How to Get Out of Paying a Merchant Cash Advance
So you took out a merchant cash advance (MCA) for your small business, but now you‘re having trouble keeping up with the daily payments. Don’t panic – there are options to get relief. As a business debt relief company, we can help try to settle or restructure your MCA debt.
What is a Merchant Cash Advance?
A merchant cash advance provides quick financing by purchasing a portion of your future credit card sales. The MCA company advances you a lump sum, then takes a fixed percentage of your daily credit card receipts until they‘ve been fully repaid (plus fees and interest).Unlike a small business loan, MCAs don’t have fixed monthly payments. But that flexibility comes at a price – the equivalent annual interest rates typically range from 30% to 300%. And if your credit card sales drop, the payback period extends even longer.
Reasons You May Want Out of Your MCA
There are many reasons small business owners decide they want to get out of an MCA agreement:
- The payments are too high – Your sales volumes have decreased, making the daily payments a struggle.
- You were misled – The MCA broker promised you could pay it back quickly, but that hasn’t proven true.
- There are better financing options – Interest rates have dropped and you qualify for more affordable lending.
- You want to sell your business – The MCA debt is deterring buyers or reducing your sale price.
- Bankruptcy – You need to file Chapter 7 or Chapter 11, which discharges MCA debt.
Whatever the reason, you have options to legally stop or reduce your merchant cash advance payments.
Strategies to Get Out of Paying an MCA
Getting out of an MCA completely is very difficult, but relief may be possible if you take proactive steps. Here are common strategies to reduce or eliminate your merchant cash advance debt:
1. Refinance with Another MCA
If the main issue is unaffordable payments stretching longer than expected, refinancing may help. Apply to alternative MCA companies – some specialize in payoff buyouts – taking over your balance at lower rates. This consolidates into one new MCA at better terms.
- Pros: Quick way to reduce daily payment amounts.
- Cons: Comes with fees and risks extending your payoff date even longer.
2. Business Debt Settlement
Debt settlement works by negotiating with creditors to pay a lump sum that is less than what you owe. The MCA company would rather get $20,000 now than chase unpredictable payments over months. Settlements typically save 40% to 60% off the full balance.
- Pros: Eliminates the debt at a steep discount. Faster path to freedom than continuing daily payments.
- Cons: MCA companies are notoriously difficult to negotiate settlements with. Requires coming up with a lump cash payment.
3. File for Bankruptcy
Filing Chapter 7 or Chapter 11 business bankruptcy legally eliminates eligible debts through liquidation or reorganization. MCA debt would be discharged completely or paid pennies on the dollar.
- Pros: Immediate stop to payments and collection efforts. Permanently wipe MCA slate clean.
- Cons: Significant legal fees. Damages business credit rating.
4. Improving Business Cash Flow
If your issues paying back the MCA tie directly to slowing business revenues, focus on sales growth strategies. Find ways to increase profits to cover the daily payments until it’s fully repaid.
- Pros: No extra fees or legal complexity. Chance to resolve things independently.
- Cons: Doesn’t address excessive interest rates or predatory behaviors if those were factors.
Beware of MCA Debt Relief Scams
Many companies advertise misleading promises to easily eliminate MCA debt. Watch out for these common merchant cash advance relief scams:
- Upfront fees – Asking for payment before rendering any services is a red flag.
- Guarantees – Legally nothing can guarantee MCA debt removal. Trust your instincts if it sounds too good to be true.
- Blanket debt relief – Beware companies claiming to specialize in all kinds of debt but have no real expertise helping specifically with MCAs.
Vet any MCA assistance carefully and understand the underlying strategies they will use on your behalf before signing anything new or paying fees.
How We Can Help You
As a business debt relief company, Delancey Street has extensive experience helping small business owners settle or restructure financing debt – including from merchant cash advances.Our dedicated experts will conduct a free consultation to review your situation and provide tailored options to find the best path forward. This includes transparently outlining potential settlement strategies, realistic outcomes we can target, and all expected fees.
- Contact us for a free consultation at 212-210-1851
- Learn more about our small business debt relief services
Getting out of a merchant cash advance completely is very rare. But reducing payments or balances through settlement or alternative financing is possible in many cases. The key is partnering with an advocate who understands both your business needs and the nuances of MCA agreements.
Frequently Asked Questions
*Can I just stop making my MCA payments?*
Legally the MCA company can still come after you for the full balance plus fees, even if you’ve paid back more than the original advance. Defaulting gives them power to seek judgments and wage garnishments. It‘s better to be proactive with settlement strategies.
What MCA relief options won’t hurt my credit score?
Fortunately, merchant cash advances don’t report to business credit bureaus like personal loans do. So settlements, refinancing, or bankruptcy won‘t show up or directly impact your business credit rating. Be aware that if judgments or tax liens stem from non-payment, those would damage your score.
*Is an MCA non-payment settlement the same as debt forgiveness?*
Not exactly. With debt forgiveness, the creditor voluntarily cancels all or part of the balance owed. MCA companies rarely do this. Settlements mean paying back a (often significantly) reduced lump sum, essentially to “buy your way out” of the contract and any further payments.
In Conclusion
Getting out of ongoing merchant cash advance payments is very challenging, but certainly possible in many situations with the right approach. Don‘t hesitate to reach out for help assessing your options. Our experts can provide a free consultation, outlining the pros and cons of various relief strategies and realistic outcomes we may be able to achieve on your behalf. The sooner you take action, the more leverage can be gained.I hope this overview gives you hope and a pathway to freedom from MCA debt! Contact Delancey Street anytime at 212-210-1851 to discuss your specific situation.
