Merchant cash advances, often called MCAs for short, can be a tempting offer for struggling small business owners. You don’t need excellent credit, and you can usually get funding fast.
But they’re rarely a good idea for your business. MCAs can be an extremely expensive financing option, with some charging triple-digit interest rates. If your business is financially strong, but you need some short-term cash flow to cover a minor shortfall, a merchant cash advance can do that. But if you’re looking for a way to save your struggling business, likely, an MCA will only make things worse.
So if you’re wondering how to get out of a merchant cash advance, here are some steps you can take.
1. Renegotiate with MCA funder
The first step should always be to reach out to your MCA provider. They may be willing to negotiate terms to ensure they receive repayment. You may be able to extend the term, reduce the daily repayment amount, or make some other adjustment that helps make payments more manageable so you can pay off the advance for good.
However, success can vary depending on several factors, including the lender’s policies, your business’s financial health, and your negotiation skills. It’s usually a good idea to consult with a reputable debt help lawyer who is experienced in dealing with MCA matters to negotiate on your behalf.
2. Consolidate the Debt With a Term Loan
If your credit is in good shape, consider applying for a debt consolidation term loan and use the proceeds to pay off your merchant cash advance loan. You can use this loan to restructure or refinance your MCA debt. If you’re in MCA default, the sooner you can repay what you owe, the less of an impact it’ll have on your business and possibly even your personal credit history.
In most cases, you likely don’t have time to wait on a traditional bank loan, which can take weeks to receive. The good news is that many online business lenders offer relatively inexpensive options that provide faster funding times.
Even if your credit is less than stellar, getting a high-interest term loan may still save you money over a triple-digit APR merchant cash advance.
Depending on your loan, you may have less than a year or several years to repay the debt. Pick your repayment term based on your ability to pay. Keep in mind, though, that replacing an MCA with new business debt may not fix all of your problems, but it can help make them less damaging.
3. Apply for a Secured Loan
If you have any major assets that you can use as collateral to get a loan, such as real estate, heavy machinery, vehicles, or other equipment, consider using them to get a secured loan.
Secured business loans function the same as regular term loans. Still, they often come with lower interest rates because the lender has the surety that if you can’t repay what you owe, they can seize the collateral to recoup their money.
If your business finances are in bad shape, though, you may want to reconsider. Otherwise, losing that asset may be a significant likelihood.
Also, avoid using your personal assets as collateral because losing those could have an even larger negative impact on your financial situation.
4. Settle the Debt
If you have an MCA loan default, you may have already started receiving phone calls trying to collect. These phone calls can often feel like harassment, and you may even receive threats, despite federal law prohibiting that kind of behavior from debt collectors.
In some cases, creditors may choose to file a lawsuit and try to get a judge to force collection through garnishments and bank account freezes.
Many MCA providers’ contracts include a confession of judgment, which disallows you from defending yourself if they take you to court.
Before you agree to pay or respond to a lawsuit, think about trying to settle the debt. Debt settlement involves negotiating to pay less than what you owe. In many cases, debt collectors are willing to do this because the collection process can be expensive, especially if they resort to suing you.
Also, debt collectors typically purchase debts for pennies on the dollar, so even if they settle, they’ll likely still make a profit.
You can technically try to negotiate a settlement on your own, but you may be at a significant disadvantage. After all, this is what debt collectors do for a living, so they’ve mastered the settlement process.
Instead of doing it yourself, consider hiring a debt attorney to help you with this process. Not only can they help you respond with your best interests in mind, but they can also inform you of your rights and help you protect them.
5. File for Bankruptcy
If your financial situation is so dire that no other options work, you may consider filing bankruptcy to have the debt discharged.
The bankruptcy process can be tricky, so it’s best to hire an attorney to help you through the process and really explore if bankruptcy is the right option for your situation.
6. Explore MCA alternatives
Sometimes, replacing an MCA with another type of financing, can offer more manageable repayment terms and lower costs. Some examples of MCA alternatives to explore include invoice factoring, business lines of credit, or even SBA loans.
7. Try to increase business profits
Increasing your business profits is another strategy that can help you accelerate the repayment of your MCA. For example, you could consider concentrating your sales efforts on items or services with the highest profit margins, and redirecting resources from lower-margin areas. Or if market conditions allow for it, consider raising your prices.
8. Make operational adjustments
Implementing strategies to improve business efficiency can increase your cash flow, giving you more flexibility to manage and eventually pay off your MCA. Some ideas include:
- Optimize inventory management: Reduce excess stock to minimize holding costs and increase cash flow.
- Automate processes: Implement technology solutions to streamline operations, reduce errors, and cut down on labor costs.
- Negotiate with suppliers: Seek better terms or discounts for bulk purchases to reduce cost of goods sold.
9. Consult an MCA Attorney
If you suspect your MCA agreement has predatory terms or if you’re facing unfair practices, an experienced MCA attorney can offer advice and potential strategies for challenging the agreement.
Additionally, if your business is facing financial difficulties and you’re struggling to keep up with MCA payments, an attorney can help negotiate with the lender. They may be able to renegotiate the terms, secure a forbearance, or find other ways to alleviate the financial pressure.
If you’re in default or close to it, an attorney can help you understand your rights and options. They can negotiate on your behalf to avoid or manage seizure of assets, lawsuits, or other actions the MCA provider might take.
10. Liquidate Assets
Finally, selling non-critical business assets can provide a quick influx of cash to settle your MCA debt. While not ideal, it’s a straightforward way to alleviate financial pressure without taking on new debt.
Which Direction Should I Take to Get Rid of My Merchant Cash Advance?
The process for how to get out of a merchant cash advance isn’t cut-and-dry — there’s no single solution that works for everyone. As such, it’s essential to research each option and consider its benefits and drawbacks. Then you’ll want to think about your financial situation and determine which would be the best approach from that perspective.
Applying for a term loan or a secured loan, for instance, works best if you have the cash flow you’d need to make those monthly payments. If you don’t, you may still have some of the same problems you have now.
Debt settlement is a solid choice for someone who doesn’t have great credit and can’t make large monthly payments. But you’ll need income, so you can accumulate enough cash that you can negotiate with.
Finally, as with a personal debt situation, bankruptcy should only be considered as a last resort. Otherwise, you could end up wrecking your credit score without needing to.
Take your time to consider each option carefully. Also, consider consulting with a debt attorney who can give you expert advice that works for you. Tayne Law Group offers free consultations, so you don’t have to worry about a cost barrier.
The Bottom Line
Merchant cash advances can be costly, almost to the point of predatory. While they can be appealing if you need cash fast, they may do more harm than good.
If you’re a small business owner struggling to make your payments on your MCA, have already entered merchant cash advance default, or simply want a more affordable option, there are ways to achieve your goal.
Avoid pulling the trigger on anything, though, until you’ve had the time to research and compare all of your potential paths. And don’t forget that you can get a free consultation with Tayne Law Group, where we have decades of experience dealing with debt relief and debt collectors. Call 866-890-7337 to get started.
