Merchant Cash Advances are some of the most common and easiest ways to obtain business funding in the country. This sort of business lending is known as the purchase of future receivables by the company instead of a regular business loan. This difference allows the merchant cash advance companies to stay mostly unregulated. For example, it allows them to accrue interest at double or triple the usual interest rate forgoing the usury laws all together, especially the criminal usury laws. Merchant Cash Advance companies are aggressive and do not wait to take action when a business defaults on their product. The MCA companies will almost always move to sue the business immediately. Most of the merchant cash advance lawsuits occur in New York even though businesses across the United States obtained funding from these companies. It is important to not only find an attorney that can represent the business in New York but also to find an attorney that really understands how to properly handle these niche cases and give business clients real options to defend themselves. From our experience in defending clients against Merchant Cash Advance lenders for over the last decade, here are the most important steps to take when dealing with a potential MCA lawsuit:
- Understand what the consequences of defaulting on a Merchant Cash Advance are so that you can expect what steps the MCA lenders will take and how you can take initial steps to protect your business,
- Take the necessary steps to assess your business and personal liability to understand if your business and or personal assets and property are vulnerable to a levy, lien or garnishment,
- Review whether you have online exposure to UCC liens which are one of the new favorite enforcement tools of MCA lenders. UCC liens allow them to freeze funds discovered in platforms such as Amazon, Airbnb, Cashapp, Intuit, PayPal, Turo, Stripe, Square, Venmo and others without having to sue a business or obtaining a judgment,
- An answer to the summons and complaint must be submitted within 30 days to avoid a default judgment. This is essential as Merchant Cash Advance lenders frequently move to obtain a default judgment on the 31st day after serving a lawsuit giving the defendant almost no time at all to review the suit and retain an attorney. Counterclaims must be included in the answer with defenses if they are appropriate and available to the business. A common counterclaim is the interference by MCA’s in business practices by use of UCC liens. An answer with defenses and or counterclaims keeps the burden on the Merchant Cash Advance lenders to prove their case. It keeps the leverage on the side of the defendant and provides the necessary buffer of time to allow the defendant to make decisions about which route they would like to take,
- Send discovery requests such as interrogatories and request depositions to keep the pressure on the plaintiff and obtain proof of whether the MCA’s actually have a strong enough case to move forward toward trial,
- Pursue potential counterclaims where appropriate to see if the MCA’s are going to be interested in a lengthy litigation instead of dropping their case or alternatively coming toward a mutual settlement,
- In the alternative, use all of the steps above to negotiate a settlement which reduces the balance owed significantly by anywhere between 30% - 70% of the balance and obtain an interest free monthly payment plan instead of daily or weekly payments at extremely high rates.
Merchant Cash Advance lawsuits are complex matters so a strategy consisting of some or all of the above must be discussed with a New York merchant cash advance attorney from the beginning so that reasonable expectations can be met and the best result possible will be achieved.