Did you know that the average business owner is over $195,000 in debt? If you are one of these business owners, this can be a scary place.
Especially businesses who are struggling with MCA debt can feel overwhelmed.
Keep reading this article to learn how MCA debt restructuring can help relieve your burden.
The Problem
The issue with MCA debt is it is an advance on your future credit card sales. MCA debt isn’t even technically a loan. Individuals usually turn to a merchant cash advance when their company is low on cash, and they need money fast.
For repayment, the MCA provider will decide on a percentage of the company’s daily credit sales that will go to repayment. The company chooses this percentage based on its risk assessment and the borrower’s ability to repay.
Often, borrowers focus on the payment amount and don’t realize how much the overall debt is. The repayment process takes place throughout 3 to 12 months. Yet, because the payment depends on your credit card sales and how quickly the payments are due, it can be challenging for individuals to repay.
Repayment
There are three more additional reasons that repayment can be difficult. First, every business is going to have highs and lows. When a company hits a low, it might struggle already, compounded by the additional MCA payment.
The second issue with MCA debt is the interest rates are incredibly high. The majority of MCA have interest rates in the teens. Plus, the interest rates are not guaranteed to stay the same and can vary depending on your credit card sales.
Third, it can limit the business’s choices. For example, individuals repaying an MCA usually can’t change credit card processors. They also can’t encourage customers to use cash instead to increase the company’s cash flow.
There’s Hope
Luckily, there are some great options to resolve MCA debt. Before we discuss those helpful options, it is vital to address a couple of options that are more problematic than helpful. This information is to help you avoid future traps.
The three main problematic options are stacking, MCA reversal, and ACH Loans.
Stacking
Some companies handle their MCA debt by using additional cash advances to fix the problem. This process is called stacking, and it can be expensive and only creates further issues.
Even if the new MCA has a “lower” weekly payment, it is still tricky.
The Why
A key characteristic of merchant cash advances is at the center of this issue. Cash advances bundle the interest and principal payments in one total amount.
So unlike a typical loan where an individual would save money if they paid the loan off early, with MCA loans, the provider lumps the principal and fees together. And, whenever you pay off an MCA loan, you have to pay all the fees despite the time frame you pay the loan.
So when you use a new cash advance to pay off an old one, you are paying off the entire loan plus interest and adding on new interest that you will be required to pay off as well. So, in the end, you will pay more interest than anything else.
MCA Reverse Consolidation
A reverse consolidation takes multiple MCA debts and combines them into one. The borrower then makes one payment that is less, and the business pays each of the monthly payments for them.
The issue is that company offering the consolidation doesn’t pay off the MCA debts but is just a second-party payer. So if the borrower can’t make their payment, the company will stop making the payments overall.
In the end, this leaves individuals if they miss a payment with all their original MCA debt plus a new MCA. The borrower now has more default payments than they can handle.
ACH Loans
ACH loans are similar to MCA because the loans are based on your company’s financial performance. The difference is that MCA focuses on your credit card sales, and ACH focuses on the balance in your checking account. ACH loans have higher interest rates but are easier to apply for and quicker to receive.
The issue with ACH loans is that they placed the individual in the same circumstances as before. It requires cash flow that most businesses who are suffering from MCA debt don’t have.
Thus, in the end, there are two main helpful options: restructuring or refinancing with a small business loan.
MCA Debt Restructuring
Most lenders’ goal is to get paid. Thus, a business going bankrupt is counter to their goal; because of this, most lenders are willing to work with companies to pay off their debt.
Debt restructuring usually involves negotiating a new amount that the individual is capable of repaying.
Debt Collector
If your debt has gone past the point of the initial obligation to collections, there are a couple of essential things to remember.
First, don’t give out your personal information to collections. Also, make sure you confirm the debt is yours. If the debt isn’t yours or if the amount is incorrect, file a dispute in 30 days in writing.
Settling
Once you confirm the amount, that is when you can begin the process of negotiating or trying to settle.
Settling MCA debt is one of the best options for business. First, settling is one of the fastest ways to get the debt paid off and off your credit report. Second, because the collection process is expensive, companies would rather just work with you.
This negotiating process can be intimidating, but it can be a helpful option. The issue is that most companies don’t have the necessary revenue to settle. Thus, getting a new loan is usually the best option.
Debt Consolation
Although MCA reverse consolation doesn’t work, there is a form of debt consolation that can be your best option.
The difference is that these loans will actually pay your MCA debt off as a whole. Then you are just responsible for the one-month payment to the loan provider.
Interest
Another advantage of switching to one consolidated loan is that it will owe your interest payments substantially. This lower interest allows you more cash flow to focus on growing your business.
Alternative Lenders
The best place to turn to for consolidated loans is alternative lenders like Hasanov Capital for a couple of reasons.
First, they are connected with multiple bankers and lenders. This connection allows them to know the best deals and get you the lowest rate possible.
Second, they can work with any type of company. Beyond that, they have experience with all forms of companies and know how to meet their needs.
Business Loans
If you are just getting started down the MCA loans cycle, business loans are also a great alternative. There are so many great forms of loans that will be more sustainable and will have fewer fees. There are options like a business line of credit or SBA loans.
A Combination
In the end, your best option is probably a combination of negotiating and getting a loaner. By taking the time to speak with each company, you can low the amounts of your debts. Then, a lender can give you the necessary funds to pay each of them off.
You Aren’t Alone
In 2019, there were about 30.7 million small businesses in the United States. Most of these individuals went into business to follow their passion or become their own boss. They are working to achieve that dream and make the best financial decisions.
Yet, 29% of new businesses will shut down due to a lack of financing. The majority will struggle to figure out how to maintain enough funds. You are not alone in your issues with cash flow.
And you are not alone in turning to merchant cash advances as a solution. The MCA market makes 5-10 billion dollars a year. That means that millions of companies have turned to them for support and got nothing.
Yet, the best news is you are not alone in the business debt restructuring process either. There are companies out there with debt consolidation loans that will help.
Get Help Today
If you are drowning in MCA debt, reach out today for help with your MCA debt restructuring. No matter the size of your company or the state you live in, there is help. From lowering your interest rate to consolidating your monthly payment, these loans will help you break free of your debt.
