The Merchant Cash Advance Trap
You took out a merchant cash advance to get your business off the ground, but now – those daily payments are crippling your cash flow. What can you do? Negotiating a settlement on that MCA may be your only way out.It won’t be easy, but if you play your cards right – you could reduce that debt burden significantly. Here’s how:
Understand the Merchant Cash Advance Minefield
An MCA is not a loan, it’s a lump sum payment in exchange for a slice of your future revenues. Sounds simple enough, but those “factor rates” are essentially annualized interest rates that can reach triple digits.You’re essentially selling your future at a steep discount. And if your sales slump? Too bad, those fixed daily/weekly payments keep on coming out of your merchant account.It’s a vicious cycle that can quickly spiral out of control. Many businesses get trapped, forced to take out new MCAs just to pay off the old ones. You don’t want to be one of them.
Get a Grip on Your Finances
Before you negotiate, get your books in order. Gather bank statements, profit/loss reports – anything showing your true financial position. The lender will want to see this, and having it ready shows you’re serious.Be brutally honest in assessing what you can realistically afford for a settlement. Don’t overestimate just to get a lower number – that could backfire if the lender calls your bluff.
Make Your Case
With your financials in hand, build your argument for why you need relief. Did an unexpected event torpedo your revenues? Are you struggling with other debt? Lay it all out there.But don’t just plead poverty – you need to show you’re still a viable business worth keeping as a customer. Highlight any new contracts, expansion plans, or steps you’ve taken to right the ship.The goal? Convince the lender that a reasonable settlement is better than forcing you into bankruptcy and getting nothing.
Propose a Reasonable Number
Okay, it’s showtime. What’s your offer? A lump sum payment of 40-60% of the outstanding balance is typically the target range for MCA settlements.But don’t just throw out a number – back it up with your financial data and ability to pay over time if needed. Having a third-party debt professional negotiate can also lend credibility.
Be Prepared to Walk Away
The lender will probably push back hard on your initial offer. That’s fine, it’s a negotiation. But at some point, you may need to walk if they won’t budge from an unreasonable number.Bankruptcy is undoubtedly painful, but it could be the only way to discharge that MCA debt and get a true fresh start. Don’t make a deal you can’t realistically keep.
Get Everything in Writing
If you do strike a settlement agreement, get every detail documented before making that lump sum payment. What’s the total amount? Are you released from all further liability? Is there a non-disclosure clause?Don’t leave anything to chance. Once you make that payment, you want to ensure the MCA is officially terminated and can’t come back to haunt you.