrifying for any business owner. And it’s why seeking legal guidance early on is so important.

Key Questions Your Business Attorney Can Answer

If you entered into any kind of MCA agreement for your small business, speaking with an attorney experienced in these areas is critical to understand your rights, obligations and options if threats arise down the road. Below are some of the key questions an attorney can help demystify:

• Is this contract legally enforceable in full based on key clauses and details of consent/disclosure upfront?
• What are the risks and impacts of legal judgements like wage garnishments or asset liens if we cannot pay?
• Can negative personal outcomes be prevented through business structuring strategies?
• Is declaring bankruptcy a viable option or are there too many exemptions?
• Can legal action be delayed or dismissed based on problems with original agreements?
• What settlement deals or restructured payment plans may be negotiated with creditors?

Having clarity on potential legal downsides empowers business owners to make strategic decisions on next best steps. It may guide choices on whether to close up shop, negotiate revised terms with creditors, or fight things out in court.

Finding the Right Attorney for Your Business Situation

Not all attorneys have experience dealing with the complexities of MCA companies and contracts. Below are some tips on finding one with specialized expertise to defend your business:

Search state bar associations – Most state bars allow you to browse or search listings of attorneys by practice areas. Look for ones specializing in financial services disputes, creditor negotiations and small business advising.

Ask local CPAs and financial experts – Established accountants, bookkeepers and financial consultants in your community likely have references to share based on other small business clients’ situations.

Look for MCA-specific experience – While related specialties are a start, you ideally want an attorney with track records guiding clients specifically through MCA disputes and lawsuits. Ask candidates directly about their background here.

Inquire about boutique firms – Large full-service law firms often have high billable hour requirements not matching small business budgets. Boutique operations specialize in specific practice areas like debt relief or small business disputes.

Compare pricing models – While hourly billing is common, some attorneys may charge flat fees for reviewing cases or provide bundled packages for broader partnerships on financial matters. Explore options.

Request free initial consultations – Most attorneys offer at least 30-60 minutes of pro bono session time so potential clients can share background on cases and assess working relationships before paying retainers.

Ask about paraprofessional support – To help manage costs, some firms use paralegals and legal assistants for more routine filings and document prep under an attorney’s supervision. See what tasks or meetings can be delegated.

Look for passion – At the end of the day, you want an attorney who cares deeply about defending small businesses from predatory lenders and is willing to patiently educate you on options. Passion matters.

Key Defense Strategies Against MCA Lawsuits

If you do end up facing a lawsuit or aggressive collections campaign from an MCA provider, all hope isn’t lost. Experienced attorneys have many strategies to defend business owners against exaggerated or outright frivolous claims. Below are some examples:

File counterclaims – If attorneys find issues with misleading statements or material omissions in original MCA agreements, they may file lawsuits against providers for breaches like fraud or bad faith lending. Aggressive counteractions can bring parties to more balanced negotiations.

Dispute improper service – Debt collectors often fake attempts to properly serve notice of lawsuits just to secure default judgements against those unaware legal action is even happening. Attorneys can provide evidence notice was not adequately given.

Challenge court jurisdiction – If original agreements specify jurisdictions for legal disputes that are impractical for defendants to appear in, attorneys can argue cases should be moved closer to home or dismissed entirely.

Prove unenforceability – MCA agreements containing overly vague language, confusing structure, or contradictory provisions may be deemed too unintelligible to enforce. Savvy attorneys expose these flaws to invalidate lawsuits.Show duress – If providers used intensely manipulative sales tactics or impossible financial circumstances to coerce business owners into signing, evidence of duress can nullify agreements.

Argue unreasonable terms – Courts typically consider the fairness of contractual terms as well. If agreements are excessively one-sided or punitive compared to normal business lending, judges may deem provisions unenforceable.

File for bankruptcy – While allowing defaults on payments, bankruptcy filings can temporarily halt all collection activities through imposition of an automatic stay. This essential pause gives space to identify more permanent solutions.

Negotiate settlements – Ultimately the best outcome is typically reaching reasonable compromise agreements with creditors before cases ever reach courts. Attorneys can leverage their legal arguments and credibility to negotiate much more balanced settlements their clients can manage.Having an experienced legal guide in your corner levels the playing field, revealing options based on rights and precedent MCA companies don’t eagerly advertise or account for in their intimidating letters. And it can mean the difference between business shutdown or survival.

Partnering with Financial Experts on Broader Plans

While attorneys play key roles addressing the legal side of MCA lawsuits and judgements, their narrow focus on those matters alone makes it difficult for them to put together comprehensive plans addressing related financial challenges plaguing clients.This is why partnering with financial consulting teams offering services like:

• In-depth business debt reviews
• Custom repayment planning
• Asset protection guidance
• Tax resolution
• Credit remediation and monitoring
• Ongoing accountability and cash flow optimization

Can create that fully integrated approach. With aligned legal and financial strategies, small businesses can confidently navigate even intense situations like MCA lawsuits and settlements to restore stability long-term.If you would like to discuss your unique situation and needs in more detail, our team would be happy to offer a free consultation. Please reach out anytime to get the process started.