Jan 7, 2023
A merchant cash advance is a common debt trap for a business. In this, the lenders don’t have to devise any plan to trap the borrowers. Knowingly or unknowingly, the business falls into the trap of MCA as it’s the easiest and fastest funding option. Lenders don’t even care about the credit score of the business and the collateral received for lending money. The only thing they care about is the current status of the company. This is for a business whose all other lending options are closed.
A business runs effectively and efficiently with MCA. But, sometimes, a business owner takes this for granted and applies for multiple MCAs, bringing lots of problems for the business. Merchant cash advance solves the current financial problem but it's expensive compared to other funding options. The interest rate is high along with many other strict regulations. And when there are multiple MCAs, they impact the cash flow of the business. The worst part is that the business account gets frozen or lenders charge penalties for missing the MCA payments.
This is why Merchant Cash Advance is a trap for a business. It convinces business owners with instant benefits but creates problems in the long run.
If you have multiple MCAs and they are affecting your business, you should get out of them as soon as possible. No matter what, you should minimize the effect of MCA debt on your business for healthy operations and improved performance.
We know it’s difficult but not impossible. You just need to follow the below-mentioned financial tips.
When the business is not in good condition, paying a lump sum amount to someone is like a nightmare. But, with the help of your friends/relatives or by selling your inactive assets, you can accumulate funds and pay off the advance. Once you are out of the MCA debt, it will not impact your business further.
For MCA settlement, you can apply for a loan but make sure it doesn’t come with high-interest rates. The loan will leave you with monthly payments but have little impact on your sales. Also, it will help you improve your credit rating and boost your cash flow.
Before you apply for the loan, keep in mind that the approval will not be faster like an MCA as the lenders have different service terms.
As a merchant cash advance is not a loan, you can negotiate its terms with the lender. Sometimes, the MCA lender gets convinced and accepts the negotiation. This will help you avoid facing a lawsuit for defaulted payments. You ask the lender to reduce the monthly payments.
Before you go for negotiation, consider your MCA agreement. You should check the agreement for the confession of judgment. If this is included in your contract, you cannot negotiate.
Negotiation can be done in two ways. The lender may stop the payments for one or two months or agree to lower the payments. But, both options will have certain terms. You should understand them before approaching the lender for negotiation.
The use of a term loan is a good option for MCA settlement. But, it’s only possible if your credit score is strong. You should analyze your financial condition before applying for a term loan. It’s because a term loan will not fix your financial problems but reduce the impact of MCA on your business.
If there are other options available to settle your MCAs, you should avoid a term loan. It’s because this mode of MCA settlement will stay in your business for up to seven years. And if you are unable to pay it off, you might lose the collateral.
The best thing about a term loan is that its interest rate is less than MCA’s rates.
If your current financial condition cannot get you out of the MCA debt, you should consider factoring. It’s a financial trick in which the factoring company will buy your unpaid business invoices at a lower price. Also, the company will advance up to58% of the invoice to pay off the loan.
Later, the factoring company will return 10% of the total payment collected from the customers to your business. This is referred to as the postpaid service. Once you get paid for the invoices, you can pay off the advances.
One of the important benefits of factoring is that it protects the business's credit against bad debts and increases its debt capacity. If you are losing profit while tracking down payments, this is an ideal option.
We know it’s not easy to maximize business profit in a short span of time. It takes years and requires a lot of planning with the team and business. But, if you make a few changes in your current financial elements, you can maximize the profit of your business.
To increase your business profit, you should decrease your accounts payable and increase your accounts receivables. Other than this, you should consider raising the prices of your products and services. You can even add a new service or product line to your business. Last, you should use low-cost or free ads.
With increased profit, MCA settlement might become easier for you. You don’t have to look for external options.
Think about MCA settlement as soon as possible to benefit your business. Try not to become an MCA defaulter at any cost as it will worsen the condition of your business. As it’s a bit challenging, you should seek help from an MCA expert. You should explain your financial condition and ask for the best solution.
In Virginia, United States, Royale Capital can be your MCA expert. If you are ready for an MCA settlement and wish to know more about it, contact us today