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Finding Relief from MCA Business Debt

Business owners across the country have found themselves struggling with merchant cash advance (MCA) debt. These high-interest loans can quickly spiral out of control, leaving companies fighting just to stay afloat. However, there are solutions available to find relief from crippling MCA debt. With the help of experienced business debt attorneys, many companies have successfully restructured or settled their debts to regain solid financial footing.

Understanding Merchant Cash Advances

A merchant cash advance is a form of financing where a company receives an upfront sum of money in exchange for agreeing to pay back a percentage of its future credit card sales. MCAs are often appealing because:

• There is quick access to capital with minimal paperwork required
• Approval does not depend heavily on a business’s credit score or existing debt obligations
• Payments fluctuate based on sales revenue

However, MCAs also come with their downsides:

• Extremely high effective interest rates often exceeding 100% APR
• Daily or weekly payments that drain cash flow
• Aggressive collection tactics if payments fall behind

With such high costs and rigid repayment structures, it‘s easy for companies to default on their MCA debts. Even businesses that were thriving when they first took out financing can falter under the weight of massive daily payments.The result is that business owners feel trapped, unable to dig out from MCA debts that just keep mounting.

Why MCA Debts Spiral Out of Control

There are a few reasons why small businesses struggle with ballooning MCA payments:

• Deceptively high interest rates – MCAs downplay their sky-high rates and focus more on emphasizing quick cash. But effective rates often exceed 100-200% APR.

• Payments based on future sales – Having payments fluctuate with revenue seems appealing at first. But slow periods hurt and any downturn means less ability to pay debts.

• Short payment terms – Most MCA contracts mandate daily or weekly payments, even if a business has an irregular cash flow. This constant payment pressure makes it hard to catch up once behind.
• Aggressive collections – MCA lenders utilize various extreme tactics to collect payments, from harassing phone calls to accessing directly debiting bank accounts. They give struggling businesses little breathing room.

As a result, MCA debts accumulate rapidly. A business that borrowed $100K might end up paying double or triple that amount back and still be hounded for more.The crushing weight of MCA payments leaves companies fighting for survival.

Finding Legal Solutions

The good news is that experienced attorneys can help stop the MCA debt spiral. There are a number of legal strategies to reduce, restructure or even eliminate business debts. Which approach makes most sense depends on each company’s unique situation.Potential debt relief solutions include:

• Debt consolidation – Combining multiple MCA debts into a single, more manageable fixed-payment loan. This reduces the burden of varying payments and high interest rates.

• Debt settlement – Negotiating with MCA lenders to pay a lump-sum payment that is less than what is actually owed. This eliminates debt at a steep discount.

• Chapter 11 bankruptcy – Using court-supervised reorganization to discharge all or part of crushing debts and create easier repayment plans. This provides breathing room to regain profitability.

• Litigation – Filing lawsuits against predatory MCA companies for fraud, deceptive practices or contract violations. Successful verdicts can invalidate debts or award damages.

• Contract defenses – Asserting defenses like usury law violations or unfair contract terms to eliminate obligation to pay debts that exceed legal rate caps.

The key is partnering with legal advisors who have experience fighting MCA lenders. They understand the tactics used by these companies and how to counter them on behalf of struggling businesses.There are proven ways out of the endless MCA debt trap through skilled negotiation, litigation, bankruptcy protections and more. The goal is reducing or removing the debt burden so companies can get back on the path toward growth and success.

Qualifying for Debt Relief

So how does a business determine if it’s a good candidate for legal relief from MCA debts? There are a few key criteria to evaluate:

High Debt-to-Income Ratio

• If debt payments consume 50% or more of monthly gross revenue, it will be extremely difficult to catch up while staying current on new payments. Bankruptcy or settlement could provide a clean slate.

Consistent Late Payments

• If MCA debts are constantly in default because of inadequate cash flow, restructuring is needed to create more reasonable repayment plans aligned with revenue streams.

