When small business owners’ default on a Merchant Cash Advance (MCA), it is almost a certainty that the MCA company will go after the small business owner in one way, shape, or form. Although the time may vary depending on how long it will be before the MCA company goes after the small business and small business owner, most MCA companies choose to file a civil lawsuit against the small business owner leaving small business owners unprepared to deal with the havoc that these lawsuits can and do cause. This article outlines several frequently asked questions which small business owners ask regarding MCA lawsuits.
By Thomas Tramaglini, Chief Operations Officer
Partner, The Center for MCA Research
MCA Lawsuits
Each week, hundreds of lawsuits are filed around the county by MCA companies seeking to recover funds which have not been returned to them by the small business owners that they have sent money to via a Merchant Cash Advance. Existing in a relatively unregulated industry, Merchant Cash Advances have unusually high default rates (some companies as high as 50%) and use every tool possible to go after the small business owner and their company to recover their funds.
Importantly, most small business owners who get sued by these companies are not informed about what can happen to them and their businesses if they fail to combat the actions by the MCA companies. Small business owners should be informed regarding the MCA actions against them.
Below we are sharing 10 frequently asked questions which small business owners should review and understand when grappling with what to do as the MCA companies come after them.
1. Should I handle the MCA litigation by myself?
The short answer is no.
Most small business owners who get sued by MCA companies are not equipped with the knowledge or experience of dealing with collections firms, their attorneys, or the MCA companies themselves.
Regardless, if someone chooses to deal with the MCA company themselves after they file a lawsuit against them, they risk immediate summary judgment against them without any room for error and unintentionally give up many of the rights afforded to them by the courts. Further, from what we see, MCA companies and their collections teams push to get payback very fast, and, in many cases, the small business owner will be put in the same place where they were before they defaulted. Furthermore, when someone decides to deal with the lawsuit themselves, they will be strongarmed and forced to do things that would not happen if they were protected.
2. I missed a few payments on my MCA. Why am I not afforded the type of reconciliation that I would like from a loan company?
Your Merchant Cash Advance is not a loan. Therefore, MCA companies are not regulated in most cases and will use whatever tactics they can to recover their funds. The ironic thing is that while the MCA companies do not have regulation, they try to use the courts and the system to go after the small business owner.
3. Am I still responsible for the MCA if the broker told me that they will consolidate my MCA and it never happened.
Unfortunately, most of the time, brokers go without being held accountable. Brokers fall between the cracks because small business owners and most MCA companies do not hold brokers accountable in any way.
So, yes, you are responsible for paying the advance back. In previous posts we have written about going after brokers and how some brokers can be held accountable.
4. The MCA company sued my company, but I was not served in person, so I do not have to worry about it.
These days, most MCA lawsuits are sent via email or US mail. Permission is usually given to do so in the original MCA agreement, which the small business owner reviews.
We have seen many times cases where small business owners do not even know that they have been sued and have a judgement. In states like New York where most MCA lawsuits are filed, after the number of days allotted to answer the lawsuit passes, the attorney for the MCA company can file and have granted a judgement without defense by the court clerk.
The bottom line is that the small business owner should know what is in the MCA agreement as there is little recourse if they have granted to forgo service of the lawsuit and miss the service of the lawsuit.
5. MCA lawsuit did not have correct information about my business in the lawsuit so I can ignore it.
This is a common rebuttal we hear from small business owners. Realistically, the MCA company will just amend their lawsuit if the information is incorrect and the same lawsuit will be in effect.
What our attorneys do is use these mistakes on the lawsuit to gain leverage strategically so we can fight back on the lawsuits. However, incorrect information is usually not grounds for dismissal in any way.
6. I just was served with a lawsuit from a Merchant Cash Advance company (MCA) so I will just close my business.
Most MCA lawsuits against the business are filed synonymously with the business owner personally. So, perhaps one can close their business’s doors to escape the lawsuit against the company, but the personal guarantee (PG) will just push everything on the business owner.
So, the bottom line is that closing your business is not really going to do much as once they sue you personally, your personal wealth will be in peril.
7. I have an attorney in my home state so they can handle the lawsuit in New York.
Lawsuits filed by MCA companies must have attorneys who are licensed to practice law in the state the lawsuit was followed. Many of the businesses we work with have local Counsel but when it comes to lawsuits filed in places like New York State, one will need (and want) an attorney from that state.
8. The MCA company froze my assets and my bank account, but we have not even had a chance to answer our lawsuit.
Yes, Uniform Commercial Code (UCC) actions are employed by MCA companies almost every time a small business owner defaults on their MCA. UCC actions are NOT associated with lawsuits and should be treated as such.
9. If I settle on my own with the Attorney of the MCA company, they will drop the lawsuit against me and my company.
MCA companies do not drop lawsuits unless the balance is paid in full. You may hear this from a collections company or MCA company, but overall dropping the lawsuit before funds are paid back would basically leave the MCA company without their leverage.
10. Why is the MCA company still harassing me if I have been sued?
MCA companies will harass you and your customers because they can. The critical thing to do is hire a firm or attorney who will protect you from the MCA companies and harassment.
The next steps….
The consultants at Beacon Client Solutions seek clients who are in the pitfall of litigation. Beacon will protect you and your company from the harshness of litigation and work with you and the creditors to successfully move through your lawsuit(s) and return your business to good standing..
Contact Beacon Client Solutions to better understand your situation and how we can help you.
Dr. Thomas Tramaglini is the Director of Operations and Negotiation for Beacon Client Solutions, a company that supports small businesses on a host of fronts, especially MCA debt. He is also a partner for the Center for MCA Research, which aims to better understand the MCA industry and the patters of MCA companies, so it can better inform small business owners and policy makers about an industry which has little empirical understanding. Thomas has been a small business owner for many years, as well as held leadership positions in several organizations and companies. Thomas holds a B.A. in History, as well as Master’s and Doctorates in Organizational Leadership from Rutgers University, The State University of New Jersey.
Disclaimer: Beacon Client Solutions is not an accountancy, or a law firm. We are business consultants. While Beacon works with outstanding attorneys and accountants, we cannot and do not provide legal or tax advice. All our work is connected to those who are legally certified to give such advice. Beacon does have a longstanding body of work in MCA resolution and understands what small business owners deal with, specific to MCA. Beacon Client Solutions serves clients in all 50 states, Puerto Rico, Mexico and Canada.
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