Jun 4, 2022
Though Merchant Cash Advance (MCA) seems like a quick solution to fulfill the financial needs of a business at desperate times, it can often be very hard for businesses to repay this debt. The high factor rates make it unmanageable for businesses to grow and survive in the industry properly due to the lack of cash availability. The terms are often unsupportable, and thousands of businesses are forced to shutdown as MCA debt strangles their operating funds.
Especially after theCovid-19 pandemic, innumerable businesses have taken MCA debts and, now, they are finding it very challenging to meet the debt terms. Fortunately, there is an affordable way out of this debt spiral - MCA debt settlement through Business Debt Restructuring.
A merchant cash advance is a fund facilitated to, usually, small business owners. In general, it is offered at a high interest rate and most often provided in exchange for a percentage of the income of a business over time. Payments are automatically made daily or monthly or as per the terms of the MCA agreement via credit/debit card transactions.
In simple words, you will repay the MCA debt with a portion of sales generated in return. An MCA lender can plug into your credit card processor or your bank account to get the cashback.
Based on the type of MCA you have taken, the cash advance can take a toll on the cash flow available to run your business operations. If the interest is too high, your business might suffer gravely. It is critical to have the full knowledge of the cost of taking an MCA debt because every cent that a business receives as a cash advance will be deducted from its credit card sales.
The total amount to be repaid is estimated by a factor rate, a multiplier based on the business’s financial status. The factor rate remains the same regardless of whether you choose to repay your debt over 4 months or a year.
However, interest rates accrue over time even if the factor rate remains the same. It means when your business records higher credit card sales in a day, the amount collected by the MCA provider also increases, and when your business records lower credit card sales, the amount collected will be similar.
While companies use merchant cash advances to fill in gaps and avoid losing their business, MCA can quickly snowball into major issues, leaving them in a dire and grappling situation after some time. As a result, many business owners think about defaulting on MCA debt.
In reality, defaulting on a merchant cash advance can lead to severe consequences. It’s because when business owners take MCA debt, they are generally required to sign a Confession of Judgment and personal guarantee in MCA agreements. So, by defaulting on MCA debt payments, you can put yourself in a critical situation.
What’s more, MCA debt is not considered a loan. Hence, it is not governed by laws that apply to other business loans. It means that if you fail to make the MCA payments, you are breaching the contract, and the MCA lender can file a lawsuit against your business and include the clause of Confession of Judgment.
A Confession of Judgment is an agreement between the MCA lender and the borrower i.e. the business that is taking a cash advance. In this agreement, the borrower accepts the liability for the merchant cash advance and waives all legal defenses if the conditions aren’t met. Thus, the MCA lender legally has the right to go after your business to recover the funds you failed to pay and seize your business assets.
No, merchant cash advances don’t affect your credit score directly. However, they can hurt your credit score indirectly by raising your outstanding balance and credit utilization ratio as you struggle to make ends meet.
Yes, there is. You can connect with a company that helps you restructure the debt and assists in MCA debt settlement. Business debt restructuring is a smart way to lower your monthly debt payments and fuel your business with more cash flow. An MCA debt settlement service provider looks at your existing business debt terms and helps you secure better terms from your creditors.
In case you are wondering to consider legal advice from a lawyer, you must remember that the MCA lender doesn’t need to present any evidence to the court to get a judgment. On the contrary, the MCA lender can take legal action against you without notifying you. As soon as the Confession of Judgment is filed to the court, the MCA provider can start gripping your bank accounts and business assets. However, attorneys can help you take the necessary steps to protect you and your business.
At Royale Capital, we offer our expertise in MCA debt settlement and help struggling businesses through debt restructuring. We assist business owners with over$50,000 in debt. When you connect with us, we do all the hard work for you by leveraging our team of experts and attorneys that negotiate on your behalf, saving your precious time and money and keeping you away from all the worries.
Our debt restructuring services are designed to help you renegotiate better interest rates and reduce your payments. With our expertise, clients often see a reduction in payments ranging from 40 to 60 percent, which gives their business a new lease of life. What’s more, even if you have a little credit history or less than perfect credit score, our team may still help you renegotiate the terms of your MCA debt.
So, if you are finding yourself strapped with MCA debt that you are struggling to repay, please contact us today.