If you have taken out more than one merchant cash advance, you already know how fast your sales can disappear into MCA payments. Each provider takes a percentage of daily or weekly sales, and depending on how many accounts you have, you could be giving up a large portion of your daily revenue. You’re left wondering: Is there a way to settle multiple MCA accounts together?
The short answer is yes. In a debt settlement, you negotiate with each of your lenders for a settlement amount. If you have a large number of MCA accounts that you can’t afford to pay back, you may be able to get them all settled for a fraction of the amount you owe. The process may involve offering a lump sum to the lenders, negotiating a reduced payoff amount, and paying the agreed-upon amount. But settlement is not the only option, and it is rarely the first one.
Taking Out Multiple MCAs at Once Is Called MCA Stacking
Taking out multiple MCAs at once is called MCA stacking. Some business owners can get carried away and take on multiple advances at the same time, not realizing that they will be paying back all of them simultaneously. More often, the owner is in a tight spot and needs capital to keep the company afloat. Whatever the reason, they’re intent on staying in business. And when poor credit or low revenue rules out a bank loan, the business owner may consider an MCA. It might even be their only option, leading them to continue stacking until they have multiple MCA accounts open.
The trouble is that each new advance makes the hole deeper. Factor rates are high: a $100,000 advance at a factor rate of 1.5 means repaying $150,000, a 50 % markup on the capital you actually received. Stack a few of those and the amount of debt increases while your ability to repay it decreases. Even after the cash is spent the payments keep coming, so the company won’t have the revenue to spend on much else. It’s difficult to grow the company further or pay for anything that isn’t absolutely necessary. Some days, you have enough left over from your sales to pay for the advance accounts. Other days, you don’t. If you can’t pay one of the advances, you could be sued by the provider. And some MCA agreements forbid taking out another advance at the same time, so the stack itself may put you in breach of contract. The good news is that you have options.
Working with Your Lenders to Restructure the Payments
Before you call a single lender, get the facts straight. You need to have a realistic picture of the situation. How many do you have, and what are you paying for them? Know exactly what you owe on each advance, its factor rate and what leaves your account every day or week. Figure out how much revenue you have available, and what you absolutely have to spend on the company. Then build a budget and cut costs where you can. When you look at the costs of the various deals and the effects on your cash flow, it may become clear that settling isn’t the answer. You may be better off working with your lenders to restructure the payments instead.
Start by reading your contracts for a reconciliation clause. Some MCA agreements let a business facing financial hardship state to the MCA company that they are not able to make their current repayments on the MCA advance and ask for a change in terms. This basically means that the terms are re-negotiated. You work directly with the MCA company and document the hardship. Be proactive: it will make negotiations much easier. Show the lender your books, your business situation and the numbers you pulled together.
Consolidation is another route. You can wrap up your multiple advances in a consolidation loan, as long as you can qualify for the consolidation loan. The new business loan pays off every MCA at once. And instead of worrying about several weekly payments, you just have one to worry about each month. That payment is likely to carry a lower rate than you are paying now. If your credit is poor, as it often is with stacked advances, that door may be closed, and you may have to settle.
Get the Help You Need to Negotiate an Exit
If you have considered all your options and determined that you cannot afford your multiple advances, then you should start negotiating settlements. With a stack, that means going to each lender in turn. You need to put your case to each one, show them your situation and negotiate a lump sum that will clear the debt. It can save you money, because the settlement cost for a lump sum is less than the amount you would owe if you paid the debt in full. It can also head off a lawsuit from one or more of your lenders. And remember, don’t go it alone! Owners who go through an experienced negotiator who has a better understanding of the process tend to get a better result than those who negotiate alone. An MCA attorney knows where the landmines are in the settlement process and how to best navigate them, and will act like a shield for you, protecting the business from harm, including lawsuits and UCC lien issues, and helping you negotiate your MCA debt settlement.
Once the stack is behind you, think twice before reaching for another MCA. A traditional business line of credit, where you repay only what you borrow, is often an alternative worth exploring. So is equipment or inventory financing, which is secured by your assets and may cost less. Invoice factoring is another choice. The factor buys your invoices and collects from your customer. Whatever you do, don’t take on new advances. You can’t afford them, and you’ll end up stacking again. Take the time to find out your options, know where you stand, and get the help you need to negotiate an exit.
