Our goal at Lending Valley is to provide all small business owners access to the best loans possible for their business. You can rest assured we will get you the best rates in the market!
Merchant Cash Advances (MCAs) can be helpful, but bad contracts and aggressive collections have led to many lawsuits. Learn how MCAs work, the most common legal issues, real examples of what goes wrong, and the smart steps to protect your business. You’ll also see why picking an ethical funder, like Lending Valley, led by Chad Otar, reduces risk and stress.
An MCA gives your business a lump sum today in exchange for a percentage of future sales. Instead of a fixed monthly payment, the provider pulls a slice of your daily or weekly revenue until you’ve repaid the purchased amount plus fees.
How MCAs differ from loans: Loans have fixed payments and interest; MCAs purchase receivables and collect only from your sales. In a true MCA, if sales hit zero, you shouldn’t owe fixed payments. That difference is key—and where many legal disputes start.
Lawsuits usually ask two questions:
Some contracts look like MCAs but behave like loans: fixed repayment terms, fixed debits, and sky-high effective rates. Courts and regulators can treat those as illegal, usurious loans and void them. If a provider can demand payment regardless of your sales, it’s a red flag.
Disputes often arise when merchants say they were misled about total payback, fees, or how daily deductions work. “Purchase of receivables” language doesn’t excuse opaque costs.
Many agreements promise reconciliation (lowering remittances when revenue drops). Lawsuits flare when funders refuse to adjust, or when merchants halt payments without following the contract’s process.
COJ clauses let funders get a court judgment without a trial if you default. Some jurisdictions restrict their use; others still allow them. COJs, surprise bank levies, and customer subpoenas can push a struggling business over the edge—and straight into litigation.
Taking several advances at once triggers a race to collect. One judgment or account freeze can cascade into liens, lawsuits, and insolvency.
Bottom line: Structure and behavior matter more than labels. True revenue-based deals fare better; loan-like MCAs invite lawsuits.
1) Vet the funder. Search reviews, complaints, enforcement actions, and lawsuits. Be wary of pushy sales, “too-good-to-be-true” promises, or vague answers.
2) Read every clause. Confirm: percentage of sales, daily/weekly methodology, reconciliation mechanics, all fees, any personal guarantee, and any confession of judgment. If something’s unclear, ask for it in writing or get counsel to review.
3) Spot the red flags. Fixed payback timelines, fixed debits that ignore actual revenue, no reconciliation, triple-digit APR equivalents, and junk fees signal predatory structure.
4) Act early if sales drop. Request reconciliation in writing and keep records. If an account freeze or lawsuit hits, call an attorney immediately. You may have defenses (e.g., usury arguments) depending on state law and contract terms.
5) Use new transparency laws. Several states require commercial financing disclosures (APR/total cost style). If a provider refuses to disclose where required, walk away.
Horror stories exist because bad actors exist. The solution isn’t to avoid financing—it’s to pick a reputable partner.
Lending Valley is a New York–based fintech that helps small businesses access funding quickly and fairly. Led by President Chad Otar, the company focuses on plain-English terms, fast decisions, and long-term relationships, not one-sided contracts.
What clients highlight about Lending Valley (from public reviews):
Why this matters for MCA-lawsuit risk: clear disclosures, genuine revenue-based structures, and responsive support reduce misunderstandings, payment shocks, and disputes. You focus on running the business; your funder acts like a partner.
Pro tip: When you compare offers, ask each provider to show total payback, typical remittance percentage, reconciliation steps, and any personal guarantees or COJs—in writing. If someone sidesteps the questions, that’s your answer.
Is an MCA ever the right move?
Yes—when you need fast capital, you have card/online revenue, and the remittance fits your margins. Use MCAs for short-term needs with clear ROI (inventory turns, ad campaigns, seasonal staffing).
What’s a safe remittance range?
It varies by margin and velocity. Many merchants target 8–15% of daily/weekly sales. Model conservatively; ensure you can still cover rent, payroll, and COGS during slow weeks.
How soon should I talk to my provider if sales drop?
Immediately. Request reconciliation per the contract and document your evidence (POS/processor statements). Early communication prevents escalations.
If I’m sued by an MCA company, do I have defenses?
Possibly. Counsel can review whether the deal functions like a loan (and may be usurious), whether COJ use is restricted where filed, and whether the provider breached reconciliation or other duties.
MCAs can be lifelines when structured fairly—and landmines when they aren’t. Protect your business by vetting providers, reading the fine print, spotting red flags, and acting early when cash flow changes. Most of all, work with a reputable partner.
Considering an advance or need a second opinion?
Talk to Lending Valley. With Chad Otar’s leadership, transparent terms, and fast support, you can access capital without the legal drama.
