South Dakota Merchant Cash Advance Attorney: Your Guide to MCA Laws and Legal Help
Getting a merchant cash advance (MCA) can seem like a quick fix for a small business in South Dakota struggling with cash flow problems. Unlike a traditional bank loan, an MCA provides an upfront lump sum payment in exchange for a percentage of future credit card and debit card sales. There’s no lengthy application, credit checks are minimal, and money can be in your account in days.But MCAs come at a steep price. Interest rates typically range from 30% to 300% APR when calculated as a loan. Daily or weekly repayments are automatically withdrawn from your bank account via ACH transfer. If sales drop, you still owe the same fixed daily payment amount. Miss a few payments, and the MCA company can freeze your bank account or sue for breach of contract.This article will cover everything a South Dakota small business owner needs to know about MCA laws, regulations, alternatives, and how to find legal help if you get caught in a predatory agreement. We’ll discuss:
- What is a Merchant Cash Advance?
- The Pros and Cons of MCAs
- MCA Laws and Regulations in South Dakota
- Alternatives to MCAs
- What to Do if You Default on an MCA
- Finding a South Dakota MCA Attorney
What is a Merchant Cash Advance?
A merchant cash advance provides an upfront sum of money to a business in exchange for a percentage of future credit card and debit card sales. It’s not technically a loan, since there’s no set repayment schedule or interest rate. Instead, the business agrees to pay back a fixed amount per day via automatic withdrawals from their bank account. This is known as the daily repayment rate.For example, a business might get a $20,000 cash advance with a repayment rate of $500 per day. The business would receive $20,000 upfront, and the MCA company would collect $500 every day via ACH transfers until the full $20,000 is repaid, plus fees.The catch is that the business has to pay the daily rate no matter how much they actually make in sales. If you have a slow week and don’t make $500 in credit card transactions, the MCA company still collects their $500 leaving you short. Miss too many payments, and they can freeze your bank account or take legal action.
-The Pros and Cons of MCAs
Pros
- Fast approval and funding in days
- Minimal credit checks
- No collateral required
- Fixed daily payments rather than set repayment schedule
Cons
- Very high effective interest rates, often over 100% APR
- Daily payments remain fixed even if sales drop
- MCA companies can freeze bank accounts or sue for breach of contract
- Hard for businesses to pay back quickly due to high daily rates
For businesses facing a temporary cash crunch, an MCA may provide short term relief. But the rigid daily repayment structure makes it very hard to pay back quickly. And if sales decline, the fixed payments can rapidly eat into revenue and profits.This table compares some key differences between MCAs and small business loans:
| Merchant Cash Advance | Small Business Loan |
|---|---|
| No interest rate, fixed daily/weekly payment amount | Fixed interest rate and repayment schedule |
| Payments tied to credit card/debit card sales | Payments remain the same regardless of sales |
| Very fast approval, funding in days | Slower approval process with credit checks |
| No collateral required | Collateral often required |
| Minimal borrowing limits | Higher borrowing limits |
| Very high effective interest rates | Lower interest rates |
MCA Laws and Regulations in South Dakota
South Dakota currently has no laws that specifically regulate or restrict merchant cash advances. MCA companies are not considered lenders under state law, so they are exempt from usury caps and other consumer lending regulations.However, the South Dakota Division of Banking does require all MCA companies operating in the state to have a Money Lender License under SDCL 54-4. This involves filing an application, paying licensing fees, and submitting to periodic regulatory audits. But the law does not impose any limits on MCA practices.Some key things to know:
-- There are no caps on MCA interest rates or fees in South Dakota.
- MCA companies are exempt from state lending and usury laws.
- MCA providers must be licensed as Money Lenders under SDCL 54-4.
- The state does not review or approve MCA contracts.
- There are no specific regulations or statutes governing MCA repayment, default, or collections.
This lack of oversight means South Dakota businesses are vulnerable to predatory MCA companies. Be sure to carefully review MCA contracts and understand repayment terms before signing.
Alternatives to MCAs
Rather than commit to an MCA, South Dakota small businesses have other options to address cash flow gaps:
Traditional Business LoansA term loan or business line of credit will have lower rates and more flexible repayment options. You can compare rates from online lenders, community banks, and credit unions. Approval takes longer but terms are more favorable.
SBA LoansThe Small Business Administration offers several loan programs to assist small businesses. Loans backed by the SBA feature low fixed rates and long repayment terms.
Invoice FactoringWith invoice factoring, you sell outstanding invoices to a commercial factoring company to receive immediate cash. You receive the remaining amount minus fees once your customer pays the invoice. Rates are typically lower than MCAs.
-CrowdfundingPlatforms like Kickstarter and GoFundMe let you raise funds by pitching your business idea to potential backers. There’s no repayment obligation if your campaign meets its funding goal.
Friends and FamilyAsk close friends or family members to invest in your business in exchange for a share of future profits. Set clear repayment terms and put the agreement in writing.
What to Do if You Default on an MCA
Defaulting on a merchant cash advance happens when you miss multiple daily payments. This triggers rights in the MCA contract allowing the funder to take actions like:
-- Freezing your bank accounts
- Garnishing your future credit card sales
- Suing your business for breach of contract
- Damaging your credit score
If you default, don’t panic. Here are some tips:
- Communicate – Contact the MCA company and see if you can negotiate modified repayment terms. Being transparent can help.
- Seek Legal Counsel – Consult a South Dakota MCA attorney to review the contract and craft a response strategy. There may be defenses or counterclaims.
- Explore Settlement – Your attorney can negotiate a lump sum settlement that saves money versus the remainder owed. The MCA company may agree to avoid a protracted legal battle.
- File for Bankruptcy – As a last resort, Chapter 7 or Chapter 11 bankruptcy will halt collections and discharge remaining MCA debt.
The most important thing is to respond quickly if you default and not ignore communications or lawsuits from the MCA company. This only makes the situation worse.
Finding a South Dakota MCA Attorney
If you signed a merchant cash advance contract and are now facing unaffordable payments or even default, a knowledgeable South Dakota attorney can help. Look for someone experienced in commercial litigation and financial transactions. Exact expertise areas to seek out include:
- Contract law – Reviewing and disputing MCA contracts.
- Debt settlement – Negotiating lump sum payoffs.
- Bankruptcy – Chapter 7 or Chapter 11 to discharge MCA debt.
- Debt collection defense – Responding to lawsuits and freezing bank accounts.
- Consumer protection – Violations of lending practices or usury laws.
Good resources to find attorneys in South Dakota include:
- South Dakota State Bar Association lawyer directory
- Martindale-Hubbell attorney listings
- Avvo lawyer profiles and reviews
- NOLO bankruptcy lawyer directory
Be sure to ask about any upfront fees, hourly rates, and payment plans when researching attorneys. Many will offer a free initial consultation to review your case.
The Bottom Line
Merchant cash advances allow South Dakota businesses to quickly access capital. But the rigid daily repayment structure and lack of state regulation mean MCAs often do more long-term harm than good.If you are currently paying back an MCA and struggling to keep up with payments, don’t hesitate to seek legal assistance. An experienced South Dakota attorney can help negotiate better repayment terms, settle for a discount, or discharge the debt entirely. There are always options preferable to simply defaulting.With some practical guidance on MCA laws and regulations in South Dakota, plus knowing where to turn for qualified local legal help, you can make smart financing decisions for your small business.