Merchant Cash Advances (MCAs) can be a lifeline for small businesses in need of immediate capital. However, their high-interest rates and daily or weekly repayment schedules often lead businesses into a cycle of unmanageable debt. If you’re struggling to keep up with payments, restructuring your MCA debt can help ease the burden and avoid severe financial consequences. Below, we explore how to restructure merchant cash advance debt effectively.
What Happens If You Can’t Repay an MCA?
Failing to repay a Merchant Cash Advance can have serious consequences. Many MCA agreements include personal guarantees, which make you personally responsible for the debt, even if your business can’t pay. This means that MCA lenders could pursue your personal assets if you default on payments.
Additionally, some MCA agreements contain a Confession of Judgment (COJ) clause. A COJ allows the lender to obtain a legal judgment against you without needing to go through a formal lawsuit. In this case, you might not even have the opportunity to defend yourself before a court ruling is issued.
In extreme cases, MCA lenders may file UCC liens, allowing them to claim money directly from your customers or vendors. These actions can tarnish your business reputation and negatively impact your credit score.
To avoid these severe consequences, restructuring your MCA debt is crucial. Let’s explore several debt relief options.
Merchant Cash Advance Restructuring Options
-
- MCA Reconciliation
Many MCA agreements include a reconciliation clause. This clause requires the
lender to adjust your payment schedule if your business is struggling financially. To invoke this clause, you will need to provide evidence of reduced revenue, such as financial statements showing decreased receivables. If successful, the lender may reduce your payments temporarily until your revenue recovers.
- MCA Reconciliation
-
- MCA Consolidation
Another option is consolidating your MCA debt into a more manageable loan. This process involves taking out a new loan with lower interest rates and
longer repayment terms to pay off your existing MCA debt. Consolidation
allows you to focus on repaying just one loan rather than juggling
multiple MCA repayments. However, you typically need a strong credit
score to secure favorable loan terms. If your credit has been damaged by
missed payments, this option may be more challenging.
- MCA Consolidation
-
- Merchant Cash Advance Settlement
A debt settlement involves negotiating with the MCA provider to pay off a portion of the debt in exchange for immediate payment. This can be an attractive option if you are unable to repay the full amount. However, it’s vital to approach settlements carefully, as MCA providers are not always willing to negotiate. Having a business debt attorney handle the negotiations can increase your chances of success and prevent further legal complications.
- Merchant Cash Advance Settlement
Why You Need Legal Assistance for MCA Restructuring
Given the legal complexities surrounding MCA agreements, having professional legal assistance is often the safest course of action. A knowledgeable attorney can help review your MCA contract, identify predatory clauses, and assist you in negotiations with your lender. They can also represent you in court if a lawsuit has already been filed.
If your agreement contains a personal guarantee or Confession of Judgment, legal counsel is even more critical. These clauses can make the process of restructuring MCA debt more complex, putting your personal assets at risk.
How to Get Started with Restructuring MCA Debt
If you’re struggling with MCA payments, don’t wait until the situation becomes unmanageable. The sooner you take action, the more options you’ll have for restructuring your debt. Consider consulting with a business debt relief attorney to explore your options, whether that means pursuing reconciliation, consolidation, or a debt settlement.
At the end of the day, taking proactive steps toward restructuring your MCA debt can prevent financial ruin and keep your business afloat. With the right strategy, you can regain control over your finances and set your business on a path to recovery.
If you’re currently dealing with MCA debt, explore our guide on 5 Red Flags to Watch Out for in Merchant Cash Advances for more advice, or reach out to one of our debt specialists at Daily Draft for personalized support.
