San Antonio Merchant Cash Advance Attorney: Your Guide to MCA Debt Relief
Merchant cash advances (MCAs) have become an increasingly popular form of alternative business financing in Texas. Many San Antonio small business owners have turned to MCAs as a quick way to get capital to cover expenses like inventory, payroll, equipment, and expansion costs.While MCAs may seem like an easy financing option on the surface, they come with major downsides that can seriously impact cash flow and profitability. This article provides an in-depth look at merchant cash advances in San Antonio, the pros and cons of MCAs, legal considerations, and why working with an experienced merchant cash advance attorney is crucial if you have MCA debt.
What is a Merchant Cash Advance?
A merchant cash advance allows businesses to receive an upfront lump sum of capital in exchange for a percentage of their future credit card sales.Here’s how it works:
-- The MCA company provides a business with a cash advance amount, often between $5,000 – $500,000.
- In exchange, the business agrees to pay back the advance through daily payments taken as a percentage of their credit card sales, which is called the “factor rate.”
- Factor rates typically range from 1.10 – 1.50. So for every $100 in credit card sales, $1.10 – $1.50 goes to repaying the MCA.
- There is no set repayment term. The daily payments continue until the full cash advance amount plus fees is repaid. This is usually within 6 – 18 months.
- MCA repayments are taken automatically as daily bank debits from the business’s merchant account.
Pros and Cons of Merchant Cash Advances
MCAs appeal to business owners because they provide fast access to capital with minimal qualifications compared to traditional small business loans. However, there are also major drawbacks to be aware of.
Pros
- Fast funding – MCA companies can fund in as little as 24-48 hours. This appeals to businesses with urgent capital needs.
- Easy qualification – Approval is based more on credit card sales volume than personal credit scores. This helps newer/lower revenue businesses qualify.
- No collateral – MCAs don’t require collateral like equipment or property to secure financing.
Cons
- High cost – MCA factor rates equate to very high APRs of 60-300% when calculated as interest. This makes them a very expensive financing option long-term.
- Daily repayments – The daily debits can strain cash flow, especially if credit card sales drop. It’s easy to fall behind.
- No flexibility – MCA contracts don’t allow adjustments to payment terms if a business struggles. You must pay the fixed daily amount no matter what.
- Overreliance on credit card sales – Tying repayments solely to credit card receipts leaves businesses vulnerable if card processing is disrupted.
- Confusing terms – Vague terminology and lack of transparency about total costs make MCA contracts difficult to fully understand.
- Personal liability – Business owners are often required to personally guarantee MCA repayment. This puts personal assets at risk if the business defaults.
Are Merchant Cash Advances Legal in Texas?
Yes, merchant cash advances are legal forms of business financing under Texas law. However, some MCA companies do engage in predatory and abusive lending practices that may violate state regulations.Some important notes on MCA legality in Texas:
- Not loans – MCA companies contend their advances are purchases of future receivables, not loans. This means they bypass Texas lending rules on interest rates and terms.
- Usury challenges – Some MCA agreements may violate Texas usury laws if their fees/rates are exploitative. Usury has been successfully challenged in some cases.
- New regulations – Texas lawmakers have considered implementing new MCA regulations, like limiting confessions of judgement and adding disclosure requirements. But no major new laws have passed yet.
- Varying contract enforceability – The legality and enforceability of individual MCA contracts can vary. An attorney can assess if a specific agreement complies with Texas law.
Why Work with a San Antonio MCA Attorney?
With MCAs being such complex, risky financing tools, seeking legal guidance from an experienced merchant cash advance attorney is highly recommended for any Texas business owner. Here are some key benefits:
- Contract review – They will carefully review your MCA contract to identify any illegal, deceptive or predatory terms. This includes scrutinizing interest rates and fees.
- Assess enforceability – The attorney can analyze if your agreement complies with Texas lending laws and regulations and if any provisions are invalid or unenforceable.
- Explain legal options – They will inform you of your rights under Texas law regarding the MCA and your options to challenge the agreement if needed.
- Negotiation assistance – An attorney can negotiate with the MCA provider on your behalf to potentially improve the terms or lower daily repayment amounts.
- Settlement help – If legal action is required to settle a dispute with an MCA company, an experienced attorney can represent your interests in court or arbitration.
- Avoid scams – Unfortunately, Texas has issues with fraudulent MCA providers. An attorney can help thoroughly vet companies to avoid scammers.
- Debt relief guidance – If struggling to repay the MCA, an attorney can explain debt relief options like negotiating a settlement.
Having experienced legal counsel in your corner can help ensure you don’t fall victim to an exploitative MCA agreement and have recourse if you run into issues with repayment.
-Texas MCA Regulations and Oversight
While Texas does not currently regulate merchant cash advances to the extent that it does traditional lending, there are some applicable laws and recent regulatory developments to be aware of.
- Texas Finance Code – Sets limits on maximum interest rates and fees under state usury laws. MCA agreements found to violate these limits may be void or interest reduced.
- Texas Deceptive Trade Practices Act – Prohibits false, misleading, or deceptive acts by businesses. Applies to MCA marketing and contract terms.
- Disclosure requirements – A 2021 Texas law requires enhanced disclosures from MCA providers about repayment terms, costs, and other contract details.
- Potential usury violations – Some MCA agreements may violate Texas’ usury laws if their fees and interest rates are deemed exploitative. Usury challenges have succeeded in some cases.
- Oversight agencies – The Texas Attorney General’s office and Texas Office of Consumer Credit Commissioner oversee financial services companies and investigate complaints. They have received many complaints about MCAs in recent years.
So while not robust, Texas does have some developing laws regarding MCA practices that aim to improve transparency and prohibit abuse.