How to get out of a merchant cash advance – at risk of defaulting?
Have you ever, in the deepest depths of your business struggles, felt completely and utterly trapped in an MCA loan that seemed, at first glance, like a lifesaver but quickly became a noose around your neck? You’re absolutely not alone in feeling that way, and, believe me, countless other business owners—small business owners, hardworking individuals like you—find themselves ensnared in this exact same situation, desperately looking for a way out. MCA lenders, who many of us in the legal profession consider predatory and downright cruel, often prey on businesses during their most vulnerable moments, creating these impossible debt cycles that feel like a trap with no way out. But here’s the truth—a truth that I’ve personally seen in courtrooms, legal documents, and victories—you can get out, and it’s not as impossible as those lenders want you to believe.
Let’s start with the very basics of this harmful system. MCA loans, which are formally known as Merchant Cash Advances, are loans that are structured to look incredibly simple on the surface—they give you quick cash in exchange for a percentage of your future sales, but the devil is in the details, and it’s a devil I’ve fought many times in courtrooms and settlements. In reality, these loans are designed like traps with astronomical, almost absurdly high, interest rates that can absolutely destroy a business’s cash flow before you even realize what’s happening. Business owners, often with the best intentions and driven by hope, sign up thinking that they’re solving a short-term cash flow problem, but the MCA lenders—who, let’s be honest, are well aware of what they’re doing—know how to make the situation much worse for you and much better for them.
MCA Loans Aren’t Regulated Like Traditional Loans
MCA loans are NOT regulated the way traditional loans are, and that’s one of the biggest problems we’re facing in fighting them. These lenders exploit loopholes, and they take advantage of businesses that don’t have the legal or financial expertise to see the risks upfront. Here’s a breakdown of what we’re seeing in states across the country. In California, for example, MCA loans are technically governed by the state’s usury laws—laws that, in theory, should protect businesses from excessive interest rates—but MCA lenders are always trying to find ways to bend, stretch, and sometimes outright ignore these laws (California Const., art. XV, § 1).
Under California law, specifically through the state constitution’s provisions on interest rates, MCA lenders are not supposed to be able to charge excessive interest rates, but many do so anyway, taking advantage of legal gray areas and hoping businesses don’t notice or don’t have the resources to fight back. Attorneys in California, who are familiar with this kind of predatory lending behavior, often argue that MCA lenders are violating the Unfair Competition Law (Cal. Bus. & Prof. Code § 17200), which prohibits businesses from engaging in any unlawful, unfair, or fraudulent business act or practice. Claiming the MCA terms are predatory isn’t just a strategy—it’s a winning strategy when presented effectively, and we’ve seen businesses win back their financial freedom through this route.
Understanding UCC Liens in New York
And speaking of New York—another battleground state for MCA loans and the legal fights surrounding them—New York has Article 9 of its Uniform Commercial Code (UCC), which is a complex and crucial part of business law. This particular section of the UCC covers how MCA lenders file UCC liens, which are essentially claims, on your business assets, like your equipment, inventory, and sometimes even your receivables. But here’s the catch, and it’s a big one—under New York UCC § 9-609, a lender, whether they’re an MCA lender or not, cannot take possession of your business’s property without first going to court and getting legal permission! Yet, despite this very clear legal requirement, MCA lenders do this ALL the time, completely ignoring the law and hoping no one will call them out on it.
MCA defense lawyers, who specialize in helping businesses navigate these predatory lending traps, know how to argue that the improper filing of a UCC lien can be challenged—often successfully—under this provision of the UCC. They often point to NY CPLR § 3213, a civil procedure law that allows for fast action in contract disputes, which is exactly what an MCA loan dispute falls under. This is how attorneys, with careful attention to detail and an understanding of state law, often win—by pointing out these procedural flaws. Sometimes, the win doesn’t even have to be about the MCA loan itself, but about how the lender failed to follow proper legal procedure, which can make all the difference in the world.
Florida’s Battle Against MCA Lenders
In Florida, the MCA battle gets even more heated, as this state has seen a significant rise in MCA lending and legal battles surrounding it. Florida doesn’t have a cap on interest rates for commercial transactions, which means MCA lenders can charge sky-high rates legally, but attorneys in Florida know how to fight back using the state’s FDUPTA (Florida Deceptive and Unfair Trade Practices Act), which gives them a way to challenge misleading or fraudulent loan terms. Florida courts often find that the misleading terms found in many MCA contracts fall under F.S. 501.204, a broad statute that prohibits unfair or deceptive business practices.
If the MCA lender didn’t fully disclose the true cost of the loan, which they often don’t, you’ve got strong grounds for a case. One of the biggest tricks attorneys use is arguing that the MCA is not actually a loan but rather a purchase of future receivables, which is a legal distinction that changes everything about how the loan is regulated. And this distinction, though it may seem small at first, can have a massive impact on how courts view the contract.
Fighting MCA Loopholes in Texas
Here’s where it gets technical, and I know it’s dense, but stay with me—it’s important. In many states like Texas, MCA lenders claim that they aren’t subject to state lending laws because, technically, they argue that they’re not issuing loans, but “buying” your future income in the form of receivables. But… Texas attorneys, who are experts in business law and financial disputes, often argue that despite the MCA lenders’ claims, the contract is still subject to usury laws under Tex. Fin. Code Ann. § 302.001, which specifically prohibits excessive interest rates, even in commercial settings like this.
In fact, a case from 2018 in Texas set an important precedent when the court ruled that the MCA contract in question was void due to unconscionable interest rates (TX Dist. Ct. No. 01-19-00740-CV). The borrower in that case won, and that case is now being used as a precedent for future cases where the interest rates are deemed excessive. You see, the strategy here, which attorneys are using more and more successfully, is to expose how MCAs push their contracts into these gray areas of the law—areas where there’s not always clear regulation or oversight—and courts don’t like that. They expect transparency and fairness in all commercial dealings, and when MCA lenders fail to meet those expectations, that’s where the defense can really gain traction.
What You Don’t Know About Arbitration Clauses
Many business owners, often overwhelmed by the legal language in MCA contracts, think to themselves, “Well, I signed it, so I have to live with it.” But MCA defense attorneys—they don’t think that way, and neither should you. Now, let’s talk about arbitration clauses, which many MCA lenders sneak into their contracts as a way to prevent you from ever taking them to court. They think that by forcing arbitration, they can avoid a public legal battle. But guess what? Those clauses can be challenged in many states.
In Michigan, for example, courts have ruled that if an arbitration clause is too one-sided, meaning it only benefits the lender and puts all the burden on the borrower, it can be deemed unconscionable and thrown out entirely (Michigan Contract Law § 440.2302).
The Power of Federal Laws
You ever heard of the Garn-St Germain Depository Institutions Act (12 U.S.C. § 1701j-3)? It’s a federal law that deals with lien priorities, and it’s one that MCA lenders often ignore, assuming it doesn’t apply to them because they think their loans operate outside the usual lending regulations. But attorneys, who are well-versed in both state and federal law, use this act to argue that MCA lenders actually have second-position liens, meaning they are secondary to your other debts, such as secured loans or mortgages. This can be a game-changer in negotiations because it lowers the MCA lender’s priority and gives you, the borrower, more leverage.
Even partial victories in court, where you don’t eliminate the entire loan but significantly reduce the financial burden, can have huge impacts on your business’s ability to survive. Winning doesn’t always mean getting rid of the entire loan—it’s about chipping away at the lender’s grip on your business’s cash flow, one legal victory at a time.