Looking for business debt relief services? Visit Delancey Street.
–
Merchant Cash Advance Business Debt Relief
Merchant cash advances (MCAs) can provide quick access to capital for small businesses, but they also come with high costs and risks. If your business has struggled to repay an MCA, you may be facing aggressive collection tactics or threats of legal action. However, there are options to resolve MCA debt and achieve relief.
How Merchant Cash Advances Work
A merchant cash advance provides a business with a lump sum of capital in exchange for a percentage of future credit card sales over a set period of time. This differs from a traditional small business loan in a few key ways:
- There is no set repayment schedule. The business repays the advance as a percentage of daily credit card sales.
- Approval is based mainly on credit card sales volume, not the business’s credit score. This allows more high-risk businesses to qualify.
- The annual percentage rate is often between 60-200% since there is more risk to the lender.
This structure allows businesses with lower credit or inconsistent cash flow to access capital quickly. However, it also means significantly higher borrowing costs long-term.
The Risks of Merchant Cash Advances
While MCAs provide fast access to capital, they pose several downside risks:
- High costs – The equivalent annual interest rate is exorbitantly high, often exceeding 100%.
- Daily repayments – Repayments are taken automatically from credit card sales each day. This can make cash flow management difficult.
- Aggressive collections – Some MCA lenders use aggressive tactics like harassing phone calls and lawsuits to collect debts.
- Personal liability – Business owners often have to personally guarantee MCA loans, exposing personal assets.
As a result, many businesses struggle under the weight of MCA debts. The Covid-19 pandemic further exacerbated these issues for small businesses as revenues declined.
Achieving MCA Debt Relief
If your business is facing financial distress due to an MCA, there are options to resolve the situation and achieve relief:
Debt Settlement
Debt settlement involves negotiating directly with MCA lenders to settle outstanding balances for less than the full amount owed. This can eliminate a significant portion of the debt. Key steps include:
- Stop making payments – This gives you leverage in settlement negotiations. However, be prepared for aggressive collections.
- Gather documentation – Compile financial statements, tax returns, bank statements, and anything related to the MCA agreements.
- Negotiate – With documentation in hand, negotiate a lump sum settlement that is acceptable to both parties. Often, 40-60% settlements are achievable.
- Get settlement terms in writing – Once an agreement is reached, get the detailed terms in writing before sending payment. This protects against further collections.
Settlements allow businesses to resolve MCA debts while avoiding bankruptcy. Lenders are often open to settlements since they carry such high risk.
Legal Defenses
In some cases, legal defenses can eliminate or reduce MCA debts:
- Unconscionability – If the original MCA contract terms were overwhelmingly unfair or coercive, courts may void the agreement.
- Usury violations – If the equivalent interest rate exceeded state usury laws, the debt may be reduced or voided.
- RICO claims – Under the Racketeer Influenced and Corrupt Organizations Act (RICO), predatory lending can potentially lead to treble damages awards.
Pursuing legal defenses against MCA lenders carries risks. Lawsuits are expensive and time-consuming. However, the right legal strategy can lead to full debt elimination under certain circumstances.
Bankruptcy
Filing business bankruptcy stops collections and provides an opportunity to eliminate or restructure debts under court protection. Options include:
- Chapter 7 liquidation – The business stops operating and assets are sold to pay creditors. This fully eliminates qualifying business debts, providing a “fresh start.”
- Chapter 11 reorganization – The business continues operating under court supervision and submits a repayment plan to creditors, allowing debts to be restructured.
- Assignment for the benefit of creditors – This is an out-of-court liquidation overseen by a third-party trustee to settle debts.
The complex nature of MCA loans can make them difficult to address even in bankruptcy. Legal guidance is highly advisable before pursuing bankruptcy.
Finding the Right Debt Relief Partner
Navigating MCA debt relief is challenging. The optimal solution depends on your specific situation. At Delancey Street, our dedicated advisors help small business owners explore all debt relief options, including:
- Free consultations – We conduct in-depth reviews of your finances to provide tailored advice.
- Debt relief program enrollment – We help negotiate settlements, pursue legal strategies, and facilitate bankruptcy filings.
- Ongoing support – Our advisors defend you from collections calls and guide you through every step of the process.
Don’t struggle with MCA debts alone. The experienced team at Delancey Street helps business owners achieve financial freedom through customized debt relief. Contact us for a free consultation.
Frequently Asked Questions
How long does the debt settlement process take?
The timeline varies, but often debt settlement is achievable within 2-6 months. We prioritize speedy resolutions, but negotiations require patience and persistence.
Can a business owner’s personal assets be at risk?
If you personally guaranteed the MCA loan, then yes. Lenders can pursue personal assets like home equity if the business defaults. That is why resolving these debts is so critical.
Is debt settlement my only option?
No. We also help businesses file bankruptcy or build legal defenses when appropriate. There is no one-size-fits-all approach – we customize solutions to your situation.
What documentation is needed?
We need a clear financial picture of your business, including tax returns, profit/loss statements, personal and business bank statements, and the original MCA agreement terms.
About Delancey Street
Delancey Street has provided small business debt relief for over 10 years. We are not a law firm, but rather financial advocates guiding you through debt settlement, legal strategies, and bankruptcy.Our mission is empowering small business owners to resolve financial crises, defend their assets, and ultimately achieve financial freedom from debts owed. We offer judgment-free consultations, thoughtful advice, and long-term guidance because we understand the heavy burden of small business debt.If an MCA or other debts are threatening your livelihood, contact us today to explore your relief options. Our expertise allows business owners to exit distress and continue pursuing their dreams.