So, you took out a merchant cash advance (MCA) to get some quick funding for your business. But now, the daily repayments are eating up your cash flow, and you’re struggling to keep up. Sound familiar? You’re not alone. Many business owners find themselves trapped in unsustainable MCA agreements, desperately seeking a way out.At Delancey Street, we specialize in helping businesses like yours break free from the burden of merchant cash advances. In this article, we’ll explore your options for navigating out of an MCA agreement that’s dragging your business down. It won’t be easy, but with the right strategy and support, you CAN get back on track.
Understanding Merchant Cash Advances
First, let’s make sure we’re on the same page about what a merchant cash advance actually is. An MCA is a type of business financing where a lender provides you with a lump sum of cash upfront, in exchange for a portion of your future credit card sales. Sounds simple enough, right?Well, here’s the catch: MCAs typically come with sky-high fees and interest rates that can equate to an APR of 40% to 350%. That’s INSANE. And because repayments are taken directly from your daily credit card transactions, they can quickly drain your cash flow, leaving you struggling to cover other business expenses.
-The Dangers of Defaulting on an MCA
So what happens if you can’t keep up with your MCA repayments? In a word: trouble. Missing even a single payment puts you in default, giving the lender the right to:
- File a lawsuit against you
- Freeze your business bank accounts
- Seize your business assets
- Come after you PERSONALLY if you signed a guarantee
Basically, defaulting on an MCA is like handing your lender a loaded gun – and pointing it straight at your own head. NOT a good situation to be in.
Strategies for Getting Out of an MCA
Okay, so you’re in over your head with an MCA. What can you do? Here are a few potential strategies to consider:
1. Renegotiate with Your Lender
Your first step should be to reach out to your MCA provider and try to renegotiate your agreement. Be upfront about your situation and see if they’re willing to adjust your repayment terms, lower your fees, or extend your repayment period.Keep in mind, lenders aren’t obligated to renegotiate, but it never hurts to ask. If they want to get paid, it’s in their interest to work with you. Just make sure to get any changes IN WRITING.
-2. Refinance with a Different Lender
If your original lender won’t budge, you may be able to refinance your MCA with a different lender who can offer better terms. Look for a lender that specializes in refinancing merchant cash advances and can consolidate your debt into a single, more manageable payment.Be cautious though – some lenders may try to lure you in with the promise of lower payments, only to extend your term and increase your total borrowing costs. Do your homework and read the fine print before signing anything.
3. Seek Legal Counsel
MCAs operate in a legal gray area, and lenders often use confusing contracts and aggressive tactics to trap borrowers. If you’re feeling overwhelmed or think your lender may be violating the law, it’s time to lawyer up.Look for an attorney who specializes in business debt relief and has experience dealing with merchant cash advance lenders. They can review your agreement, advise you of your rights, and negotiate with your lender on your behalf.At Delancey Street, our team of expert attorneys knows the MCA industry inside and out. We’ve helped countless businesses fight back against predatory lenders and achieve favorable resolutions. If you’re drowning in MCA debt, give us a call – we’re here to help.
4. Consider Bankruptcy
In some cases, the best way out of an MCA nightmare may be to file for bankruptcy. While bankruptcy should always be a last resort, it can provide a fresh start for businesses that are in over their heads.Chapter 11 bankruptcy allows you to reorganize your debts and repay creditors over time, while Chapter 7 bankruptcy can wipe out most of your unsecured debts, including merchant cash advances. An experienced bankruptcy attorney can help you explore your options and choose the best path forward.
Preventing MCA Problems in the Future
Of course, the best way to deal with merchant cash advance trouble is to avoid it in the first place. If you’re considering an MCA for your business, here are a few tips to keep in mind:
- Read the fine print and make sure you fully understand the terms before signing anything
- Look for red flags like hidden fees, confessions of judgment, and personal guarantees
- Consider alternative financing options like SBA loans, lines of credit, or invoice factoring
- Don’t borrow more than you can realistically afford to repay
- Have a plan for how you’ll use the funds and how you’ll manage repayment
The Bottom Line
Merchant cash advances can seem like a quick fix for cash-strapped businesses, but they often lead to long-term pain. If you’re stuck in an MCA agreement that’s no longer sustainable, know that you have options.Whether you renegotiate with your lender, refinance your debt, seek legal counsel, or explore bankruptcy, there ARE ways out. The key is to act quickly, stay informed, and get the right help in your corner.At Delancey Street, we’re committed to fighting for small businesses and helping them overcome financial challenges of all kinds. If you’re ready to break free from the burden of MCA debt, schedule your free consultation today. Together, we’ll develop a customized plan to get you back on the path to success.
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