If you are a business owner with more than one merchant cash advance, then it’s most likely that you have already heard about MCA relief companies. The burden of having multiple merchant cash advances can be heavy and stressful. Often, when a business has multiple cash advances, it is stuck in the debt trap. Repaying one debt hurts the ability to repay the others. And there is one more thing coming up on your computer screen every day: offers to cut your payments or make them go away, most from firms calling themselves “debt consolidation” or “business debt experts.” Don’t be in a hurry to decide on your MCA relief company. Some programs work out. With others, you may end up worse off than you were before, and that’s why it’s important that you go in knowing what to ask.
Merchant Cash Advance
Merchant cash advance relief, sometimes known as MCA settlement or MCA consolidation, is a service that some companies provide to business owners who are struggling to repay their merchant cash advances (MCAs). To compare these companies, you first need to be clear on what you owe. Although the term merchant cash advance sounds a lot like a loan, it isn’t one. A merchant cash advance is a deal in which a business gets a lump sum of cash up front in exchange for a certain amount of its future receivables. The money you receive from an MCA is actually payment for a portion of your future receivables (sales). So, your business is selling a portion of its future receivables to the funding company. Funders usually size the advance from your last few months of bank statements and collect through daily or weekly payments. Businesses will often use an MCA because they need money for business purposes and are not able to get traditional financing from a bank. That includes industries banks avoid, like cannabis, and trades such as plumbing, electrical and HVAC. You might have a short time to get that money or you might be weeks into a project and have fallen behind. Because the market is so competitive, the money often arrives within 24 hours of a finished application. But such a fast approval can be risky if you don’t do your homework first.
The funder takes a risk too. If your business fails, it has no recourse and no way to recover the lump sum it put in. For an MCA to be legal and enforceable, filing for bankruptcy cannot be an act of default under the agreement, so when you read your contract, make sure it says bankruptcy isn’t a default.
How Nearly All of Them Work
Taking a second or third advance on top of the first is called stacking, and it is a red flag. If a business is struggling to repay a large amount of debt, it is in serious trouble. It is also exactly the situation relief companies go looking for. Before you sign with one, understand how nearly all of them work. You stop paying the MCA provider and pay the relief company a reduced monthly amount instead. When you sign up for a relief program, you are making a decision to violate your contract. The whole plan rests on the hope that the funder will agree to a settlement at the end. Meanwhile the relief company typically holds your payments in a kind of escrow account and starts negotiating once it reaches a certain amount. Because there is a chance your funder won’t settle, you want to find out where the money is going. So ask every company the same things. Where is my money held? What’s the minimum amount before the negotiation starts? When are my funds released to negotiate with my funder? You want to know how that account works, what your payments are doing, and how long it takes for them to finally begin negotiating on your behalf.
If the funder agrees to accept less than it was owed, things generally work out for everyone. But there’s nothing preventing your funders from saying no to the relief company’s offer. You might think: why wouldn’t a funder agree to negotiate? Whatever the reason, a funder that refuses will usually go after the business owner. So how does the funder sue? They file a lawsuit for breach of contract. But in this case, there are consequences: your funder will pursue you for the unpaid debt. If you have been paying the relief company instead and are still short on cash, you risk owing not just the unpaid receivables, but all of your future receivables to the funding company, on top of what you spent on the relief company. Sure, the goal is for them to settle the contract, but what’s your source of income while this is happening?
When comparing companies, make sure you ask the most important question: “what happens if the funder doesn’t agree to negotiate?” The usual answer is: No worries! We’ll refer you to a good litigation lawyer. But getting a good answer to this question is essential to whether you’re actually choosing a reliable relief company.
Those third-party lawyers are supposed to protect you. But are relief companies able to actually defend you in a lawsuit? You should not rely on your relief provider’s promise to defend you. These attorneys often file boilerplate pleadings and discovery responses that leave out the facts of your particular case, and boilerplate defenses are usually ineffective. When they fail, you can be liable for the full amount due under the contract, plus default and NSF fees and the funder’s attorney’s fees and costs. Reliance on third-party attorneys to defend you in a breach of contract lawsuit is a big, dangerous risk. That’s why it’s worth calling up a few MCA relief companies and their lawyers to make sure you know who will actually be working on your case. Ask whether the defense will be built around your contract and your facts.
Do Your Homework
Before you decide to use a merchant cash advance relief company to negotiate your advances, it’s important to ask yourself, why do I want to do this? Research the offers, the fine print, and the company itself. Speak with a few companies, ask questions, and get a personal pitch. Then ask every company the same exact questions and compare answers. You need a straight answer to make an informed decision. Read your own MCA agreement so you understand exactly what you agreed to, and talk with a legal or financial expert before you start using their services. It’s better to do your homework than suffer the consequences later.
