My office has been working more and more MCA loans over the past many months with about a dozen cases currently in various stages of settlement negotiations.
Most of my clients involved in these claims took on Merchant Cash Advance loans when sales started to decline during the onset of the COVID pandemic last year. After struggling to meet terms of repayment, they are all now in default and have been sued for the outstanding balances.
Fees and interest can easily range from 40% to 300% of the amount borrowed
Unlike conventional loans, MCA loans can carry repayment percentage rates substantially higher than what would normally be considered illegal under usury laws. Since they are tied to a percentage of a company's future sales, they are not technically considered loans and payments are typically set as daily or weekly ACH withdrawals from the borrowers bank account. Unless they are tied to a percentage of credit card sales, payments remain the same regardless of whether actual sales are up or down.
A Financing Option of Last Resort
I encourage any business owner to carefully consider whether or not the immediate infusion of cash will be worth the long term commitment of repayment with a Merchant Cash Advance loan.
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