Merchant Cash Advance Contracts

Importance of Precise Language in a Merchant Cash Advance Agreement

In the Merchant Cash Advance (MCA) space, lenders must be extremely cautious about the syntax governing their Merchant Agreements. Given MCA’s notoriously high default rates compared to traditional loans, the burden falls on the MCA company—also known as the Secured Party—to ensure their Merchant Agreement’s language adequately protects their interests. Credit card receipts and credit card transactions are crucial in this context, as they are used to assess the business’s repayment capacity and eligibility for the advance.

Key Elements Beyond the Basics

It is insufficient for a Merchant Agreement to include only the minimum required elements that validate a contract. Connecting a business bank account is crucial as it facilitates easy repayment and provides insight into the business. The agreement must also entail specific provisions that successfully grant a security interest in all assets sought as collateral. These provisions must be clearly incorporated within the agreement to assure the successful pursuit of secured collateral in the event of a merchant default.

Real-World Implications of Excluding Key Provisions

We have observed how excluding these provisions can hinder the efficacy of retrieving our clients’ security interests in future credit card receivables from merchants’ processing accounts. Daily credit card sales and future credit card sales are crucial in determining repayment terms and calculating the holdback percentage, ensuring that the business’s capacity to repay an MCA is accurately assessed. The payment-processing world is a complex system, one that MCA companies should understand conceptually but not re-engineer. Ensuring safety from events arising out of a breach/default is paramount.

Our Experience and Industry Connections

With over a decade of experience in the payment-processing world, we have established and maintained relationships with key processing and banking players shaping the industry, in addition to wholesale Independent Sales Organizations. Credit scores are often used by lenders to determine eligibility for merchant cash advances, with some focusing on monthly credit card transactions and others on the business owner’s credit score. Through these relationships, we have witnessed the payment-processing world evolve to its current state. Consequently, we understand the measures these companies take to protect themselves and their customers from MCA companies successfully pursuing their secured interests under the Merchant Agreement.

Ensuring Your Contracts Meet Current Business Revenue Standards

Let us reassure you that your contracts are up-to-date with the current standards sought by players in the payment-processing world. Interest rates are often used to compare the cost of borrowing for merchant cash advances with other types of business financing, highlighting the higher costs associated with MCAs. We understand the intricacies involved and have the inside information that will keep you safe from situations arising out of defaults. We employ multiple solutions to give our clients peace of mind when a default occurs. Don’t let your company fall victim to this everyday occurrence.

**Adam Puchi, Legal Apprentice, Global Legal Law Firm