Quick Summary
If your MCA payments are straining your business’s cash flow, you may be able to negotiate revised terms to relieve some of the financial burden. This guide covers when to request restructuring, your various restructuring options, and when to consider hiring an attorney.
When Should You Request a Revised MCA Payment Plan?
Recognizing the early warning signs that you’re struggling with your merchant cash advance (MCA) is critical to protect your business and personal finances. Here are some signs that you may need to consider restructuring your MCA:
- Daily or weekly debits consume too much of your revenue. If your MCA payments take up too large a portion of your daily revenue, you may not have enough left over for essential expenses, and restructuring may be necessary.
- You’re forced to choose between MCA payments and essential operating expenses. When your business is under this much pressure, restructuring may be necessary.
- You have multiple MCAs stacked and compounding pressure. Multiple MCAs can quickly become unmanageable and unsustainable, especially if and when business dips.
- Seasonal dips create temporary but severe cash flow problems. Seasonal cash flow fluctuations are normal, but when combined with strict MCA payments, they can cause financial problems for your business.
The key is to take action before you start missing any MCA payments. Once you’re in default, it becomes much more difficult to negotiate a more favorable payment plan, and your provider may decide to take legal action instead.
What Are Your Options for Restructuring MCA Payments?
MCA restructuring can take several different forms. Your options will depend on your MCA provider and your business’s financial situation. Here are some options to consider:
- Lowering daily or weekly payment amounts. This can help free up cash flow in your budget for other essential expenses, relieving some of the financial pressure.
- Extended the term to reduce per-payment pressure. Just like lowering your daily or weekly payments, extending your payment term lowers your immediate expenses and helps ease the pressure on your business’s budget.
- Temporary payment reductions or deferments. Even if you can’t permanently lower your payments, your provider may agree to temporarily reduce your payments, or even defer them for a certain period.
- Partial settlements or buyouts. In some cases, especially when default seems inevitable, your MCA company may accept a partial settlement that’s less than your full balance.
- Consolidating multiple MCAs. If you’ve stacked multiple MCAs, you may be able to consolidate them into one more manageable payment, either through the same funder or a different one.
- Refinancing your MCA. If your existing MCA is unaffordable, refinancing can help you land better terms that make repayment easier.
How Do You Approach Your MCA Provider About Restructuring?
Approaching your MCA provider in the right way can significantly impact your chances of success. If you’re pursuing MCA restructuring, here are some steps to follow:
- Identify the right contact: Don’t simply reach out to the firm’s generic email address. Find contact information for an account manager or another person or team responsible for payments and who has the authority to approve modifications.
- Time your request strategically: In a perfect world, you’ll request to restructure your MCA once you know a problem is on the horizon, but before you’ve actually missed any payments. You may lose some of your bargaining power once you’ve defaulted.
- Frame your situation honestly: Clearly state the hardship you’re facing, whether it’s a seasonal downturn, unexpected expense, or something else. Lead with a commitment to repay your MCA, as well as a specific solution.
- Anticipate objections: There’s a good chance you’ll face pushback when you initially request your restructuring. The company may cite your contract terms, precedent concerns, or simply give you a hard time. Consider in advance how you’ll address these objections.
What Should You Include in a Written Restructuring Request?
A well-written restructuring or reconciliation request can make or break your success. Here are some components you should include for the best chances of approval:
- Include clear account information. Include your business name, account or advance number, and your current payment terms.
- State the cause of your financial hardship. Whether it’s due to a dip in revenue, an unexpected financial emergency, or something else, be brief but factual.
- Propose a specific revised payment structure. For example, rather than suggesting “lower payments,” propose a specific number or percentage.
- Express your commitment to the relationship and full repayment. You’re stating that repayment is a challenge, so your MCA will want assurance that you can commit to the new arrangement.
- Demonstrate your ability to meet the revised terms. You can ease your MCA’s concerns by providing bank statements, revenue projections, and other relevant information. However, that could work against you.
What Legal Risks Should You Understand Before Negotiating?
