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Crushed by Factoring Debt? There’s a Way Out

The Burden of Factoring Agreements

You took out a merchant cash advance to fund growth, operations, payroll – whatever was needed at the time, to keep your business running. When you couldn’t make those high weekly payments: the debt started piling up, fast. Now, you’re drowning in fees and trapped by your factoring agreement’s draconian terms. You feel helpless, backed into a corner – but you’re not alone, and there are options to escape this vicious cycle.

What is Debt Relief?

Debt relief, in its simplest terms: is about strategically tackling what you owe, in a way that reduces – or outright eliminates – your liabilities. For businesses burdened by factoring agreements, debt relief could mean:

  • Restructuring – Modifying the agreement terms to extend the repayment period or reduce fees
  • Settlement – Negotiating a lump-sum payoff for a portion of the total debt owed
  • Bankruptcy – As an absolute last resort, declaring bankruptcy to discharge certain debts

Each approach has pros and cons, risks and requirements. There’s no one-size-fits-all solution – your best option depends entirely on your unique financial situation.

How Does Debt Relief Work for Factoring Agreements?

With cash advance factoring debt, you essentially sold future revenues to the funder at a steep discount – handing over incoming cash flows as “repayment”. These agreements lack transparency around fee structures, and saddle businesses with usurious terms like:

  • Confessions of Judgment – allowing the funder to freeze assets without notice
  • Personal Guarantees – putting your personal assets in jeopardy
  • High Weekly Payments – up to 30% of total revenues in some cases
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Even minor revenue dips make these inflexible payment schedules unsustainable. Businesses default, incurring even more punishing fees and endangering their very survival.

So, what can actually be done? While debt relief won’t make the factoring agreement disappear completely, it creates an opportunity to renegotiate unconscionable terms on more reasonable grounds.

Option 1: Restructure the Agreement

Through negotiation – spearheaded by an experienced debt relief firm – your factoring agreement may be restructured to:

  • Reduce weekly payment amounts by extending the term
  • Consolidate multiple MCAs into a single, more manageable obligation
  • Remove or limit personal guarantees, confessions of judgment

While you’ll likely still need to pay back some principal, restructuring reduces the financial chokehold and penalties. It gives your business a fighting chance at recovery.

Option 2: Settle for a Discounted Payoff

Ever hear the phrase “a dollar today is worth more than a dollar tomorrow”? Well, factoring funders may be willing to accept a one-time, lump-sum payment for a portion of your total debt as a settlement. Why? Because getting some money now is preferable to potentially never recovering the full amount.

Debt settlement brings finality. It allows you to walk away from those soul-crushing weekly payments, in exchange for an amount you can reasonably pay. For funders burned by too many deadbeats, collecting say 40-50 cents on the dollar could be a win.

Of course, nothing’s free – settled debts may still impact your credit and could potentially trigger a tax liability. But for many businesses, it’s a small price to pay for solvency and a fresh start.

Option 3: Declare Bankruptcy

When all else fails: there’s bankruptcy, a legal proceeding to have certain debts discharged. For businesses, it typically means either reorganizing under Chapter 11, or liquidating under Chapter 7.

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While bankruptcy allows you to (mostly) wipe the slate clean, it’s an absolute last resort with major consequences:

  • Severely damaged credit and reputation
  • Potential loss of assets
  • Costly legal fees

Additionally, not all factoring debt is dischargeable – and bankruptcy filings don’t remove personal guarantees from merchant cash advance agreements. If your business is insolvent with no assets and minimal revenues, bankruptcy could make sense. But for still-operating entities, it’s better explored as an option of last resort.

How to Pursue Debt Relief for Factoring Agreements

The process begins with analyzing your financial standing, factoring agreement terms, goals – and realistically weighing your options. From there, you can pursue negotiations directly with funders, or hire professional debt relief counsel to advocate on your behalf.

Why hire a debt relief firm? Because they’re experts in these types of negotiations. They analyze merchantcash agreements with a fine-toothed comb – spotting any potential violations – and apply potent negotiation tactics funders respond to.

Without skilled representation, you’ll likely get steamrolled by these aggressive creditors and their legalese-laden contracts.

Next Steps: Take Control

Factoring agreements and merchant cash advances were supposed to provide your business with financial flexibility – but instead, they’ve become albatrosses around your neck. You can regain control of your company’s future, but you’ll need to proactively explore debt relief strategies.

It all starts with understanding your specific situation, assessing all possible avenues for relief, and pursuing the one best suited to put those crippling factoring debts behind you for good.

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Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

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