Are you looking for a New York MCA debt attorney? If so, you’ve found one – The Lawyer James has a lot of experience working on MCA lawsuits on behalf of merchants and guarantors. As you may know, “MCA” means “merchant cash advance,” which is another way of saying, or has become synonymous with, “receivables purchases.” Essentially, these types of financing arrangements are made available to merchants from financing companies where the merchant typically does not have access to other forms of capital. And before we move on, just to make sure we are on the same page, a “merchant,” as used here, is simply another word for “business.”
Moving on, what we mean when we say other forms of capital, is that the business needs cash to operate, like make payroll, pay rent, pay for supplies, expand operations, or just to meet working capital needs generally. Drilling down further, businesses usually obtain financing through MCA transactions because they cannot get capital anywhere else. It is a matter of last resort. They typically can’t qualify for business loans or lines of credit because their credit ratings are too low. So the MCA financing transactions provide for alternative means of financing to businesses that are typically cash-strapped. But most businesses that apply for and obtain MCA financing do not usually get a New York MCA debt attorney, even when the financing documents say they are governed by New York law. And it is important for a business to know and understand the financing terms before signing and funding, but most do not, but that’s ok, because they are more concerned with keeping their business alive in the short term and are in urgent and immediate need for cash.
Generally, the pro to this type of financing is that it is not credit-based and has nothing to do with the credit worthiness of the business or its owner. And this is very appealing to businesses with substantial and immediate cash needs to continue operations and avoid closing their doors. Instead, this type of MCA financing is purely or almost exclusively receivables based, and the amount of the financing depends on the amount and volume of the receivables. I would also imagine that the industry sector is relevant and important too. For instance, one would think that a business with a lot of high value assets (for instance, high value manufacturing equipment or machinery) would be more appealing to an MCA financing company than a business that does not have any machinery or high value assets at all, like a service-based business. On this lower asset value business spectrum are also restaurants. This does not mean however that the businesses themselves are low value; they just do not have assets with particularly high values. In those instances, those businesses, like service businesses and restaurants, can have high going concern values. This means that even though those businesses do not have a lot of high value assets, they nevertheless have or can have good cash flow and can generate substantial amounts of cash.
On the other hand, a con to this type of MCA financing arrangement is that the financing is incredibly expensive. A lot of times businesses get deeper into financial trouble with this type of financing and cannot pay their bills and cannot pay their lenders, nor their MCA financing companies. This is where consulting a New York MCA debt attorney can help. Specifically, this type of an attorney, like The Lawyer James, can clearly explain the benefits and risks associated with these types of financing transactions.
The way MCA financing transactions typically work is like this: a business in need of cash makes an application to an MCA company. That MCA company looks at the amount of receivables, presumably by looking at financial statements and bank account statements, and then determines how much financing it wants to extend to the business. Once it determines that amount, it then makes an offer to purchase a specified number of receivables from the business at a specified rate. Of course, what we mean by “receivables” here is “accounts receivable.” But, you probably do not need a New York MCA debt attorney to tell you that!
Nevertheless, let’s be more specific: let’s say the business has $1,000 in receivables that the MCA financing company wants to purchase from the business. If the MCA financing company paid $1,000 for the receivable and then received $1,000 for the receivable once the receivable came in, how much money would it make on the transaction? Correct. Zero.
Now, these MCA financing companies are out to make a profit on these receivables purchase contracts. And how do they do that? The buy for a lower amount than they receive. Let me boil this down. So for an MCA financing company to make money on the receivables purchase contract, there has to be a financial incentive. And what’s the financial incentive here? As we just pointed out, it’s to buy the receivable for less than the value of the receivable itself. Specifically, in this example, the MCA financing company would advance $650 to the business, and once the $1,000 receivable comes in, the MCA financing company, who now owns the receivable, makes $350.
This begs the question then what happens if the receivable never comes in? Well, if it’s a true receivables purchase, then the MCA financing company takes the risk that the receivable is not paid, and in a true receivables purchase arrangement, if there’s no receivables then there is no repayment.
But this is where it gets tricky. A lot of these cash strapped businesses who enter into MCA financing transactions default and get sued in New York. And once that happens, they definitely need an experienced New York MCA debt attorney to guide them through the process and help these businesses either settle their disputes with the MCA financing companies or defend the lawsuits.
It looks like we are out of space and room for this particular article, but we will be publishing more, where you will be able to hear from The Lawyer James, an experienced New York MCA debt attorney. Call (212) 500-1891 to speak with The Lawyer James or one of his attorneys to direct you through the MCA financing or MCA lawsuit process.