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Understanding If Your MCA Agreement is Legally EnforceableMerchant cash advance (MCA) agreements can be complex legal documents full of fine print. Many business owners sign them without fully understanding the terms or whether the agreements are even legally enforceable. This can lead to problems down the road if you end up in a dispute with an MCA provider.So how do you know if your MCA agreement is legit? Here’s what to look for:What Makes an MCA Agreement Legally EnforceableThere are a few key factors that determine if an MCA agreement is legally binding:
- Consideration – Both sides must be getting something of value. The MCA provider gives you an upfront lump sum, and you agree to repay it from a percentage of future sales.
- Competent Parties – Both sides must have the legal capacity to understand what they’re agreeing to.
- Legal Purpose – The contract can’t be for an illegal activity.
- Genuine Assent – Both parties must voluntarily agree to the terms, without coercion or deception.
- Written Terms – Oral contracts can be messy. The agreement should be in writing to clearly define the terms.
If those elements are met, the MCA agreement is likely enforceable. But that doesn’t mean all the terms will necessarily hold up.
Problematic MCA Agreement Terms
Some MCA companies try to slip in unfair or deceptive terms that may not be legal, like:
- Excessively high repayment rates – Anything over 1.5X the amount advanced may be deemed predatory lending.
- Confessions of judgment – Admissions of guilt that allow them to obtain a judgment without notice.
- Waivers of borrower rights – Giving up legal protections.
- Misleading statements – Deceptive statements about repayment rates or consequences of default.
If the agreement contains predatory, confusing, or legally questionable terms like these, you may be able to challenge it.How to Challenge an MCA AgreementIf you realize your MCA contract contains unfair or illegal terms, don’t panic. You have options, such as:Attempt negotiation – See if the MCA company is willing to modify the problematic sections. If so, get any changes in writing.Refuse to pay – You can stop making payments and force them to take legal action. Then fight the case.File a lawsuit – Take the offensive and sue to invalidate the illegal parts of the contract.Report them – File complaints with regulators like the FTC or state attorneys general about deceptive practices.Claim the agreement is a loan – Argue it should be subject to usury caps and lending regulations.While challenging an agreement is complex, the good news is that many MCA companies shy away from lengthy court battles. The threat alone may convince them to settle or modify the terms.
What to Look for in a Legitimate MCA Agreement
The best way to avoid issues is to only sign fair MCA agreements in the first place. Here are signs you’re dealing with a reputable company:
- Clear terms – Language is simple to understand, not filled with legal jargon.
- Reasonable rates – Repayment rates around 1.1-1.3X the amount advanced.
- No hidden fees – All costs are upfront.
- Flexible structure – Allows you to pay more some months and take breaks other months.
- No personal guarantee – Repayment isn’t tied to your personal credit or assets.
- Right to cancel – Gives you a short window where you can back out without penalty.
- Positive reviews – Check third-party review sites to see what others are saying.
Taking the time to vet MCA providers can prevent many headaches. And working with a lawyer to review the agreement is wise.While you can’t eliminate all risks with MCA financing, understanding your rights and what makes a contract legally enforceable puts you in a better position. Don’t hesitate to push back on questionable terms. And if you still have concerns after signing, contact an attorney to discuss your options.
