Every morning, before the doors open, the funder takes its cut. For a lot of the business owners who call us, that daily debit is a weight around their neck. But how can they afford to pay that much down every single day? They have to remember to set aside funds for it, but then if they don’t, they’re wiping out the money their employees or vendors expect. We have a lot of calls about just that. One of the most asked questions we get is, can a merchant cash advance be converted from a daily ACH into a weekly payment? Or a monthly one?
The honest answer is that it can happen, but nobody can promise it. A merchant cash advance is not a loan, and as such it is not subject to the laws and regulations of payday loans or traditional loans. That being said, there may be room for negotiation. You can ask to pay the MCA on a weekly or monthly basis, but how likely that is depends on the terms. It also depends on whether the funder would rather be paid slowly than risk not getting paid at all.
Start with how the product is supposed to work. A merchant cash advance is, well, an advance to you, in exchange for the future of your sales. A merchant cash advance provider gives you the money you need, and they collect your future revenue until they are paid back. Payment depends on the terms of your agreement. You could have a percentage-based payment or you could have daily debits. In practice, many agreements set a specific dollar amount that comes out every day or every week, whatever came in the door.
Phantom Reconciliation
On paper, there is a safety valve. Many MCA contracts carry a reconciliation provision in the fine print, which allows you to reduce your repayment obligation based on what is actually coming in the door. In essence, your revenue decreases, and as such, you should have your payments adjusted. But in the real world, it doesn’t always work that way. Funders think about mitigating their risk, and so they do things that are not in your best interest. One contract that ended up in court said, in effect: You must respond truthfully to all financial and transactional records, details and reports requested by the funder. The funder is not required to make any adjustments and any adjustment made by the funder is in its sole discretion.
Take a boutique owner who used an advance in 2018 to stock a new store. The daily payment of $304 seemed high, but the broker explained that after one month, payment would be reconciled to account for actual sales. When the boutique owner called the funder to ask for the reconciliation, she received the run-around. She was told that she “does not qualify.” In a separate case involving a family tire business, the company’s experience was that, in more than two and a half years, not one funder had ever reconciled its daily payments or refunded a penny. Borrowers refer to this process as a “phantom reconciliation.” New York courts generally endorse funders on this issue, because the contract language does technically provide for it.
Funders Do Sometimes Agree to Temporarily Reduce the Payments
So the realistic route to a slower payment schedule is negotiation, and funders do sometimes agree to temporarily reduce the payments. Just know what you are agreeing to. A Virginia healthcare services company opted for 17 merchant cash advances over the years, many to pay off previous ones. One funder agreed to temporarily reduce payments, but only if they eventually rose and the company covered the difference. Then the business encountered a billing delay, which led to more problems. “That’s not going to work,” a representative said. The funder filed a confession of judgment for $613,746.13, and that figure included an extra $122,403.75 tacked on. That funder didn’t seem much interested in negotiating.
If you have never dealt with one, here is why that matters. Advances are “unsecured,” but to get them businesses often have to sign a confession of judgment (COJ). Once the COJ is filed, a funder can freeze all of the merchant’s bank accounts and place liens on his or her personal assets within a matter of days, sometimes before the business owner even knows. And the agreement may also allow the funder to tack on 25% of the amount the merchant owes in “fees.” Business owners who take out multiple advances from different funders face a race to the bottom: whoever files first gets the money, with no quarter given to the merchant. The only thing that’s worse than having a merchant cash advance is having two.
None of this means negotiation is hopeless. Settlements do occur. The tire company settled with one funder that agreed to forgo what it claimed was the remaining $83,982 it owed, while the borrower paid other funders $20,000. A boat dealer in Alabama, meanwhile, had an MCA funder agree to forgive what he owed just before trial. One big funder now says it offers merchants both retroactive and prospective adjustment of payments. Some are OK with the idea of negotiations, and some are much more difficult. But to negotiate, you have to know where you stand. Read and understand your agreement; the terms that seem different or unusual are often the keys.
Another Advance
One warning before you call anyone. The most common “fix” for a daily debit you cannot afford is another advance, and that is not the answer. Rather, it can set up another cycle of demands that makes things worse. Renewals can snowball into an insurmountable mountain of debt. One California-based nonprofit clinic built up a cumulative MCA debt of $4.3 million for less than $1 million in real proceeds. But if you are using the advance as a repeated fix for a cash flow crisis, the next advance still needs to be paid.
Be just as careful with anyone selling a rescue. Some brokers promise that a deal will convert to a long-term, low-interest loan, collect their fee, and then leave you high and dry. A Delaware lighting company was offered a single big MCA to cover all of its other MCAs. The company agreed and signed. The funder never appeared again. The creditors were never paid. Some debt reduction companies really do help merchants, and some are just as predatory as the worst funders. Follow your own instincts; if it seems too good to be true, it almost certainly is.
So that’s the catch: a merchant cash advance may be able to be converted to weekly, or a monthly payment, but nobody can guarantee it. It’s up to the funder and the specific deal. A funder that would rather be paid slowly than not at all may agree to smaller or less frequent payments, but only if you come to the table prepared. Know your terms, understand how and why they came about, see what protections your contract offers, and then negotiate. Get any change in writing, including what happens when a temporary reduction ends.
