Did you know the cash advance industry generates up to $10 billion as revenue every year? Merchant cash advances, which give businesses quick funding, largely contribute to this revenue. With an MCA, a lender will be taking part in your credit card sales until you pay off the debt.
MCAs boast flexible repayment terms and don’t require any collateral or strong credit. You can get approved in minutes and decide how to spend the money.
However, MCAs are very expensive and can’t help you build business credit. The minimum daily payments can hurt your cash flow and harm your operations.
It’s possible to get out of a merchant cash advance even when you’re in default. Here are seven strategies to employ when managing this type of debt:
1. Make a Lump Sum Payment
Your savings or loan gotten from a friend/relative can help you pay off the advance. You may also rely on venture capital or sell your inactive assets to get out of debt.
Ensure that your source of funding doesn’t come with high-interest rates. It should also help improve your credit rating and boost your cash flow.
Though the loan or funding will leave you with monthly payments, it will have little impact on your sales. You should also not expect to get approved or funded for the cash faster like an MCA. That’s because the lending provider may have different terms for their service.
2. Renegotiate the Advance
Since merchant cash advances aren’t loans, you can renegotiate the terms. The negotiations can help you avoid facing a lawsuit for defaulted payments. Approach your lender and ask them whether they’re willing to reduce the monthly payments.
Always consider the MCA agreement you signed when negotiating the debt. Check if the contract ties you to a confession of judgment. This type of clause prohibits you from negotiating the debt in court.
You may request the lender for a forbearance after explaining your current financial situation. With forbearance, the lender may stop the payments for one or two months.
Merchant cash advance companies may agree to lower the payments. However, the repayment period will be longer if you ask for lower payments. You may also agree on a discount when you pay off the advance in a lump sum.
3. Use a Term Loan to Consolidate the Debt
Apply for a term loan if your credit is strong and use the money to pay off your MCA. Look for a lender that can get your business approved for the loan in a few days. You may take a high-interest loan to cover the debt provided that its interest rates are lower than the MCA’s rates.
Choose an ideal repayment term for the loan depending on your financial ability. You should also check whether your cash flow and assets can help you settle the debt. Though a term loan won’t fix your financial problems, it can reduce their impacts.
Note that consolidating debt with a loan can lower your business score. The consolidated debt may stay on your business credit report for up to seven years. You may also lose collateral used to secure the loan if you’re unable to pay it off.
4. Consider Factoring
Approach a factoring company if your current financial situation can’t get you out of debt. The company will buy your unpaid business invoices at a lower price. They will also advance you up to 85 percent of the invoice to pay off the loan.
The factoring company will return 10 percent of the total payment collected from the end customer to your business. Factoring can help you if your company operates in the service industry and has inadequate accounting staff. It’s ideal in industries where businesses offer postpaid services.
Factoring helps protect your credit against bad debts and increases your debt capacity. It’s an ideal solution if you are losing profits while tracking down payments.
5. Maximize Your Business Profits
You can increase business profits by decreasing your accounts payable. Increasing your accounts receivable can also help you make more profits.
Consider raising prices on your services or goods for profitability. You can also add a new service or product line for the same effect. A premium pricing plan for customers who want rush orders and custom goods can work too.
Other ways to maximize the business profit include using low-cost or free ads. Offering incentives to productive employees and rebranding your company may also help.
6. Approach a Merchant Cash Advance Attorney
Hire a lawyer skilled in debt settlements and bankruptcy for your MCA debt. The attorney may advise you to file for bankruptcy after exploring all of your financial circumstances. They may also help you negotiate for debt relief or a settlement plan.
Either way, you should assemble your business financial records when discussing the debt with an attorney. These documents can help the legal expert in designing an asset protection plan for you and your business. The lawyer will help you understand your rights as a business owner in the entire process.
7. Consult an MCA Expert
An MCA expert can analyze your financial records to identify cash leaks. They will also give your business an operating budget to use when resettling the advance. The financial advisor should have a proven track record in mapping out business cash flows.
Remember to carry a copy of your credit report, financial statement, and business tax returns to the meeting. These documents will help the expert get a complete picture of your financial situation.
Only work with an advisor who’s a member of the National Association of Personal Financial Advisors for credibility. They should also be trained as fiduciary to maintain an ethical and legal relationship with your business.
Get Help Restructuring Your Merchant Cash Advance Debt
Though it’s attractive when you need fast cash, a merchant cash advance can be expensive. You risk defaulting on the advance if you cannot make regular payments. The financial advice outlined in this guide can help you minimize the effects of the debt on your business.
Count on our merchant advance restructure solutions for low-interest loans. We can merge your company’s debts into one and give you a better funding option for improved cash flow. Speak with an experienced business loan specialist today to settle your MCA debt.