Unfair Contract Terms

• If MCA agreements violate state laws around usury rate caps or use false advertising about potential repayment amounts, legal defenses can invalidate debts.

Deceptive Lender Practices

• If MCA companies utilize illegal collections tactics like unauthorized withdrawals or harassing communications, lenders could be liable for damages.

The bottom line is that businesses have options to take back control of their financial futures. Skilled legal guidance can help stop the vicious MCA debt cycle and construct new paths forward.

Our Approach to Finding Relief

Here at DeLancey Street, our business finance attorneys have successfully fought major MCA lenders like Yellowstone Capital, Pearl Capital and others using a variety of legal strategies.We conduct an in-depth review of each client‘s situation, including:

• Analyzing cash flow – We look at revenue streams, expenses, debt obligations and projections to understand total debt capacity.
• Reviewing MCA agreements – We scrutinize all contract paperwork to spot potential violations of state laws that could invalidate debts.

• Documenting collections activities – We track all communication and payment withdrawal attempts to build cases around illegal harassment tactics.

• Assessing litigation prospects – We examine if violations of lending or consumer protection laws could justify lawsuits seeking damages that offset debts.
• Modeling restructuring proposals – We project the impact of various debt consolidation and settlement options to present the alternatives that maximize financial relief.

This allows us to then counsel clients on the debt relief solutions that make the most sense for their unique situation. Options we commonly utilize include:

Debt Settlement and Negotiation

We negotiate with MCA lenders to settle debts at substantial discounts in exchange for lump-sum payments. We’ve achieved discounts between 40-60% off amounts owed through skillful negotiation. Settlement eliminates the full debt burden for a fraction of total balances due.

Chapter 11 Bankruptcy

Chapter 11 filings stop collections activity and discharge all or portions of crushing debts. Remaining debts can be repaid slowly over 5-7 years. This provides time to stabilize cash flow and regain profitability. It also allows business owners to retain ownership of their companies.

Litigation

If investigations uncover lender wrongdoing, we file lawsuits against MCA companies seeking damages and debt invalidations. Multi-million dollar verdicts against predatory lenders have provided immense financial relief for our clients.

Hybrid Approaches

Sometimes a tiered approach works best. For example, combining litigation settlements or awarded damages to secure major debt discounts, and then filing Chapter 11 to eliminate remaining balances under court-mandated repayment plans.The expertise and resources of our legal team have helped numerous clients finally break free from the vicious cycle of crippling MCA debt. We can provide the same guidance and advocacy to help your business get back on track as well.

With an individualized approach focused on each client’s specific situation, financial freedom from MCA lenders is possible.

Finding the Right Representation

If spiraling MCA debts are jeopardizing your business, partnering with the right legal guidance can mean the difference between collapse and financial stability. However, it‘s critical to vet attorneys thoroughly first.

Warning Signs to Avoid

Be wary of lawyers who:

• Push bankruptcy too fast – Debt settlement or contract disputes may resolve debts without need for bankruptcy.
• Lack MCA debt experience – Complex legal strategies are required to successfully counter these predatory lenders.

• Have no litigation successes – The threat of verified MCA lawsuit verdicts is key negotiation leverage.

• Offer unrealistic guarantees – All cases are different, so guaranteed outcomes are likely overpromising. Outcomes depend on factors of each specific case.

Positive Indicators to Seek Out

Look for lawyers who:

• Specialize in business finance legal disputes – You want an attorney focused specifically on complex business debt issues.

• Have direct MCA debt settlement experience – Proven experience fighting and negotiating with major MCA lenders is a must.

• Can point to big lawsuit verdicts and settlements – Tangible litigation success against lenders strengthens the hand at the negotiating table.

• Map out options tailored to your situation – Beware cookie-cutter approaches. Solutions should directly address specifics of your company.

The legal fight against MCA lenders has nuance and complexity. Having an advisor by your side who understands the landscape and has the right resources can level the playing field.