If you’re trying to settle a merchant cash advance, you may have a debt relief attorney and a settlement firm on your file at the same time. They are working together, toward the same objective: a settlement you can live with. You should know what happens during the process, and what’s expected of you at every stage. Merchant cash advance debt relief is when an MCA debt lawyer gets the borrower’s advances modified so that the business can pay them. A business may owe multiple MCAs. The debt relief lawyer negotiates with the funders to get the relief the borrower needs so that it can keep making payments.
A Three-step Process
It’s a three-step process: compile your data, present your case, and negotiate with the merchant cash advance funder. You can’t skip any of the steps. Your attorney’s first move is to collect the information needed to draft a hardship application based on the business’s income. The better the attorney, the better they’ll be at laying out your situation so you can get a settlement. The more closely you work with the attorney during this process, the stronger your hardship case will be.
Expect pushback at the presentation and negotiation stages. The funder has no obligation to settle; but, the funder often discovers that settlement is the only way they are likely to recoup their money. They will resist settlement for a while but eventually come around to the fact that it’s in their interest as well.
Knowing why you need that help starts with the contract itself. The funder’s lawyers wrote this contract, and it’s one-sided in their favor, mostly because it defines default pretty strictly. The consequence is that the merchant is often in default for not making even one payment. Many of these contracts require the merchant to pay every day, with a daily ACH withdrawal. Businesses are always balancing cash flow against expenses and debt service, so it’s not hard to imagine that on some days the merchant won’t have enough money in the bank to honor the ACH.
When you default, you have to pay an immediate penalty, plus any NSF charges or collection fees. Those are in your contract, so good luck arguing against them. The funder can also ship your account to its in-house collections department and it will swamp you with calls, texts and emails.
If you don’t pay, the funder will send your account to a collection attorney. The attorney will sue you, and any fees the attorney tacks on will also be added to your debt, because your agreement will specify that the merchant pays all attorney fees and costs of collecting a loan in default. When a business doesn’t plan for the fallout of default, they often find themselves with a bank account levy, garnishments and restraining orders. So contact a good lawyer before you default.
The Settlement Your Business Can Afford
Once the file is with your attorney, the work turns to settlement. There’s no one way to settle MCA debt, but funders in general are willing to work it out because they know their only chance to get any money once an advance is in default is by settling with the merchant. If the agreement was structured as a purchase of future receivables, they’ll include a reconciliation clause. That lets you say “my sales have dropped. Recalculate the payments accordingly.”
With careful negotiation you might be able to get the fees and expenses waived, the time period extended, the interest rate reduced, and in some cases even some of the principal amount forgiven. It starts with an honest assessment of what you can afford and your lawyer’s determination that the final deal lands in that sweet spot. The settlement agreement spells out all the terms. If you can’t live up to them, it’s only a matter of time before you’re back in trouble. If the debtor still has more payments than they can realistically afford, it’s not a settlement worth accepting.
Never take out a second MCA to pay for the first, or generally, a MCA consolidation loan. They’re expensive, sometimes 50 percent interest over a few months; stretched over a year, that can be way over 100 percent APR. They add all kinds of fees and draconian default conditions. Even if you feel you won’t be able to get funding from any other source, they don’t help; they make the problem worse.
The whole point of restructuring a merchant cash advance is that you can actually afford the future payments. That means you must set up a recurring payment you can afford. It’s a compromise between the funder (who is, at first, utterly unbending) and you, because the funder knows that without a deal, you won’t pay anything. Your attorney and your settlement firm are on the same side, pursuing the same result: the settlement your business can afford.
