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Merchant Cash Advance Business Debt Relief: What You Need to Know

Are you a small business owner drowning in merchant cash advance (MCA) debt? You‘re not alone. Many entrepreneurs turn to MCAs for quick funding, only to find themselves struggling to keep up with the high interest rates and daily payments. But don’t despair – there are options for MCA business debt relief. In this article, we’ll explore some strategies for managing and resolving your MCA debt.

Understanding Merchant Cash Advances

First, let‘s break down what a merchant cash advance actually is. An MCA is a type of business financing where a company gives you an upfront sum of cash in exchange for a portion of your future credit card sales1. The MCA provider takes a cut of your daily or weekly credit card transactions until the advance is paid off, plus fees.MCAs can be appealing because they’re relatively easy to qualify for, even if you have poor credit. They also provide fast funding, often within a few days. However, the convenience comes at a steep cost. MCA fees can equate to annual percentage rates (APRs) of 40% to 350%2. That’s far higher than traditional business loans.The daily repayment schedule of MCAs can also strain your cash flow. Since payments are taken directly from your credit card transactions, you have less money on hand for other business expenses. If sales are slow, you may struggle to keep up with the payments.Over time, many businesses find themselves taking out new MCAs to pay off old ones, creating a vicious cycle of debt. If you‘re in this situation, it’s important to explore your options for relief.

Options for Merchant Cash Advance Debt Relief

So what can you do if you’re drowning in MCA debt? Here are a few potential strategies:

1. Negotiate with your MCA provider

One option is to reach out to your MCA provider and try to negotiate more favorable terms3. For example, you could ask for a lower payback amount, a longer repayment period, or a temporary reduction in daily payments. Be honest about your financial situation and explain how the current terms are impacting your business.Keep in mind that MCA providers are not obligated to modify your agreement. But it never hurts to ask, especially if you have a history of on-time payments. Some providers may be willing to work with you to avoid a default.

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2. Consolidate your MCAs

If you have multiple merchant cash advances, consolidating them into a single loan could make your debt more manageable. There are companies that specialize in MCA consolidation, like Delancey Street4.The idea is to take out a new loan to pay off your existing MCAs. The consolidation loan typically has a lower interest rate and longer repayment term than the MCAs, resulting in a lower monthly payment. You‘ll have one lender and one payment to keep track of.However, qualifying for an MCA consolidation loan can be tricky. You‘ll generally need to have been in business for at least a year and meet minimum revenue requirements. The lender will also look at your credit score, cash flow, and debt-to-income ratio.

3. Consider bankruptcy

In some cases, filing for bankruptcy may be the best way to get a fresh start if you’re overwhelmed by MCA debt. Chapter 11 bankruptcy allows you to restructure your debts and stay in business while you repay creditors over time. Chapter 7 bankruptcy can eliminate most of your unsecured debts, including MCAs, but may require liquidating assets.Bankruptcy should be a last resort, as it can have serious consequences for your business and personal credit. It’s important to discuss your options with a bankruptcy attorney before making any decisions.

4. Seek legal assistance

If you’re being harassed by MCA providers or facing legal action, it’s important to seek the advice of an attorney specializing in business debt relief. They can help you understand your rights and explore your options for resolving the debt.Some legal defenses against MCAs include:

  • The MCA provider engaged in deceptive or abusive practices
  • The terms of the MCA agreement were unconscionable
  • The MCA provider violated state usury laws 5
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An experienced attorney can review your MCA agreements and advise you on the best course of action.

Preventing Merchant Cash Advance Debt

Of course, the best way to deal with MCA debt is to avoid taking out merchant cash advances in the first place. While MCAs can provide quick cash in an emergency, they should not be used as a long-term financing solution.Before considering an MCA, exhaust all other funding options, such as:

  • Traditional bank loans
  • SBA loans
  • Business lines of credit
  • Invoice factoring
  • Equipment financing

These options generally have lower interest rates and more favorable terms than MCAs.If you do decide to take out an MCA, be sure to carefully review the agreement and understand the total cost of the advance. Don’t borrow more than you absolutely need, and have a plan for how you’ll repay the debt.It’s also crucial to stay on top of your business finances and cash flow. Use accounting software to track your income and expenses, and create a budget to ensure you have enough money to cover your debt payments and other obligations.

The Bottom Line

Dealing with merchant cash advance debt can be stressful and overwhelming, but there are options for relief. Whether you negotiate with your provider, consolidate your debts, file for bankruptcy, or seek legal assistance, the key is to take action before the situation spirals out of control.Remember, you‘re not alone in this struggle. Many small business owners have found themselves in similar situations and have successfully overcome their MCA debt. With the right strategy and support, you can too.If you‘re feeling overwhelmed by MCA debt, reach out to a business debt relief specialist like Delancey Street4. They can help you explore your options and develop a plan to get your business back on track.

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FAQs

What is a merchant cash advance?

A merchant cash advance is a type of business financing where a company provides you with an upfront sum of cash in exchange for a portion of your future credit and debit card sales. The provider takes a cut of your daily or weekly transactions until the advance is repaid, plus fees.

How do merchant cash advances work?

When you take out an MCA, the provider gives you a lump sum of cash, which you agree to pay back with a percentage of your daily credit card sales. The provider sets up automatic withdrawals from your business bank account to collect their share of your sales until the advance is paid off.

What are the pros and cons of merchant cash advances?

The main advantages of MCAs are that they’re relatively easy to qualify for and provide fast funding. The downsides are the high costs (with APRs often exceeding 100%) and the daily repayment schedule, which can strain your cash flow.

How can I get out of merchant cash advance debt?

Options for MCA debt relief include negotiating with your provider, consolidating your advances into a single loan, filing for bankruptcy, or seeking legal assistance. The best approach depends on your specific situation and the terms of your MCA agreements.

Are merchant cash advances legal?

MCAs are generally legal, but some providers may engage in deceptive or abusive practices that violate state usury laws or other regulations. If you believe your MCA provider has acted unlawfully, consult with an attorney specializing in business debt relief.

References

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