What to Do if You Can’t Afford Your Merchant Cash Advance Payments

Merchant cash advances can provide much-needed working capital for small businesses. However, if your business struggles to make the daily or weekly payments, don’t panic. You have options to get your merchant cash advance back on track.

Assess Your Situation

Before making any decisions, thoroughly assess your financial situation. Ask yourself:

  • Why are you struggling to make payments? Is it a temporary cash flow issue, or are there deeper problems with your business?
  • How far behind on payments are you? The sooner you address missed payments, the more options you’ll have.
  • How much do you owe on your merchant cash advance? Know the remaining balance and what a potential buyout amount may be.
  • Can you afford the daily repayment amount when business is good? Or is the payment plan completely unaffordable?

This analysis will help you make the best decision on next steps.

Communicate Openly With Your MCA Provider

Communication is key when facing payment problems. Contact your merchant cash advance provider as soon as possible and explain your situation. Highlight specific challenges you’re facing, and what measures you’re taking to address them.

Most MCA providers understand seasonal dips and temporary issues. They’ll likely work with responsible borrowers who proactively communicate when payments fall behind. Potential options they may offer include:

  • Temporary payment reduction or partial deferment
  • Extended payment terms at a lower daily rate
  • Partial balance forgiveness (usually 10-15%)
  • Lump-sum discounted payoff amount

However, providers lose patience with borrowers who repeatedly miss payments and don’t communicate. It’s crucial to maintain an open dialogue about repayment challenges before defaulting completely.

Get Help From an Attorney

Seeking legal counsel can be invaluable if struggling with merchant cash advance debt. Attorneys well-versed in MCA agreements can review your situation and advocate on your behalf. Potential assistance they can provide includes:

  • Negotiating payment plans, settlements, or revised terms
  • Drafting hardship letters with supporting documentation
  • Advising on bankruptcy filing options if necessary
  • Defending against potential lawsuits or arbitration claims

Having an attorney involved tends to motivate merchant cash advance providers to offer reasonable compromises. They want to avoid lengthy legal disputes which may result in unfavorable judgments or precedents.

Explore Business Turnaround Options

Before abandoning your business, consider turnaround strategies a merchant cash advance advisor can recommend:

  • Expense reduction: Critically evaluate every business expense and cut unnecessary spending.
  • Lean operations: Eliminate waste and inefficiencies in business processes.
  • New marketing: Develop new marketing campaigns to attract customers and boost sales.
  • Menu/price optimization: Tweak pricing and offerings to increase profits.
  • Staff training: Invest in employee training to improve productivity.
  • Customer retention: Prioritize existing customers and patient retention.

Even subtle changes can have a noticeable impact on daily cash flow. This may provide enough breathing room to start catching up on merchant cash advance payments.

Attempt Refinancing or Debt Consolidation

If fundamentally healthy, you may be able to refinance high-cost merchant cash advance debt through:

  • Bank/SBA loans: Longer-term loans have lower payments.
  • Balance transfer cards: Can buy 12-18 months to pay off debt.
  • Alternative lenders: Potentially cheaper financing than MCA.
  • Family loans: Interest-free loans to repay debts.

You can also consolidate multiple merchant cash advances into a new, large MCA agreement. While still expensive financing, consolidation can provide payment relief if structured properly.

Filing for Bankruptcy Protection

If facing severe financial hardship, filing Chapter 7 or Chapter 11 bankruptcy may be an option. This provides protection from debt collection activities while liquidating assets (Chapter 7) or restructuring finances (Chapter 11).

Bankruptcy pros include:

  • Asset protection: Stop wage and bank garnishments.
  • Harassment protection: Halt threats, lawsuits, calls.
  • Payment relief: Pause payments while case proceeds.
  • Debt discharge: Eliminate all or part of debts.

However, bankruptcies remain on your credit record for 7-10 years. They also require relinquishing control over certain financial decisions.

Attorneys can advise if bankruptcy makes sense based on your assets, debts, and prospects for rebuilding your business. For severely distressed merchants, bankruptcy filing may be the most prudent choice.

Attempt Settlement on Past Due Balances

If continuing operations seems unfeasible, closing down the business while negotiating a reduced payoff amount may be the most practical option.

In these “close and settle” scenarios, highlight to the MCA provider that you’re ceasing operations. They understand forcing a defunct business into bankruptcy through aggressive collection efforts will likely produce little returns.

Most providers will counteroffer a discounted lump-sum payment to settle outstanding balances, avoiding legal processes. Typical settlement offers range from 40% to 60% of the overdue balance.

If both parties agree to a settlement figure, get everything in writing before submitting payment. This signed agreement should state your debt is fully satisfied upon receipt of the settlement funds.

This allows you to close the business, avoid bankruptcy, and resolve merchant cash advance debts at a significant discount.

Shut Down Operations and Default

The final, least advisable option is to simply shut down current operations without negotiating settlements on outstanding merchant cash advance balances. This forces providers to write your account off as a defaulted loss.

While closures happen, providers can still pursue legal action against business owners personally for repayment. Additionally, owners who abandon their financial obligations face damage to their personal credit scores and ability to secure financing in the future.

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