What is a Merchant Cash Advance?
A merchant cash advance is an advance based on the business’ future revenue or credit card sales. Over the years, many business owners and entrepreneurs have turned to merchant cash advances as a means of non-traditional financing. According to the Green Sheet and Forbes, the current merchant cash advance market is $500-$700 million and has the likelihood of reaching the $3-$5 billion marks within the next couple of years. Unfortunately, due to unforeseen circumstances, many business owners fall behind on payments and struggle to get out from penalties and late fees.
What Happens When You Default on a Merchant Cash Advance?
There are several consequences that occur as a result of not repaying a merchant cash advance. If a business owner defaults on their payments:
- The lender can notify credit bureaus and their credit score can suffer as a result
Lower credit scores can make securing another loan in the future more difficult. Those who are able to secure a loan in the future may face higher interest rates.
- The lender may be able to add fees and increase interest rates if the business owner does not make his or her payments.
Some merchant cash advances may have “borrowers” fees. For each month the business owner misses a payment, there will be an extra charge.
- Other lenders may be able to impose a late fee, penalty or daily default payment fee that will tack on extra charges daily for missed payments.
For merchant cash advances that have flexible no-rate clauses, a lender may be able to adjust the amount (percentage) that is taken from the business owner’s account daily. This may spell trouble for businesses that are seasonal or go through slow sales periods. With unexpected cuts into a business’ revenue, some borrowers may experience a shortage of funds.
A business owner may be able to re-negotiate his or her payment terms with their lender. It is recommended that you seek the guidance of an experienced debt relief lawyer who will negotiate the terms of the contract on your behalf. Another option would be to refinance the debt with a loan that requires smaller periodic payments and has a longer term. Those that believe that their merchant cash advance lender has breached their agreement should consider seeking legal counsel from a debt relief lawyer sooner rather than later.
How We Can Help
Although merchant cash advances may seem like a favorable financing option to business owners when the agreement is first made, unforeseen circumstances may lead owners to not make the payments as intended. For those who have fallen victim to overwhelming payments and fees or have defaulted on their merchant cash advance, it is crucial that they seek the guidance of an experienced debt relief lawyer.
Contact our Experienced New York Debt Defense Attorney Today
Robert Jacovetti of Jacovetti Law, P.C. is available to assist New York State residents in a variety of debt matters, including merchant cash advance defense. Mr. Jacovetti is a knowledgeable and compassionate attorney who fights for the legal rights and business interests of his clients.
For more information or to schedule a consultation with our merchant cash advance defense lawyers, call us today!