7 Tips to Getting Out of A Merchant Cash Advance

A Merchant Cash Advance (MCA) gives businesses fast access to funds in exchange for a portion of their future credit card sales or daily revenue. Unlike traditional loans, MCAs are based on daily sales, not credit scores. The lender charges high fees and takes a percentage of daily credit card transactions until the advance is paid off. Although MCAs are attractive for their quick approval and minimal paperwork, the high costs can quickly become a financial burden.

How does it usually work?

When you take out an MCA, you receive a lump sum of money. The lender then takes a set percentage of your daily credit card sales or bank deposits, which can vary from 15% to 30% or more, based on the terms of the advance. The repayment continues until the total amount, including fees and interest, is repaid. If your sales fluctuate, the repayment amounts can vary, making it difficult to predict how long it will take to repay the advance.

MCAs are often attractive to businesses with poor credit or urgent cash needs because they offer fast access to funds without a lengthy application process. However, the high costs and the percentage taken from daily sales can create significant financial pressure on the business.

Is it possible to get out of a Merchant Cash Advance?

Getting out of an MCA can be challenging but not impossible. There are several strategies available to manage or alleviate the financial strain. The method you select will depend on your unique situation, including the details of your MCA and your financial condition. Here are some effective strategies to escape MCA debt and achieve merchant cash advance relief.

How do you do it?

1. Negotiate with Your MCA Lender

Start by contacting your MCA lender to discuss your situation. Inform them that you are struggling with the payments and ask if they are open to renegotiating the terms. Lenders may be open to adjusting the daily percentage or extending the repayment term to make the payments more manageable. If renegotiation is not an option, you might propose a lump-sum settlement where you pay a lower amount in exchange for settling the debt.

2. Consolidate MCA Debt with a Term Loan

If renegotiation fails, think about consolidating your MCA with a term loan. A term loan typically offers lower interest rates and more predictable monthly payments compared to an MCA. Online lenders and banks offer term loans that can be used to pay off the MCA. To qualify, you typically need a credit score of at least 600 and a strong business track record. Consolidation through a term loan can transform your high-cost MCA debt into a more manageable loan with fixed payments.

3. Explore Alternative Financing Options

Instead of continuing with an MCA, explore other small business financing options that might offer better terms:

• Business Line of Credit: Offers revolving credit, with interest only on the amount used.
• Invoice Factoring: Converts unpaid invoices into immediate cash by selling them to a lender, who then collects payments from your customers.
• Equipment Financing: A lender can purchase necessary equipment for your business, which you lease back.
• SBA Loan: Government-supported loans with lower interest rates and extended repayment periods. Research these options to find the best rates and terms for your business. While having MCA debt won’t disqualify you from these options, lenders will evaluate your credit and financial situation.

4. Attempt Debt Settlement

Debt settlement means negotiating with your MCA lender to accept a lump sum payment that is less than the full amount owed. Lenders often agree if they believe it’s the best way to recover part of their money rather than receiving nothing. Offer a realistic amount based on what you can afford. Remember, settled debt might impact your credit report and could be considered taxable income.

5. Consult an Attorney About Bankruptcy

If your business is severely distressed and other options have failed, bankruptcy may be the last resort. An attorney can help determine if Chapter 7 liquidation or Chapter 11 reorganization is the best option for your circumstances.

• Chapter 7 Bankruptcy: Discharges eligible debts but requires you to surrender non-essential assets.
• Chapter 11 Bankruptcy: Allows you to restructure your debts under court supervision and continue operating your business.
• Chapter 13 Bankruptcy: Sets up a repayment plan over 3-5 years, allowing you to keep assets like cars or homes.

Consider bankruptcy cautiously because of its lasting effects on your credit and the associated expenses.

6. Increase Profits to Pay Off the MCA

If your business is otherwise financially stable, focus on increasing your profits to pay off the MCA more quickly. Consider:

• Renegotiating vendor contracts to reduce costs.
• Cutting unnecessary overhead expenses.
• Raising prices on profitable products or services.
• Targeting higher-value customers or new markets.

These strategies can improve cash flow, making it easier to manage MCA debt.

7. Make Operational Changes

Strategic changes to your business operations can also help manage MCA payments:

• Switch to a payment processor that charges lower fees.
• Change banks to one with lower account fees.
• Accept cash payments temporarily to reduce credit card sales and MCA deductions.
• Consider selling the business and using the proceeds to pay off the MCA.

What if you can’t get out of it?

If these strategies don’t work, keep looking into ways to get relief from merchant cash advance debt. Talk to financial advisors or bankruptcy attorneys to find solutions that fit your needs. Just don’t ignore the problem—it’ll only make things worse.

There are ways to get out of an MCA

Getting out of a Merchant Cash Advance can be challenging, but it’s possible with the right strategy. Whether you choose to negotiate, refinance, seek alternative financing, settle the debt, or take legal action, each method provides a way to find relief from MCA debt. The crucial step is to act quickly and consider all available options to lessen the impact on your business. With determination and strategic planning, you can overcome MCA debt and take back control of your finances.