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How to Lower or Negotiate Merchant Cash Advance Payment Amounts

A merchant cash advance (MCA) can be a quick way for small businesses to access capital. But the terms of MCAs can also leave companies in a tricky financial situation if they aren’t careful.If you’ve taken out an MCA and are struggling with the repayment terms, it may be possible to negotiate a lower payment amount. Here’s what you need to know.

What is a Merchant Cash Advance?

First, let’s quickly review how merchant cash advances work.An MCA provides upfront capital to a business in exchange for a percentage of its future credit card sales. So instead of making fixed monthly payments like a traditional loan, you repay the advance through a percentage of daily or weekly credit card receipts.The amount you repay is determined by two key factors:

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  • The advance amount – This is the lump sum you receive upfront.
  • The factor rate – This is like the interest rate. It’s multiplied by the advance amount to determine the total repayment owed.

For example, if you get a $100,000 advance with a factor rate of 1.3, your total repayment would be $130,000.

The Potential Need to Negotiate

There are a few scenarios where you may need to negotiate your MCA repayment terms:

  • Business slows down – If your sales volume decreases, you may not generate enough daily receipts to cover the fixed percentage withdrawal. This can put you in a cash crunch.
  • Advance amount was too high – If the advance amount exceeded your actual capital needs or ability to repay, you may struggle with the payments.
  • Unanticipated expenses – Emergencies like equipment repairs can make the payment withdrawals unaffordable.
  • Seasonal business – Repayment schedules may not align with your revenue cycles if you’re a seasonal business.

The bottom line is MCA payments are not flexible like loan payments. So even a temporary disruption to your sales can make the preset withdrawal percentages unmanageable.

Tips for Negotiating a Lower Merchant Cash Advance Payment

If you need to lower your MCA payment amount, here are some tips:

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  • Review your agreement – Check if there’s a reconciliation or “restructuring” clause that allows you to renegotiate terms.
  • Contact your MCA provider ASAP – The sooner you reach out, the better your chances they’ll work with you.
  • Be transparent – Clearly explain why you need to adjust the repayment schedule and terms.
  • Have documentation ready – Provide financial records like sales reports and bank statements to back up your position.
  • Propose a reasonable alternative – Suggest a realistic payment plan you can afford based on current sales.
  • Get help from a lawyer – An attorney experienced with MCAs can assist with negotiations.
  • Be prepared to pay a fee – There may be an additional charge to change the repayment schedule.

The key is to communicate openly with your MCA provider. They want to get repaid, so keeping them in the loop can go a long way.

Strategies to Get Your MCA Payment Lowered

Here are some specific strategies that may help convince the MCA provider to lower your payment amount:

Request a Longer Repayment Term

See if you can extend the repayment period, for example from 6 months to 12 months. This will spread the payments over more time, reducing the weekly/daily amounts.

Ask for Interest-Only Payments Temporarily

You may be able to negotiate paying only the fees and interest for a few months, without paying down the principal balance. This reduces your immediate payments.

Seek a Payment Deferral

Ask if you can defer 1-2 weeks of payments altogether. This gives you temporary relief to get over a hump.

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Offer a Lump Sum Down Payment

If possible, you can offer to pay 10-20% of the remaining balance upfront. This incentivizes the MCA company by showing you’re committed.

Suggest Lowering the Factor Rate

See if they’ll lower the factor rate on the remaining balance. This reduces your total repayment owed.

Request Recalculation Based on New Sales Data

Ask them to recalculate your payments based on your current sales records, rather than original projections.The key is showing the MCA provider you’re acting in good faith and making the best effort to repay under the circumstances.

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What to Do if Negotiations Fail

If you exhaust all options and the MCA provider still refuses to lower your payments, don’t panic. Here are a few things you can still consider:

  • Seek alternative financing like a business line of credit to pay off the MCA balance.
  • Consult an attorney about your options. Failure to reconcile the agreement could be considered breach of contract.
  • Contact the FTC or your state Attorney General’s office to report predatory lending practices if applicable.
  • File a complaint with the CFPB about unfair practices.
  • Consider restructuring or bankruptcy as a last resort if the MCA payments are crippling your business.

Avoiding MCA Problems in the Future

To avoid getting stuck in a situation where you need to renegotiate your merchant cash advance:

  • Scrutinize the factor rate – Don’t accept an excessively high rate that will be unaffordable.
  • Only take what you need – Don’t take more than you can realistically repay.
  • Match term length to cycles – Make sure the repayment period aligns with your revenue cycles.
  • Read the agreement thoroughly – Understand the terms, fees, and flexibility for changes.
  • Have an attorney review the contract – Ensure you understand what you’re signing.
  • Work with reputable MCA companies – Check reviews and complaints before choosing a provider.

The Bottom Line

While tricky, it is sometimes possible to negotiate down your merchant cash advance payment amounts if you act quickly and communicate clearly. Be proactive and don’t wait until you’ve missed payments.With the right approach, you can potentially realign the repayment schedule to something more affordable based on current business conditions. Just be sure to also take steps to avoid needing another negotiation down the road.

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