Fort Worth MCA Defense Lawyers
Merchant Cash Advances (MCA) seem like a good deal, right? They offer businesses, especially small and medium-sized ones, immediate cash infusions in exchange for a percentage of future sales, making them attractive for owners who need cash quickly and might not qualify for traditional bank loans. However, the complexity and potential traps in these agreements can cause significant financial strain if things go sideways, leading businesses to need specialized attorneys. MCA defense lawyers, particularly those based in Fort Worth, Texas, are critical because these agreements are highly technical and often designed in ways that protect funders while taking advantage of business owners’ lack of understanding about the long-term consequences. For example, many MCAs are structured to bypass usury laws by framing themselves as sales of receivables instead of loans, even though, in practice, the repayment can mirror that of a high-interest loan.
MCA contracts aren’t your typical loans – they involve selling future receivables (money you’re expected to earn) to funders who front you cash. This arrangement is often much faster and simpler than traditional bank loans, which might require weeks of review and underwriting. However, the true costs of MCA agreements are not always transparent, and many business owners don’t realize that they can effectively pay interest rates equivalent to those of payday loans, which can soar beyond 30%, especially when daily or weekly payments start draining the company’s revenue. But did you know that courts have ruled some MCAs can cross the line into usury? In several key cases, such as the Champion Auto Sales v. Pearl Beta Funding decision from 2018 in New York, courts have begun to rule that when the repayment structure of an MCA imposes an absolute repayment obligation regardless of the business’s success, it can be treated like a loan under the law and therefore subject to state usury limits. Especially if the repayment terms act like a loan, not a sale, MCA defense attorneys can argue that their clients are being charged illegal interest rates.
Now here’s where it gets tricky. MCA funders often claim they are not lenders, just buyers of future sales, which means they are not subject to the laws governing loans, like usury caps. They argue that because repayment is supposed to be contingent upon the success of the business, the merchant has no absolute repayment obligation, meaning the funder takes on significant risk if the business fails. But, if the repayment is rigid, regardless of business performance – for instance, if the agreement includes provisions that require daily or weekly payments even if business revenue drops – it can look like a loan. This technical distinction between a sale of receivables and a loan is key in defense cases, and MCA defense lawyers in Fort Worth are skilled at exploiting this gray area in court. By demonstrating that the MCA contract functions like a traditional loan, these lawyers can argue that the funder should be subject to the same regulations as banks and other financial institutions, particularly those regarding interest rates and collection practices.
For example, cases like Champion Auto Sales v. Pearl Beta Funding exposed the danger of MCA agreements being disguised loans. This 2018 case is often cited by attorneys because it set a precedent in New York’s appellate court system for treating MCAs as loans when they impose an absolute obligation to repay, regardless of business performance. When these contracts impose “absolute repayment,” courts take a deeper look, and business owners who were originally told that they were not taking out a loan suddenly find themselves in court, arguing that they’re paying illegally high interest rates. Fort Worth lawyers have used similar precedents to win or settle cases. In fact, MCA defense strategies often rely on comparing the terms of the agreement with traditional loan structures to show that the agreement should be voided or adjusted under state law.
The Tricky Nature of MCA Agreements
But, in Texas, MCA defenses often revolve around the reconciliation clause. This clause theoretically allows businesses to request a reduction in their daily or weekly payment amounts if their revenue drops, but in practice, many MCA funders either ignore these requests or have clauses that make it difficult for businesses to qualify for reconciliation. If your MCA doesn’t allow for flexible repayments based on cash flow, it’s a red flag! MCA attorneys in Fort Worth will use this to argue in your favor, emphasizing that the MCA functions like a loan because the funder is demanding fixed payments, regardless of the business’s ability to pay. This tactic has been used successfully in several states, and in some cases, businesses have been able to avoid paying back the MCA entirely due to these defenses.
What else? The Uniform Commercial Code (UCC) comes into play big time with MCAs. Under UCC Article 9, lenders – including MCA funders – can file liens against your business assets as security for the funds they’ve advanced. These liens can prevent you from selling or refinancing your assets and can have a significant impact on your ability to run your business. However, expert attorneys will challenge these liens, questioning their legality if the agreement violates debt laws. In some cases, MCA defense attorneys have been able to get UCC liens removed entirely by showing that the MCA funder acted in bad faith or that the contract itself was illegal under state law.
How COJs Affect MCA Litigation
We can’t forget about the confession of judgment (COJ) some MCA funders force you to sign. These documents allow funders to obtain a judgment against you without a court hearing or even notifying you, which is incredibly dangerous for business owners. In many states, including Texas, courts have started scrutinizing these hard. Why? COJs can lead to immediate judgments without a fight! In other words, the MCA funder can seize your assets, freeze your bank accounts, or even garnish your business income without ever having to prove their case in court. However, MCA attorneys in Fort Worth know how to fight them off. They argue that COJs violate due process rights and can often get them invalidated, preventing the funder from taking any action against the business without a full court hearing.
Did you know MCA funders also rely on daily withdrawals to collect payments? These automatic withdrawals can devastate a business’s cash flow, making it impossible to pay employees or cover operating expenses. MCA attorneys often argue these setups are unsustainable for small businesses. By presenting evidence of the company’s revenue and expenses, they can show that the MCA funder’s demands were unreasonable and that the business was set up to fail under the terms of the agreement. The goal is to demonstrate how your cash flow didn’t match their rigid demands, and why that breaches your agreement. This argument has been successful in several cases, particularly when the business can show that it requested a reconciliation and the MCA funder refused to adjust the payment amounts.
Settling MCA Disputes
Winning doesn’t always mean zero debt. Sometimes, defense attorneys push for a settlement that reduces the MCA’s hold on your finances without sending you to bankruptcy court. In fact, many cases are settled out of court through negotiation, with the MCA funder agreeing to accept a reduced amount in exchange for avoiding the time and cost of litigation. Plus, avoiding a lawsuit entirely through negotiation can save time and cash! The settlement may involve extending the repayment period, reducing the daily payment amounts, or even forgiving part of the debt. The bottom line: MCA defense lawyers in Fort Worth know the tricks of the trade. Whether it’s pushing back on usurious terms, challenging unfair COJs, or fighting predatory liens, they’ve got your back. Want to stay in business? Get yourself a seasoned MCA lawyer who understands the complex legal landscape of merchant cash advances.