When you are running a business under the stress of a cash advance, the last thing you need is calls. And if they come at every hour, even more exhausting. Owners who have fallen behind on a merchant cash advance know the feeling: every time you close your eyes, you see the numbers running through your head. So when settlement comes up, the first question is usually whether the phone will finally go quiet. The short answer is that, in theory, until you settle you can still be called. Once there’s an agreement, the calls usually stop. The rest of this article explains why, and what has to happen in between.
Merchant Cash Advances
Start with why the collectors are so persistent. Owners often turn to an MCA when they can’t qualify for a traditional business loan or need money right away. Merchant cash advances help with this by allowing a business to access cash quickly. But an MCA isn’t necessarily a loan. You are selling off some of your future sales. Companies that buy your future sales don’t have to follow the laws banks and other lenders follow. Like disclosing interest rates or contract terms. So it’s really hard to see how much more expensive the MCA is compared to a regular business loan. And instead you pay a factor rate of 1.1 to 1.5 times the amount they advance you. On the plus side, your payments lower if your income lowers. But you’ll never really know how much you’re going to pay since it’ll change with your sales, and since there’s no interest rate to look at you won’t have a clear idea of what you’re in for, so it may wind up costing you more than other financing. And yes, they can sue you to get their money.
That is the backdrop to every call. Deciding to settle doesn’t change anything on the funder’s side by itself, because the creditor has not stopped working on your account. Merchant cash advance collectors are concerned with getting their money. Until there is a signed agreement, they may keep calling, and you can’t feel secure until you’re actually at the settlement table.
The Settlement Agreement
So what does getting to that agreement look like? This is how it goes:
- You agree to a settlement amount.
- The settlement agreement is drafted.
- The MCA funder signs the agreement.
- You pay the settlement amount.
In practice, you negotiate the terms of the settlement with your MCA company to be sure the payment amount is something you can afford and there is a payoff date both you and your creditor can agree upon. Then, documents are drawn up and signed by your creditor before you make any payments on the settlement. You also set up payments using a secure bank account that the MCA company cannot access.
A hardship letter can help here, too. Put simply, a hardship letter with supporting documentation accurately explains the heavy burden the MCA is putting on your business. That documentation can include redacted bank statements.
The factor rate plays a part as well. In plain terms, the factor rate is multiplied by the advance amount to get a dollar amount which is what the MCA is owed. The factor rate is not amortized like an interest rate, so the borrower doesn’t save anything by paying early. But the factor rate can be factored into a deal in which the borrowing owner pays a lower amount or a discount on the amount to settle the debt. People often settle by offering a lump sum payment for a percentage of what they owe, or changing terms, with a date that gives the business owner time to come up with the money.
Get Some Advice
Should you try to handle all of this yourself? Don’t try to fight these guys alone. These contracts are written in a way that’s very confusing. A good lawyer can identify predatory practices in an MCA contract, making it more likely you will win a court case. The point is to get an agreement that doesn’t ruin your business any further and keeps the funders at bay. This is also where a business debt settlement company like ours comes in. We negotiate with merchant cash advance funders and lenders on behalf of business owners, for less than the full balance owed. We don’t sell you another loan.
Timing matters, too. If the payments are causing your business real hardship, get some advice. It is usually easier to settle before you get sued. If you’ve been served with court papers, you need to get an attorney representing you immediately. We are not an attorney or law firm. When litigation is the right call, we refer owners to a vetted independent attorney, and the attorney-client relationship is between the owner and that attorney.
Now back to the phone, and the good news: a settlement means you cut the daily/weekly payments, end the harassment, and get a chance to pay off most of the debt without additional charges.
So yes, the creditor may still call while a settlement is being worked out. But the calls stop when you make a deal. Negotiate a settlement while you still can. If you are struggling to manage payments or can’t see a way out, get help as soon as you can. Don’t wait until things get desperate. A first consultation with Delancey Street is free and confidential.
