Kansas City, MO Merchant Cash Advance Defense Lawyers
Running a small business is no small feat. Between managing employees, keeping customers happy, and trying to turn a profit, things can get overwhelming fast. And if money gets tight, it’s easy to see why many Kansas City business owners turn to merchant cash advances (MCAs) as a quick fix. But what seems like a financial lifeline can quickly turn into a nightmare. That’s where we come in. At Delancey Street, we specialize in defending Kansas City businesses from the pitfalls of merchant cash advances.
Understanding Merchant Cash Advances
How Do Merchant Cash Advances Work?
Merchant cash advances offer a lump sum of capital to businesses in exchange for a percentage of future credit card sales. Sounds simple, right? Here’s a quick rundown:
- Upfront Funding: The MCA company provides an upfront lump sum, typically ranging from $5,000 to $500,000.
- Repayment Structure: The business agrees to repay the advance through daily or weekly payments taken as a percentage of their credit card sales, usually between 10-20%.
- High Costs: The fees and interest can result in an equivalent annual percentage rate (APR) of 60-300%.
- Direct Debits: The MCA company takes repayments directly from the business’s credit card receivables account through daily debits.
- No Fixed Term: The repayment period is flexible, depending on the business’s credit card sales.
While this flexibility and quick funding may sound appealing, merchant cash advances can become extremely expensive for Kansas City businesses. That’s why it’s critical to read the fine print and understand the full costs before signing any merchant cash advance agreement.
The Risks Involved
Merchant cash advances seem straightforward on the surface, but several problematic issues can arise:
- High Rates and Fees: The equivalent APR is typically 60-300%, much higher than a bank loan.
- No Fixed Term: Repayment depends on credit card sales, which can drag out.
- Personal Guarantees: Owners may have to personally guarantee repayment, putting their home and assets at risk.
- Aggressive Collections: Cash advance companies can aggressively pursue repayments, including filing lawsuits.
With so many potential pitfalls, it’s easy for Kansas City businesses to get in over their heads with merchant cash advances. An experienced attorney can help you avoid these problems or find solutions if you’re already dealing with them.
Legal Defenses Against Merchant Cash Advances
Common Legal Defenses
When negotiating debt relief with merchant cash advance companies, Kansas City attorneys have been successful using several key legal arguments:
1. Unconscionability
If an MCA agreement is so one-sided and unfair that it “shocks the conscience,” courts may rule it unenforceable. By showing how exorbitant interest rates and aggressive collections prey on small business owners’ desperation, settlements for pennies on the dollar are possible.
2. Fraud
Attorneys dig into the underwriting process to see if lenders misrepresented terms or failed to properly assess a business’s ability to repay. If so, the entire agreement can be invalidated.
3. Breach of Contract
If the MCA company violates provisions like failing to adjust payments downward when sales drop, their entire agreement may be void.
4. RICO Violations
The Racketeer Influenced and Corrupt Organizations Act bans predatory lending practices similar to loan sharking. By proving MCA companies use systematic deception and harassment, triple damages awards are possible.
Case Law and Precedents
Several legal cases have set important precedents in defending against merchant cash advances:
- K9 Bytes, Inc. v. Arch Capital Funding, LLC: The court examined whether MCA agreements constituted loans subject to usury laws or valid purchases of future receivables. The presence of reconciliation provisions and indefinite repayment terms supported the characterization of these transactions as purchases of future receivables rather than loans subject to usury laws.
- 92 Palm Foods LLC v. Fundamental Capital LLC: The court addressed claims of coercion, criminal usury, and unconscionability. The presence of a reconciliation provision and the lack of recourse for the provider in the event of the merchant’s bankruptcy supported the characterization of the MCA agreement as a purchase of future receivables rather than a loan subject to usury laws.
These cases highlight the importance of carefully examining the terms of MCA agreements and using legal defenses effectively.
How Delancey Street Can Help
Our Approach
At Delancey Street, we’re committed to helping Kansas City business owners navigate the complexities of merchant cash advances. Our approach includes:
- Personalized Service: We tailor our approach to each client’s unique situation, ensuring that the solutions we provide are effective and sustainable.
- Expert Legal Defense: Our team of experienced attorneys specializes in defending businesses against predatory lending practices. We use proven legal strategies to challenge unfair MCA agreements and protect our clients’ interests.
- Financial Counseling: We provide comprehensive financial counseling to help businesses manage their debt and improve their financial health.
Success Stories
Let’s take a look at a hypothetical scenario to illustrate how we can help:
Maria’s Catering Business: Maria’s catering business was slammed with orders and struggling to cover food costs upfront. A merchant cash advance for $15,000 seemed like the perfect solution to hire another cook and purchase more supplies. At first, things went smoothly as sales shot upwards. But when COVID-19 hit a few months later and event orders began mass cancellations, Maria’s sales cratered almost overnight. Despite barely scraping by, she suddenly owed over $1,000 per week to the MCA company – sometimes more than she even made in sales. Collection calls poured in daily as debts racked up, and she feared bankruptcy was inevitable.
By working with Delancey Street, Maria was able to:
- Negotiate a Settlement: We negotiated a settlement for a fraction of what she owed, drastically reducing her debt burden.
- Reduce Interest Rates: We successfully argued that the interest rates were unconscionable, leading to a significant reduction.
- Stop Harassment: We took legal action to stop the aggressive collection calls and harassment from the MCA company.
Call to Action
If you’re a Kansas City business owner struggling with a merchant cash advance, don’t wait until it’s too late. Contact Delancey Street today for a free consultation. Our experienced attorneys are ready to help you navigate the complexities of MCAs and find a solution that works for your business. Call us at (816) 285-8200 or visit our website to schedule your consultation.
Conclusion
Merchant cash advances can be a double-edged sword for Kansas City businesses. While they offer quick access to capital, the high costs and aggressive repayment terms can quickly become unmanageable. At Delancey Street, we specialize in defending businesses from the pitfalls of MCAs. With our personalized service, expert legal defense, and comprehensive financial counseling, we help business owners regain control of their finances and protect their livelihoods. Don’t let a merchant cash advance ruin your business – contact Delancey Street today for the help you need.