A merchant cash advance can put a lot of capital into your account in a short time, and plenty of small businesses have used one to get through a hard stretch. The trouble starts when the daily debits keep coming and the sales don’t. It won’t be long before you’re in the hole. You’re out of money, you’re out of time, and it’s an impossible choice between the funder, payroll, your landlord, and your creditors. If that’s where you are, you have a lot of reasons to be concerned. But you are not alone. There are plenty of small business owners just like you, struggling to keep up with those daily payments, and there are ways to get out of that hole. So, take a deep breath. There is a way out.
Asking for a Lower Payment
Start by asking for a lower payment. Don’t wait until you’re behind on your payments to call your funder and ask them to lower the payment. Daily payments are hard for any business to keep up with, but MCA contracts contain a “reconciliation” clause which gives you the right to a lower payment. An advance is supposed to move with your revenue: the more sales, the higher your payment; the less sales, the lower your payment. So if your sales have dropped, your payment should drop too. You don’t need to beg and plead - you’re just asking for your legal right. Explain to them that your sales have slowed and therefore you can’t maintain the current payment. Do it now. Never wait until you’re in the hole for a lower payment.
Not all funders are alike. Some funders won’t lower it to a reasonable amount, or will flat out deny you your right to a reconciliation. Other owners are just afraid to call the funder and ask for a break. If that’s the case, speak to a merchant cash advance attorney because they know the lending laws, local laws and your rights. An attorney can call the funder, explain the situation and negotiate a lower daily payment, get you an extension on your contract or work something else out. They can also help make sure the new terms are reasonable, affordable for your business, and legal. Just keep in mind that any extension of time only takes you so far. You can buy time, but you can’t buy back your losses.
An Alternative to an MCA
Merchant cash advances are an absolute shark tank. Some owners end up paying the funder double, triple, even more than the original amount they borrowed. And that is hard to sustain, because it can really wreck a cash flow cycle. Worse, if you’re already struggling, it’s almost impossible to catch up. Once you’re in trouble, you need to find an alternative to an MCA, and for most small businesses a term loan is a much better option. You receive a lump sum and a schedule of regular payments you make to repay that lump sum plus interest. A term loan has monthly payments, a longer repayment term and a lower interest rate. The tradeoff is that term loans have pretty high requirements: you probably need stellar credit and a nice profit margin over the last few years. I’d recommend using a term loan if you can get one, if you can afford the payments, and if you can prove your business history. There are also a few different kinds of term loans. You need to figure out what form that alternative will take, and whether or not you have the credit history or documentation needed to get one. That’s one of the things an experienced MCA attorney can help you with.
If you can’t get approved for a term loan - or don’t have the time to wait for one - consider an asset-backed loan. It won’t cure your debt problem, but it might offer more favorable terms than an MCA. You borrow money using equipment, real estate, or another business asset as collateral. Because it’s secured and poses less risk for the lender, you can qualify for a lower interest rate and the payments are spread out over a longer term. If you’re behind in payments, an asset-backed loan can give you some breathing room. Just remember that if you default, the lender can take your equipment, inventory or whatever else you put up as collateral.
Bankruptcy Protection
And if none of that works? Nobody likes to hear it, but sometimes bankruptcy is the only way out. If you just can’t seem to escape the MCA, filing for bankruptcy protection could be the way to go. There are several types of bankruptcy, each offering different outcomes, from liquidation to salvation, so a business bankruptcy attorney can help you decide what is best. Depending on your situation, you may be able to wipe away much of your debt, keep your assets, and even stay in business. Of course, none of this is a silver bullet, and there are always things to consider.
Whatever route you take, don’t wait for the funder to make the first move. If you ignore a problem, it’s almost certain to get worse. Get help while you can. Once you fall behind in payments, you have less and less leverage. Merchant cash advance companies have a bit of a reputation. Some have practices that are not great for small businesses, like harassing business owners for collection or freezing accounts without warning. If you are struggling with a creditor or scared you can’t meet your MCA repayments, you should contact an experienced merchant cash advance lawyer as soon as possible. They can assess your situation, help you come up with a debt relief strategy, represent you in court proceedings if there’s a settlement involved, keep your rights protected while you negotiate with the creditors, and help you pick the safest, most effective option for getting out from under the MCA.
Bottom line? Merchant cash advances can help your business get through tough times. But when the sales stop, the regular withdrawals can tank your cash flow and it can be very difficult to catch up. If you have an advance, contact your funder to ask for a lower payment right away, or see if an attorney can call for you. If you can, look for an alternative to an MCA, such as a term loan or asset-backed loan. But if you’re already in the hole and can’t catch up, consider bankruptcy relief. Make the call. Speak up. You have more options than you think, but it’s up to you to use them.
