New York Merchant Cash Advance Defense Lawyer

How MCAs Work

A merchant cash advance is commonly used by small and medium-sized companies to cover immediate expenses or invest in growth opportunities. A financing company provides the business with a lump sum payment upfront in exchange for a portion of its future sales or credit card receivables. 

The repayment structure is typically designed to align with the business's cash flow, making it more flexible than traditional loans. Rather than fixed monthly payments, a predetermined percentage of the daily or weekly sales is automatically deducted until the total amount, along with fees and interest, is repaid.

Advantages of an MCA

One of the main advantages of an MCA is the speed of funding. Traditional loans often involve lengthy application processes, credit checks, and collateral requirements, which can delay access to funds. In contrast, an MCA has a relatively quick approval process, and funds can be deposited into the business's account within a few days. This makes it an attractive option for businesses facing urgent financial needs or unexpected expenses.

Another benefit of MCA is the flexibility it offers. Since repayment is based on a percentage of sales, the amount deducted from the business's revenue varies with its performance. During slow periods, when sales are lower, the repayment amounts decrease accordingly. This flexibility can help businesses manage cash flow fluctuations and avoid the burden of fixed monthly payments.

Disadvantages of an MCA

It’s important to note that MCA comes with higher costs compared to traditional loans. The fees and interest rates associated with an MCA can be higher due to the perceived risk involved for the financing company. As a result, businesses need to carefully evaluate the potential impact on their profitability.

Moreover, a business owner may need to sign a Confession of Judgment (COJ) before getting access to the funds. In the event a business falls behind on its payments, The COJ will allow the lender to pursue legal action and obtain a judgment against the borrower without going through a court process. 

By signing a COJ, the borrower agrees to accept liability for their debt and waives their right to a formal trial. While not every state recognizes the enforceability of a COJ, the state of New York does.