Merchant cash advances (MCAs) are a financing option that many small businesses choose. Because MCAs can offer a great deal of capital in a short time, many small businesses use them to get through hard times.
But, it's easy for a merchant cash advance to turn sour (it's what we call the Merchant Cash Advance Trap).
In the event that your business has taken a merchant cash advance that you're unable to repay, know that you do have options. Here are 5 ways you can get out of a merchant cash advance that's dragging your business down.
1. Lower the Repayment Amount of your Merchant Cash Advance
If you feel you might start falling behind on payments, your first step should always be to ask if they will lower the payment amount of your merchant cash advance. These loans, or advances, often require significant daily payments that can be difficult for any business to keep up with. Fortunately, MCA contracts contain a clause granting you the right to a lower payment, through a process called reconciliation.
If the lender refuses to lower it to a reasonable amount, flat out denies your right to a reconciliation, or you're simply worried about approaching the lender to ask for an extension. It's worth it to talk to a merchant cash advance attorney. They can give you personalized legal advice regarding your exact circumstances, and can even help you renegotiate those terms.
Because an experienced merchant cash advance attorney is very familiar with local laws, lending laws, and your rights, they can help ensure that the new terms are reasonable, affordable for your business, and legal.
2. Replace your MCA with a Term Loan
Merchant cash advances are notoriously high-rate. Some small businesses find that by the time they pay off that advance, they'll have paid the creditor double, triple, or even more than the original sum they were lent.
Not only is this unsustainable, it can cripple your small business' cash flow. A term loan can give you more favorable terms than the merchant cash advance, with monthly payments, an extended repayment period, and lower interest rates. Unfortunately, term loans do have fairly high requirements. Your business likely needs to have a great credit score and be able to prove decent profitability over the past few years.
A term loan is a much better option than an MCA for most small businesses. Note that there are a few different kinds of term loans. It's a good idea to consult with a merchant cash advance attorney who can help you get a loan with terms that are suited to your business needs.
3. Consider an Asset-Backed Loan
For small businesses who may not have the credit or the time to wait for a term loan, an asset-backed loan is another option. While an asset-backed loan won't get your small business out of debt, it could offer more favorable terms than the MCA.
In an asset-backed loan, you're borrowing from the lender with an asset — a piece of equipment, property, or any other business asset — as collateral.
Since the lender has the right to collect that asset in the event of default, it's a less risky loan for them, which means they can often provide more favorable terms.
With a longer repayment term and lower interest rates, an asset-backed loan could provide the relief you need from daily MCA payments. Remember to keep in mind that whatever asset you use as collateral is at risk if you default on a loan.
4. File for Bankruptcy Protection
While it's not the first choice for any business, filing for bankruptcy protection may be the best choice if you just can't get out from under your merchant cash advances.
The different types of bankruptcy filings offer different outcomes for a small business, from liquidation to salvation. Thus, it's important to consult with a competent business bankruptcy attorney to understand the differences before you make this decision. Depending on your business' situation, you may be able to wipe away much of your debt, while protecting your assets from seizure, and retain control of your business.
5. Contact a Qualified, Experienced Merchant Cash Advance Attorney
While merchant cash advances provide quick cash infusions, many MCA creditors use unfavorable practices that can harm small businesses. From harassing you to collect on debt to freezing your account without notice, merchant cash advance creditors have a bad reputation.
If you're having trouble with a creditor or are afraid you may not be able to meet your MCA terms, it's always best to contact an experienced merchant cash advance attorney as soon as possible.
A merchant cash advance attorney can provide a wealth of resources and support as they work to help get out of that merchant cash advance. Just a few of their services include:
- Evaluating your circumstances, and providing a debt relief plan
- Representing you in any legal proceedings regarding a merchant cash advance settlement
- Protecting your rights as they negotiate with MCA creditors
- Helping you choose the best option to get out of your MCA safely
With a qualified, experienced merchant cash advance attorney on your team, you can get the help you need to get out of that MCA as quickly and with as few repercussions as possible. Not sure where to turn to get out of your merchant cash advance? Get in touch with the experienced attorneys at The Lane Law Firm. Our merchant cash advance attorneys can help you stop creditor harassment and build a debt relief strategy that's manageable for you and your business.
