How to Restructure Merchant Cash Advance Debt

merchant cash advance restructure

A merchant cash advance might seem like an easy way to get fast financing for your business. But if you aren’t careful, it could turn into a headache. Or worse. If it’s becoming too difficult to keep up with MCA payments on top of all your other bills, a merchant cash advance restructure might be needed.

What Happens If You Don’t Pay Your MCA?

In an ideal world, you’d pay off your MCA debt quickly and easily. Unfortunately, things don’t always go according to plan. As a small business, your cash flow may be unpredictable and MCA payments could put extra strain on your finances. Business owners can get trapped in a cycle of debt and struggle to stay in the black with an MCA. 

Missing MCA payments puts you in default. And defaulting on an MCA is usually considered a breach of contract, which can result in a lawsuit. This can put both your business and your personal assets at risk, depending on the contract you signed. A merchant cash advance restructure can help business owners avoid facing loan default.

Personal Guarantees

For example, you may have signed a personal guarantee when you took out your MCA. This means that if your business is unable to repay the MCA, you are personally responsible for doing so. You could be sued; if you can’t come up with the cash, your bank accounts could be frozen or property could be seized by the MCA provider to satisfy the debt. 

Confessions of Judgment

Some MCA contracts come with a Confession of Judgment (COJ) clause. This means that if you breach your contract, the MCA provider can obtain a legal judgment against you without first notifying you. Essentially, it waives your right to defend yourself in court. Some states now prohibit COJs and different MCA agreements have different jurisdictions about where in what state they can sue. 

UCC Liens

If there is a UCC lien in place, the MCA company may start contacting your customers and vendors demanding that they pay them directly instead of you. It’s an embarrassing situation that could end up harming your reputation (and your business credit score).

That’s why if you’re struggling with MCA payments, it’s important to act quickly. An attorney can advise you on potential solutions and the legal ramifications for you and your business. That might mean restructuring your MCA.

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Merchant Cash Advance Restructure Options

There are a few ways to go about a merchant cash advance restructure. 

MCA Reconciliation

Many merchant cash advance agreements come with a mandatory provision known as a reconciliation clause. This essentially says that if your revenue declines and your business is challenged or going to fail due to unmanageable MCA payments, the provider needs to offer to restructure the advance so you can meet its terms for payments

In order to be eligible for MCA reconciliation, often you will have to notify your MCA provider right away and provide documentation of your decline in receivables. The MCA provider should then work with you to lower the payment until your revenue meets its original target. 

If the MCA company refuses to reconcile your advance, they may be the ones in breach of contract and the MCA may be considered usurous (which is illegal). If you think you’re in the position to reconcile your MCA but the provider is uncooperative, you may need to work with a lawyer to get things straightened out and enforce the agreement on your behalf.

MCA Consolidation

Another option you may have is to consolidate your MCA debt. This works like any other debt consolidation. You take out a lower-interest installment loan to pay off one or more existing, high-interest debts, such as an MCA. Then you focus on repayment of the new loan, which has a single, fixed monthly payment.

While this works in theory, one challenge you may face is the credit requirements. To get approved for a loan with a favorable interest rate, you need to have good credit. However, if you’ve already missed payments or had an MCA go to collections, your credit score has probably been damaged. If so, this may not be the best option for you.

Merchant Cash Advance Settlement

Finally, you can attempt to settle your merchant cash advance debt. This process involves negotiating with the MCA provider to pay less than what you owe. But be aware there are many dangers in doing this on your own.

Why would MCA funders agree to a settlement? In some cases, it may be apparent that you cannot pay back your advance according to the terms. Rather than having to take you to court — which is expensive and time-consuming for both parties — they would often prefer to get a chunk of that money back right away and move on.

Can you negotiate a debt settlement on your own?

Negotiating a debt settlement is not easy. It requires strong negotiation skills and diligence, plus a good understanding of the legalities in the agreement you are signing. Many people find that the process is too stressful, overwhelming, intimidating, and/or time-consuming. Which is why it can help to hire a business debt relief lawyer who already has the skills and team needed to secure the best deal for you and help you avoid the pitfalls of signing agreements that make matters worse for you and your business. 

There are many debt settlement companies out there that promise to settle for pennies on the dollar, but require large upfront fees and may not actually do anything on your behalf. Many will even solicit you directly with all kinds of promises of resolving your matters. Be aware of anyone making promises or guarantees, as that is a red flag. Meanwhile, you may end up in a worse position than before, without any way to get out of judgments or liens that can close down your business. 

An experienced business debt attorney, on the other hand, is ethically bound to act in your best interest. They often have relationships with creditors’ legal teams and know what it takes to successfully land a settlement and resolve any legal issues. 

If you’re struggling to keep up on your MCA payments, it’s important to do something about it ASAP. An experienced business debt relief lawyer can help you determine the best course of action and strategy to free up cash flow and manage your business debt more efficiently. That might mean restructuring your MCA, settling the debt. Or it could be some other solution that you might not have thought of before speaking with an experienced legal expert.

A financial attorney can also help if you’re being sued or already have a judgment against you. They can represent you in court and ensure your rights haven’t been violated, which can happen with aggressive MCA collectors. If your MCA agreement includes a personal guarantee or Confession of Judgment, it’s important to seek the advice of an attorney right away. Do not wait until there is judgment or frozen accounts. 

Tayne Law has been helping clients resolve their business debts for more than two decades. We know the ins and outs of MCAs and their complicated contracts. We can help you deal with MCA debt in a way that fits your budget and allows your business to continue operating. So give us a call at (866) 890-7337 for a free, no-obligation phone consultation with a team member. Or fill out our short contact form. All conversations are confidential and we never share or sell your information.

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