If the daily or weekly ACH pulls from a merchant cash advance are eating your business alive, it’s totally normal to want to lower or at least pause these payments. So how are you supposed to run your business by investing so much of your cash flow into paying your MCA? The MCA providers are pulling from your deposits until there is nothing left and that just leaves you in a business spiral! Then, you can’t pay your bills. The good news is that you have rights.
Most owners in this spot got here the same way. You take an advance and the payments start to eat up your cash flow. So you take a second position from another funder, hoping it will pay off the first. That is called stacking, and it’s one of the bigger no-no’s. Instead, what you get is lots of ACH pulls on your business bank account and an awful lot of money going back to your advance providers with no money left over for the day-to-day business operations. These advances will just magnify the problem and put you further in debt if you can’t keep up with the daily or weekly ACH payments.
Call the Funder Yourself
So can you call the funder yourself and ask for lower payments? Yes, you can and there is no harm in trying. Just go in knowing your options first. But these are not your friends. This is business after all, so when you get on the phone with them the call is going to be all about their bottom line.
Funders want to get in and get out with their money. A funder’s goal is to see it recouped in as few days as possible. The faster the money comes back, the faster it goes out again on the next deal. Much of it belongs to investors or comes from the owners’ own pockets. If you fail to make your payment because of business challenges, it means a setback in the funder’s bottom line, which is painful for its owners. When the account goes dark it’s a big risk and they don’t like it. These advances are inherently risky and if they think you are in default they will assume the worst. If you are close to defaulting, it’s important to communicate. A little bit of openness will go a long way with the funder if you are not in default yet. Explain what is happening on your end.
The first call is the hardest, but once you start talking you are already ahead. The solution lies in telling your provider what is going on and asking for a true up. That’s a fancy name for reconciliation. The funder bought a percentage of the future, so it took on the risk that sales drop. When sales do drop, the funder is legally obligated to recalculate and reduce your payment amount. Here is how it plays out. Say your bank statements from the three to six months before funding showed revenue averaging $100,000 a month, and the funder bought 10% of future revenue with a $150,000 payback, at $10,000 a week. Two or three months in, without having defaulted, you are averaging $60,000 a month, so you are down 40%. Your payments are still $10,000 a week and they are wearing you down. A funder that is a true purchaser of receivables should lower the payment to $6,000. Sales are down? Demand a recalculation. If it refuses to lower the payment or reconcile, you may have a legal claim against it. By asking for a reconciliation, the funder sees your intent to work with them and it takes the fear factor out of the situation.
The End Goal Is a Settlement
With MCA debt, the end goal is a settlement, normally put in writing in a document called a Stipulation of Settlement. Often you can reach a settlement on your own, but if you can’t get there, you can have a neutral third party (like an arbitrator or mediator) or a judge come in to help you out. Your objective is to minimize your cash flow drain or find a payment to match the size of your revenues. And if the funder finds you are defaulting and decides to sue you for full repayment, it is time to call a lawyer. Make it one with MCA defense experience. Outside of a lawsuit, legal counsel is not required for negotiations but is helpful. An experienced MCA debt relief attorney is useful because they have been here before. When you get help from someone who has worked on MCA cases on your side before, they can leverage their knowledge and relationships with your funder, from its legal department to its owners, and draw on past cases with that same funder.
A settlement can take a few shapes. First, you can consolidate your MCA debt into a conventional loan by getting an SBA or bank loan and using that to pay off your MCA debt. The second is to propose lower payments over a longer term. Strictly speaking, a legitimate MCA can’t have a fixed term. There shouldn’t be a “number of days” or a “repayment period” set aside in the agreement. Instead the funder is buying a percentage of your receivables and sharing in the risk of fluctuating sales. Still, an extension stops the pulls and sets one final, all-in amount that won’t keep growing with legal fees or interest. The third is a lump sum paid in full and final settlement. If you have a lump sum or your bank account is still somewhat healthy, that is going to be your friend. Whichever route you take, the settlement should be comprehensive: it should be “in full and final satisfaction” of any and all demands or claims that the funder may or may not have against you or your business. Have an MCA debt defense attorney review the Stipulation of Settlement for legality and protections before you sign.
Put Everything in Writing
Throughout all of this, put everything in writing when you talk with your funder. E-mail everyone. If you call, follow up with a message. Some things are better left in writing. If you email, mark it urgent. If you communicate with the funder in writing, you can later prove in court that you were trying to comply with the agreement. He said, she said fails in court; an email does not.
Staying in touch pays off in other ways too. When a funder isn’t left guessing, it assumes the best instead of the worst. That makes a UCC lien or a lawsuit less likely, and once the funder calms down, it would rather work with a compliant and responsive merchant than spend time on the legal department. The longer you stay open to communication the better off you will be.
If your business is in New York, note that an individual, even the owner, cannot represent the business there; it has to retain an MCA debt relief lawyer. And lawsuits are stressful, expensive and drawn out. Not fun, but the last resort. That is the thing about debt — it doesn’t go away by itself! So you need to act. The bottom line is that you are not stuck with these ACH pulls. Just because you can’t pay doesn’t mean you should just admit defeat. There is a chance to negotiate, reconcile and get the process rolling again.
