In the US alone, 70% of small businesses have outstanding debt. It can be tempting to take short-term options to make ends meet. However, when you get stuck with high-interest loans, how do you escape from them? How do you use debt consolidation?
One method many get caught in is the merchant cash advance. If you are trying to get out of one, read on as we discuss how to use debt consolidation to relieve your financial burden.
What Is a Merchant Cash Advance?
Merchant cash advances are small business loans that allow you to access fast cash. They often need very little positive credit history. In fact, they offer a number of short-term advantages.
An MCA often works through your credit and debit card system. You take a loan, and that is repaid through future percentage sales of your debit and credit card payments. Each time a transaction takes place, a small sum is taken to pay back the loan.
However, the term MCA has now come to describe a number of short-term loan scenarios. They are characterized by being small business loans, paid back in short terms, and with frequent payments.
1. Debt Consolidation With a Term Loan
There are many online business lenders that can offer great term loans. They often arrive much quicker than traditional bank loans, which may take weeks. You can use one of these loans to pay off the merchant cash advance and pay this back instead.
Even with bad credit, term loans with high interest may be a better option than a merchant cash advance. Simply choose the payment amounts and loan terms carefully based on what you can afford to pay. If you are in MCA default, the quicker you pay back the better it will be for your business.
2. Apply for a Secured Loan
Lenders of secured loans may be able to get you much better rates. This is because your assets, such as business equipment, property, or vehicles, are put up for collateral. However, applying for a secured loan does need careful consideration.
This is because if you do not repay, this collateral may be taken. If you are unsure of your financial future, having equipment removed may cease your operations entirely. You should also avoid using any personal assets as security.
3. Leverage Factoring
Factoring will work if you have clients who owe money on goods or services. Organizations that deal in factoring will buy the accounts receivable from you for a lump sum. They will then pursue the debt, and you will be left with the cash.
You can then use this money to consolidate your debt from the merchant cash advance. The only problem is that you are taking from your future incoming cash flow so adjust accordingly.
4. Request a Forbearance
A forbearance is when you get a reprieve from merchant cash advance companies for a designated time period. You can use it to catch up on payments for the debt. You may be able to get one by calling the lender and telling them of your situation.
Even if they don’t agree, they may be willing to modify the terms. This could be by lowering the monthly payments and spreading them out over a longer period of time. If you have a reconciliation clause in the original contract, then this is something they must at least take the time to consider by looking at past accounts.
Many lenders will refuse to modify the terms. However, if you are in grave financial trouble, some may be more willing. If you go bankrupt, then they will not get anything at all and they may take this into consideration.
5. Increase Business Profits
It may seem obvious, but when debt looms it can be easy to simply concentrate on paying it off and keeping it at bay, than doing the obvious task of making more money. If your business is already struggling you may have tried everything. However, if you took the MCA for quick cash and the business is sound, you have a number of options.
Look at your pricing to begin. Raising it is an obvious solution, but more ingenious is to bring in premium pricing for optional extras. This may be for speedier services or additional items that can all bump up your profit.
Look at your overall budget and see where else you can save money. You may be able to cut back or reallocate staff to roles that bring in more cash flow. Perhaps you can get cheaper supplies or reduce your utility consumption.
6. Settle the Debt
Finally, you can consider settling the debt. This will often involve a negotiation with debt collectors about paying less than you owe. Many debt collectors will be happy to take this route, as taking you to court and pursuing the money can be very expensive.
If this seems like a daunting task to undertake yourself, you can contact a debt attorney. They will also know your rights and how you can protect them if you are being threatened with legal action.
Debt Consolidation
Now you know about debt consolidation and MCA debt relief, start a plan. Any money you can pay off will help. Dig into savings or loans from family members and make getting rid of this high-interest loan your top priority.
Hasanov Capital should be your first stop for debt consolidation. We work on financing the future with business loans and real estate lending. Click here to start your application and manage your debt starting today.
