By: Claudia Stefano
January 19, 2023
3:47 am
Merchant cash advance restructuring consists of reorganizing MCA debt, helping businesses avoid default due to missing MCA payments.
Despite fast approvals and minimal documentation required, the merchant cash advance has downsides, including short repayment terms, high-interest rates, and daily or weekly installments.Many small businesses struggle with repayment terms, high-interest rates, and other negative aspects of MCAs, causing them to default on merchant cash advance loans.
To avoid default-related problems and find a way out of debt – merchant cash advance restructuring offers various solutions, including cost reduction, debt restructuring, MCA consolidation, reverse consolidations, settlement, or even liquidating your business.
But first, let us look at what happens if you default on a merchant cash advance.
Merchant cash advance companies offer advance cash financing to small businesses to help them relieve short-term operational cost pressure. In exchange, they charge the percentage of their daily credit card income (the card processor clears payments directly for a merchant cash advance company).
Failure to repay merchant cash advance loans on time results in a default. Your lender (a merchant cash advance company) will file a lawsuit against you seeking financial redress. After receiving a summons and a complaint, filing a response within a specified period (20 or 30 days) is crucial. Otherwise, the court will issue a default judgment against you and your business, meaning the merchant cash advance company can seize your assets or bank accounts. In addition, your MCA lender can contact your brokers, vendors, or payroll company, obstructing your daily business operations.
Fortunately, there are several ways to restructure your merchant cash advance and avoid default, lawsuit, and judgment.
Looking into your costs is the best place to start. Restructuring internally is the easiest way to avoid default. Identify unnecessary monthly expenses and remove them. Instead of buying equipment, try renting it. Next, utilize outsourcing to reduce labor costs. Consider using the internet for communication (VoIP) instead of expensive phone services.
To avoid unfavorable merchant cash advance terms, you need to research other financing options in search of better conditions. First, check companies specializing in consolidating merchant cash advance loans. Next, consider SBA (Small Business Administration) loans, which offer lower interest rates and acceptable terms. Finally, think about using the services of a factory company.
To reduce your operating costs and avoid merchant cash advance default, negotiate with your vendors, suppliers, or brokers seeking debt restructuring. That can include lowering interest rates, extending the repayment period, or redefining the debt terms in another way.
Before restructuring your debt, you should always ask yourself whether you should continue your business operations in the first place. Consider all circumstances, especially if the market is favorable for your business and if it will survive the challenging restructuring period. If the market conditions are bad, restructuring can bring you even more headaches. In such situations, liquidating a business to avoid debt is a better option.
A consolidation loan is one of the most common MCA restructuring techniques. It consists of getting a loan that will pay off your merchant cash advances either by lowering interest rates or extending the payment period (which results in lower daily, weekly, and monthly payments). However, be careful when obtaining consolidation loans since many hidden fees can increase your financial burden even more.
A reverse consolidation is a loan helping you to cover daily merchant cash advance payments. It deposits money into your bank account weekly to cover your MCAs payments. In exchange, you repay the reverse consolidation company (typically 20-25% lower than MCA costs), which enables you to free up your cash flow and continue everyday business operations.
One of the central considerations for any business owner restructuring merchant cash advances is dealing with a cash flow crunch. During the restructuring, you need to be able to cover operational costs such as taxes, rent, payroll, transportation costs, utilities, etc. To eliminate cash flow crunch and enable ongoing business expenses, you need to reduce payments on leases and past loans until your business operations turn around.
MCA settlement results from successful negotiations with your MCA lender. It avoids default and the ensuing lawsuit. However, negotiating debt settlement is a daunting and time-consuming task requiring sophisticated communication skills, including in-depth financial and legal knowledge. Settling merchant cash advance debt alone is stressful and risky, and it never gets you the results you hoped. The situation is similar if you hire a debt settlement or consolidation company. Without experienced business debt attorneys, these companies lack the legal and financial expertise to deliver desired outcomes. In most cases, you will pay significant upfront fees while ending up in a worse position. Unsuccessful settlement negotiations mean you will not avoid merchant cash advance default, the ensuing lawsuit, and potentially a default judgment.
Instead of negotiating the debt restructuring terms alone or letting a debt settlement company gambles away your chances of getting out of debt – hire an experienced business debt relief attorney to help you secure the best deal and avoid potential pitfalls. Owing a fiduciary duty to their clients, a business debt attorney will act in your best interest, utilizing their relationships with the lender’s legal team to get you the best possible outcomes.
At Regroup Partners, we know how burdensome merchant cash advance repayment is for your business, especially if you got in a cycle of taking out one MCA to pay off another MCA.
A Florida-based business debt relief firm, we can help you relieve the burden on your ongoing business operations by ensuring you avoid defaulting on MCA. Our top-notch experts will communicate with your MCA lender to negotiate the most favorable settlement, enabling you to alleviate financial difficulties and continue growing your business.
Reach out at (954) 234-2300 or email us at legal@regrouppartners.com to see how we can help.
We are a team of financial specialists. We help you with your debt and begin working on day one. Our team of debt and financial specialists will help consolidate, restructure or settle your debt.
Regroup Partners provides business debt solutions to businesses of all sizes that aid in the mission to ultimately ensure peace of mind to business owners in a time of distress.
