Merchant Cash Advance Default: What Should You Do?
Merchant cash advances can prove tempting to small business owners who are in need of fast cash, especially for those businesses that earn much of their money through credit card transactions. If you are a business owner who has found themselves with too much debt from merchant cash advances, it is a normal response to be concerned.
If you are unable to maintain your daily or weekly Merchant Cash Advance payments, you are at risk of defaulting on the agreement. Because of this, you should be aware of all of your options and the steps you should consider to protect your business from the consequences that could result by defaulting on your MCA loan.
STEP 1: Call Your MCA Company and Request Hardship Relief
The first measure we suggest to all of our clients, if they feel they are likely to default on their merchant cash advance payments, is to call their merchant cash advance funder and explain the situation to them. Many lenders will understand and are likely to offer some type of temporarily revised payments terms.
It is important to review your MCA agreement and see if you have a reconciliation clause. In order to not be considered a usurious loan, many MCA agreements have clauses which allow borrowers to request a readjustment on their payment plan if their business revenue declines. Some lenders will be willing to work with you, while other lenders will not be.
STEP 2: Refinance Your MCA Debt With Business Financing
Replacing your merchant cash advance debt with a Term Loan is one way to refinance your merchant cash advance debt. Term loans are a good option for business debt consolidation because these loans carry much more favorable terms than MCAs. They have lower interest rates, longer repayment periods and monthly, not daily loan payments.
Another refinancing option is an Asset-Backed Loan. An asset-backed loan is guaranteed by your business’s assets, which means that if you do not pay back the loan, the bank or lender can collect your assets to pay off the debt.
STEP 3: Allow The MCA Loan To Default
Defaulting on merchant cash advance payments is a stressful position that many business owners find themselves in. But having multiple creditors attempting to collect on the same assets of your business can be an advantage. To secure a loan against business assets, a creditor must obtain a security agreement which is referred to as a UCC-1 (Uniform Commercial Code) filing. In a situation where more than one creditor has placed UCC-1 filings against the assets of a single business entity, the UCC filings are given priority by who is first to file. If the creditor who is first in line does not receive a 100% repayment of their loan balance off the sale of the assets, the second in-line creditor will receive no payment. If this happens, there is no equity in your assets for anyone else beyond the first lien holder.
STEP 4: Protect Yourself
When you signed your MCA agreement, you also signed a security agreement allowing the MCA lender to impose a UCC-1 lien filing against your business. Specifically, this is a lien against your future receivables. Also, please remember that you have given bank account access to your MCA lender(s). That means they do not need your authority to withdraw funds from your accounts. One of the first steps to protecting yourself and your business is to make sure that you have more than one merchant processor or credit card processor in the event that the one that you’re working with decides not to continue to do business with you due to a demand notice from an MCA lender. You may also want to consider getting a secondary bank account concerning the operation of your business. If your lender does, in fact, attempt to take more funds or successfully takes more funds from your account than what was agreed to in your MCA agreement, then you certainly have to question allowing your future revenues to be deposited into that same compromised account.
STEP 5: Hire A Qualified Debt Settlement Firm To Represent Your Business
A debt settlement firm with experience in merchant cash advance issues may assist in resolving your merchant advance delinquencies. CuraDebt Business has a team of professionals who are highly trained and ready to help you with both, business and personal debts. We are highly effective in defending our clients against the aggressive collection and litigation tactics of the MCA lenders. Contact us today for your free consultation. 1-877-850-3328