Finding Relief from Merchant Cash Advance Debt
Merchant cash advances (MCAs) can seem like an easy way for small businesses to access capital quickly. However, the high fees and short repayment terms can trap businesses in cycles of debt. If your business took out an MCA and is now struggling with burdensome payments, there are solutions available to find relief.
How Merchant Cash Advances Work
A merchant cash advance provides a business with a lump sum of capital in exchange for a percentage of future credit card sales. There are typically no fixed monthly payments. Instead, the MCA provider takes a set percentage of daily credit card receipts, often ranging from 10-20%, until the advance has been repaid in full plus fees and interest equivalent to an annual percentage rate of 60-300%.This pay-as-you-go structure allows businesses to access funds more easily than traditional bank loans. However, it also means payments rise and fall with sales volume. Slow periods can stretch out the repayment timeline at an extremely high cost.
The Risks of Merchant Cash Advance Debt
While MCAs provide quick access to capital, they come with considerable risks:
- High fees equivalent to 60-300% APR – The total cost of an MCA often doubles or triples the original advance amount.
- Daily payments – Payments automatically deduct daily from credit card receipts. This can make cash flow management difficult.
- No fixed end date – There is no set timeline for repaying an MCA since payments fluctuate. This open-ended structure causes many businesses to pay far more in fees than expected over months or years.
- Personal guarantees – Owners often have to sign a personal guarantee, meaning their personal assets are at risk if the business defaults.
- Aggressive collections – Some MCA providers use aggressive tactics like filing lawsuits or trying to garnish bank accounts if payments fall behind.
These risks can put incredible financial and emotional strain on business owners struggling to keep up with payments. Many feel trapped and overwhelmed trying to break free of MCA debt.
Options for Merchant Cash Advance Debt Relief
If your business took out an MCA and is now buried under unsustainable repayment terms, take heart. There are people ready to help lighten this burden so you can get back to profitability. Here are a few options to find relief:
Debt consolidation rolls multiple debts into one new loan with more manageable repayment terms. This stops the high daily payments deducted by MCA providers and creates a single monthly bill. Benefits include:
- Lower interest rate – Consolidation loans typically have interest rates around 10-35% APR compared to 60-300% charged by MCAs.
- Fixed regular payments – There will be a consistent monthly payment amount allowing better cash flow planning.
- Clear payoff date – Consolidation loans have a set repayment timeline so you know when the debt will be fully paid.
One business owner shared on Reddit how consolidating $105,000 of MCA debt into a 3-year term loan stopped the daily payments bleeding their cash flow and reduced their interest rate from 260% to 17%.Debt consolidation works best if you can qualify for an affordable loan or line of credit from an online lender like Kabbage or PayPal Working Capital. If not, discuss options with an attorney.
Debt settlement involves negotiating directly with MCA providers to pay a lump sum that is less than the full remaining balance owed. This can eliminate a significant portion of the debt. Companies like Oak View Law Group and Fairway Capital Recovery specialize in settling business debts.Settlements typically save between 25-50% off the total owed. The provider agrees to this discount because they receive immediate payment and can close out the account. The business gets relief from reduced debt payments.The ideal approach is to first stop making payments to the MCA provider. Allow them to contact you attempting to collect. Eventually they may offer a reduced settlement amount to regain some of the capital they advanced. An attorney can negotiate to ensure the best possible terms.
In some cases, unfair or even illegal lending practices may provide grounds to invalidate or reduce repayment obligations through legal action. Attorney Mark Roher explains on Avvo that aspects of MCA agreements like high fees, personal guarantees, and business interference could potentially be challenged in court.An attorney can review the specific terms of your MCA contract to determine if any provisions are legally unenforceable. If violations occurred during the signing process, that could nullify the agreement’s validity. Taking legal action also sends a strong message to the provider that you will aggressively defend your rights. Even if the case is not fully successful, the provider may offer a reduced settlement to avoid further court proceedings.
Getting Started with Debt Relief
The first step is accepting you need help. Do not let shame or pride prevent you from seeking solutions. Many business owners shared their emotional stories on this Reddit thread about the devastation caused by predatory MCA lending. You are not alone.Next, gather details on all outstanding MCA agreements like original advance amounts, fees paid to date, current balances owed, and copies of signed contracts. This helps attorneys and advisors fully understand your situation and options.Finally, connect with professionals ready to fight on your behalf. Share your story and financial details so they can customize a debt relief strategy allowing you to move forward. With persistence and the right support, freedom from MCA debt is possible.