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How To Restructure Merchant Cash Advance Debt

Merchant cash advances can seem like an easy fix when your business needs fast cash. But those quick funds can turn into a big burden when it’s time to pay back the advance. If your business has taken on more merchant cash advances than it can handle, you may need to restructure the debt to avoid default.Here’s what you need to know about merchant cash advance debt and how to restructure it:

What is a Merchant Cash Advance?

A merchant cash advance (MCA) works differently than a traditional small business loan. With an MCA, a funding company purchases a portion of your future credit card receipts at a discount.For example, they may give you $100,000 upfront in exchange for $130,000 of your future credit card sales over the next 18 months. That extra $30,000 represents the fee you pay for the advance.You’ll pay back the advance in daily or weekly installments as a percentage of your credit card receipts. These payments are automatically withdrawn from your bank account – usually around 10-20% of your daily credit card sales.The cost of an MCA is very high compared to other financing options. The fees and payment structure essentially make it a very high interest rate loan.

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Know Your Merchant Cash Advance Details

Before attempting to restructure your MCA debt, take time to understand all the key details:

  • Original advance amount
  • Payback percentage deducted from credit card sales
  • Total repayment amount owed
  • Remaining term length
  • Prepayment penalties or other fees

You’ll need this info to determine if restructuring makes sense for your situation. The goal is to reduce the payback burden to a manageable level for your business.

Consolidation Can Lower Fees

If you have multiple merchant cash advances outstanding, consolidation may help. This involves combining all the agreements into one new advance with lower fees.While it doesn’t reduce the total amount owed, consolidation can provide some immediate financial relief by lowering your daily repayment percentage. Just be sure to read the fine print for any prepayment penalties on your existing advances.

Negotiate With Your MCA Company

Once you’ve analyzed your situation, it’s time to negotiate for relief. Don’t expect your MCA company to voluntarily offer better terms – you’ll likely need to make the first move.Here are some options to discuss:

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  • Lower the percentage deducted from daily credit card sales
  • Extend the repayment term to reduce immediate burden
  • Waive any prepayment penalties if refinancing with a lower-cost loan

The MCA company faces disincentives to help you since they already provided the lump sum upfront. Be prepared for some resistance. But calmly explain how the current terms will force you into bankruptcy, which is a worse outcome for them too.

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$500,000 MCA Restructured Over 3 Years
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$350,000 MCA Restructured Over 2 Years

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