If you’re struggling to make your MCA payments, it’s important to understand what could go wrong. Your MCA company has several options if you default on your MCA. You risk facing these if you fall behind on your payments:
- Confession of judgment clauses: Many MCA contracts include a confession of judgment (COJ) clause, which allows the MCA to get a default judgment against you without going through the traditional court process. You could end up having your accounts frozen from a judgment you did not know about to recover their money.
- Personal guarantee exposure: If your MCA included a personal guarantee, your personal assets could be at risk of seizure if you fall behind on your MCA payments. You’ll be personally responsible for paying for whatever your business can’t.
- Default and acceleration provisions: Some MCA agreements include acceleration clauses, which require you to repay the full balance immediately as soon as you miss a single payment.
Given the high risks of defaulting on an MCA, it can often be helpful to consult an experienced business debt attorney early on, before you’ve ever missed a payment. Having an attorney by your side can strengthen your position in any negotiations and protect your rights during any collection efforts.
What If Your MCA Provider Refuses to Negotiate?
Unfortunately, there’s no guarantee that your MCA restructure request will be approved. Funders aren’t required to restructure your repayment unless there’s a specific provision in your contract that says they are (a reconciliation clause, for example), although some States now require this be part of the agreements.
If the first person you speak with refuses your restructuring request, consider escalating the conversation by speaking to someone with more authority, or placing a more formal request, or hiring an advocate for you and your business with an MCA attorney who can provide legal representation and assist you in the process.
If you can’t reach an agreement about your payments, it’s important to come up with another plan quickly. If you fall behind on your payments, your MCA may enforce a confession of judgment, file a UCC lien notice, contact your clients, and/or file a lawsuit against you, which could get costly for you.
If your MCA provider initially refuses to negotiate, you may have more leverage if you approach them again with legal representation. Attorneys often have an easier time getting responses than business owners representing themselves, especially those well-versed in MCA debt resolution. The added cost may be well worth it if it allows you to lower your payments and free up cash flow in your business.
Protect Your Business: Know When to Get Legal Help
Negotiating with MCA companies is possible, and many business owners are able to successfully restructure their payments to make them more affordable. However, the stakes are often high. If your MCA funder refuses to restructure your MCA, you could face harmful financial consequences if you fall behind on your payments.
If you’re struggling to repay your MCA, it’s important to use the tools available to you, including an MCA attorney who can help you negotiate with your MCA funder or their collection agency and, if necessary, represent you in court if the negotiations don’t go as planned if you end up in Court.
Tayne Law Group focuses on helping business owners with MCA resolution and other MCA debt relief strategies. We have more than twenty years of experience with MCA contracts, meaning we know their typical provisions, understand the tactics MCA providers use, and how to negotiate for the best outcome to preserve your business’s assets and cash flow.
To learn if Tayne Law Group can help with your situation, contact us today by calling (866) 890-7337 or filling out our short contact form to set up a no-obligation phone consultation. We never share or sell your information, and all conversations are confidential.
FAQ
Can I request a revised payment plan if I’m already behind on payments?
It’s possible to request a revised payment plan if you’re already behind on your MCA payments. However, your leverage decreases once you’re in default, so the funder may be less likely to negotiate. If you’re already behind on your payments, involving an attorney can help protect you from aggressive collection while you negotiate.
Will restructuring my MCA hurt my ability to get future funding?
Restructuring your MCA might affect your standing with that specific provider, but it shouldn’t negatively affect your ability to get funding in the future, especially from other companies. In fact, restructuring your debt is better for your business than defaulting, and the right restructuring could leave your business even better off financially.
How long does the restructuring process typically take?
The restructuring process varies widely, but it can take anywhere from days to weeks (or longer). Having complete documentation ready and a clear proposal can speed up the process.
Should I hire an attorney to help with MCA restructuring?
Hiring an MCA attorney can help improve your outcomes when restructuring your debt. An attorney may be especially important if your MCA agreement includes a confession of judgment, personal guarantee, or if the funder is threatening legal action. Not only can a lawyer help you negotiate your restructuring, but they can also help you navigate the legal process if your creditor does sue you.
