If you’ve taken out a merchant cash advance (MCA) that you’re unable to repay, you’re at risk of your lender taking legal action against you. Debt settlement may be an option to help reduce your monthly payments, eliminate costly fees, or negotiate to pay a lower amount.
If you’re considering business debt settlement, it’s important to understand how it works, the pros and cons, and what costs you might incur.
Understanding MCA Settlements
Debt settlement is a process that can be used for merchant cash advances and any other type of business or personal debt. The goal is to negotiate with your creditor to pay less than you owe. MCA provideres may be open to settlements when they don’t feel they’ll otherwise be able to recover the debt or they don’t want to incur the legal costs of taking you to court but are often difficult to negotiate with.
In the case of MCAs, debt settlement can come in several different forms. You may be able to negotiate a lower repayment amount, which you’ll pay in one lump-sum payment. You could also negotiate a series of installment payments to make the repayment more manageable for you. Finally, you could negotiate a lower factor rate — a flat fee that essentially serves as the interest rate — or lower fees.
The very nature of these debt instruments can make them difficult to repay, and when you fall behind on your MCA payments, it’s difficult to catch up. In fact, MCAs bring with them a whole host of other legal issues. For that reason, these debts require a different type of settlement approach than you might use for traditional debt tools.
Pros and Cons of MCA Settlements
Advantages of MCA Settlements
- Could reduce your debt burden: The key benefit of using debt settlement for an MCA is that it could ultimately reduce your debt burden and free up cash flow in your business. Depending on how much you owe and the success of your settlement, you could significantly reduce what you owe.
- Can reduce or eliminate costly fees: In addition to reducing your debt burden, debt settlement can reduce — or eliminate altogether — certain MCA fees. You may also be able to lower your factor rate, which makes your debt more affordable.
- May simplify your repayment: MCAs have complex repayment terms, but many small business owners don’t understand. You may be able to negotiate a simpler repayment plan or lower monthly payments until your debt is repaid.
- Avoid going to court: If you’re able to settle your MCA debt, you may avoid a costly lawsuit and having to go to court to defend yourself and your business from an MCA lawsuit. You’ll also save yourself the time and effort that a trial would demand.
Potential Drawbacks of MCA Settlements
- No guarantee of success: There’s no guarantee of success with MCA debt settlement, and your MCA provider could simply refuse to negotiate. Success is particularly challenging with MCAs, given their unique nature, and MCA default comes with other potential risks.
- Could negatively impact credit: You could face a significant negative impact on your business credit score while you’re negotiating your MCA debt settlement. And with no guarantee of success, it’s possible to damage your credit worthiness without a successful settlement.
- Comes at a cost: Debt settlement isn’t free unless you’re doing it entirely yourself (which isn’t necessarily the best idea especially with MCA matters). Whether you’re working with a debt settlement company or hiring a merchant cash advance attorney, it will come with a cost.
- Potential for scams: Unfortunately, there are many scams in the debt settlement industry and in the MCA. If you’re considering an MCA settlement, it’s important to choose a trusted and reputable professional like an attorney to represent you and be aware of red flags like definitive promises for settlement amounts and time frames.
How to Negotiate a Favorable MCA Settlement
If you’re considering an MCA settlement for your business, here’s a step-by-step guide to help you get started:
- Decide if settlement is the right choice for you: Before committing to debt settlement, research your options and seek legal advice to make sure it’s the best option for you and your business’s debt situation.
- Hire an experienced MCA debt settlement attorney: While it’s possible to handle your merchant cash advance debt consolidation alone, your best option is to work with an experienced debt relief attorney who has a proven track record of results in the MCA world and not someone who is not familiar with the MCA laws where you could be sued.
- Gather your documents: To successfully navigate your negotiations, you’ll need all the information about your MCA, including any documents you’ve signed or received from the company. This is an important first step before you can proceed with negotiations.
- Decide on your ideal outcome: Before going into your negotiations, it’s helpful to have an ideal outcome in mind. Would you like to pay one lump sum, or would monthly payments work better? How much do you think you’re able to pay?
- Proceed with negotiations: The final step is the negotiations themselves. If you’ve hired an MCA debt settlement attorney, you won’t have to do much here — your attorney will handle all of the negotiations on your behalf and for your business.
- Prepare for any outcome: Obviously, the ideal outcome is a successful settlement, but it’s also important to be prepared for things to go differently. Consider your next best option in case the negotiations and settlement are unsuccessful especially if you tried on your own and failed to come to a reasonable agreement.
Challenges of Negotiating MCA matters Yourself
While it’s possible to handle your own MCA settlement, it’s usually not advisable since it is a very specific contract and requires a legal expert to decipher and restructure.
When you work with a professional, especially a lawyer, they’re able to bring years of experience to the table that you likely don’t have of the ins and out of the MCA world. With this expertise and experience comes a higher chance of a successful negotiation. If a successful settlement is your top priority, working with a legal debt professional is the best option.
Additionally, debt settlement can be a time-consuming and stressful process. Even if it costs a bit more, working with a professional will save you hours of effort, as well as all the stress that comes with representing yourself.
MCA Settlement Alternatives
Debt settlement isn’t right for every business or situation. If you’re having trouble repaying your MCA and are concerned about legal repercussions, you may want to consider some alternatives to settling your debt. Some of the best settlement alternatives include reconciliation and consolidation.
Reconciliation is a specific clause in your MCA agreement that allows you to lower or restructure your MCA terms if your revenue declines and you’re unable to make your payments as promised. It’s often a good option because it’s already laid out in your contract with the MCA.
Consolidation, on the other hand, requires taking out a new loan — ideally just a simple installment loan — to pay off your full MCA balance. While you’ll still have to pay back the full amount, you’ll get simpler repayment terms, fixed monthly payments, and perhaps lower interest.
Cost and Fees Associated with MCA Settlements
Debt settlement can help reduce your debt burden, but it comes at a cost. First, if you decide to work with a debt settlement professional, whether it’s an attorney or a debt settlement company, you’ll have to pay some fees. The amount you’ll pay depends on the type of professional you hire and your unique MCA situation.
Additionally, MCA settlement could result in other costs. While you’re planning and negotiating with your creditor, you may be accumulating more late fees and other charges on your MCA. Depending on whether the settlement is successful, you could end up having to pay back these fees later on, increasing your debt burden even more.
Next Steps in Your MCA Settlement
If your MCA debt burden has become unmanageable, consider working with a legal debt professional who can guide you through the process. An MCA debt relief attorney has experience working with MCA companies and can represent you in your negotiations and legal disputes and provide you appropriate business and legal advice.
Tayne Law has decades of experience helping business owners resolve their business debts. If you need help with your MCA or other business debt, schedule your free phone consultation by calling (866) 890-7337 or filling out our short contact form. We’ll respond as soon as possible. All conversations are confidential, and we never share or sell your information.
