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According to the managing attorney for Empire Recovery Services in Manhattan, a merchant cash advance business that offers customers debt recovery services, Steven Zakharyayev;

“Every aspect of the industry is under scrutiny right now. Syndication agreements, underwriting, and collections are the subject of bills in Congress and across multiple states,”

Any time funding is provided through a merchant cash advance, the strict legal framework surrounding this kind of business mandates a high level of discreteness.


Let’s explore the do’s and don’ts that will separate your business from success and failure.


Avoid Lawsuits

The strict legal framework surrounding this kind of business mandates a high level of discretion. In other words, it is highly suggested as a business to avoid any unnecessary attention, particularly from the law.

Regardless of your situation, it is crucial to avoid court cases at all costs because any unwanted attention for your business could become a public relations nightmare.

According to Paul A. Rianda, heads of a law firm that has numerous clients in MCA companies;

“The business model of sue first, ask questions later can be a problem,”

In an article, she continues on stating that when lawsuits come into the picture, there’s a high chance that things could spiral out of control. Worst-case scenario, you could be staring down the barrel of a class-action lawsuit.


Get the Law On Your Side

In addition to avoiding lawsuits and generally anything that causes your business to become under a microscope, you should consider the legal protections you have in place.

Different funders may employ a variety of methods to ensure the law is on their side, which may take research in deciding which options are best for you. Funders have a few options such as:

  • In-house counsel
  • contract with external law firms
  • poaching from a reputable funder online or from a friend in the industry.


According to Kimberly M. Raphaeli, vice president of legal operations at Accord Business Funding in Houston, citing the scenario of poaching;

“The trouble is what flies in one state may not be legal in another…”


She cites the potential discrepancies exist between different states. In summary, it is generally important to have some form of legal counsel in your team.


Follow the Rules to the Letter

Due to the regulatory framework surrounding the raising of funds, particularly from the SEC, it is important to ensure proper research is done when accepting investors.

In the event of a funder requiring external backing from investors, the funder must treat the situation as if they are issuing securities and follow the rules accordingly.

According to Nowak, the attorney with Pepper Hamilton;

“You need to be very careful here because these rules are unforgiving. You can’t ignore them,”

Taking the steps in differentiating yourself from the competing pack is a set-up for long-term success. According to Steve Denis, executive director of the association whose members include funders and lenders;


“It’s a very competitive market and companies are trying to differentiate themselves. I think it’s important to make sure you’re following industry standards,”
Steve continues by citing the importance of ensuring that you’re operating under the radar but at the same time following the industry’s best practices. In this regard, it is also important for funders to create a dynamically efficient pattern that ensures they can accommodate potential changes due to competitive and business realities.


Don’t Forget Accounting

Yoel Wagschal’s view about accounting focuses on the importance of getting streamlined accounting services that cater to the unique nature of the business. He cites the disadvantages and gaps that exist from using sophisticated software that don’t necessarily cater to the accounting department’s needs.

The most important thing is ensuring that there’s ample information for both the sales and accounting aspects. It is equally important to have a system to sorts out the information and provides every department with only relevant data for processing. This will prevent any sort of wastage of time and company resources.


In Summary

Staying on the right side of the law, and preferably, under the radar are essential for any funder. There is a constant balancing act between popularity and customer relations.


This means that a premium is placed on discretion and the ability to solve problems with minimal friction. In an industry where businesses are easily scrutinized, it is important to abide by the law and to avoid any negative press whatsoever.. It could be the definitive line between success and failure.