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How to Get Out of a Merchant Cash Advance: 9 Smart Ways

Are you feeling trapped by a Merchant Cash Advance? Unlock the door to financial freedom with our guide on the Best 9 Options and How to Get Out of a Merchant Cash Advance.

Trying to get out of a Merchant Cash Advance (MCA) can be challenging, but there are strategic options available. This guide outlines nine practical solutions, from restructuring your MCA to seeking alternative financing options.

It emphasizes the importance of understanding the terms of your MCA, exploring consolidation loans, and even engaging in negotiations to adjust your terms. By carefully considering these options, businesses can find a viable path to regain control of their financial situation.

For more in-depth insights, please read the full article.

Best 9 Options On How To Get Out Of A Merchant Cash Advance

How To Get Out Of A Merchant Cash Advance

Are you stuck in a business cash advance you regret? Do you wonder, “How To Get Out Of A Merchant Cash Advance”? Does the thought of having to keep repaying it give you nightmares? Do payments seem insurmountable?

No worries. You’re not alone. Many small companies are caught up with cash advances and other short term business loans that hold them hostage, taking more money out of their pocket than they initially borrowed.

But there’s still hope! In this article, I’m sharing 9 strategies to get out of a merchant cash advance or other harmful business loans – a way to regain financial freedom for your personal and business finances.

 

WHAT IS A MERCHANT CASH ADVANCE (MCA)?

The MCA is not a loan technically but an alternative way of financing your business in exchange for a portion of the business’s future revenues. 

The application process is simple and easy, there’s no collateral required, and the approval is more accessible, yet MCA loans are fraught with potential pitfalls.

 

THE DISADVANTAGES OF GETTING MCA

High Costs

It is one of the most expensive loans. MCAs don’t have an interest rate. Instead, they use a factor rate metric ranging from 1 to 1.5. Based on your score, you pay an annual percentage rate (APR) that may go up to 300%

 

Lack of federal regulations

MCAs are a type of small business lending not regulated by federal laws, making them prone to abuse by loan sharks. Unsuspecting business owners may fall prey to exorbitant APRs and unscrupulous sales tactics when considering this financing option.

 

Unclear terms

Most MCA agreements only clearly define interest rates (APRs) or other vital information (unlike term loans) once you have already taken the loan. Most contracts obfuscate this information making it difficult to understand what you’re getting.

 

Personal liability

If your business cannot repay the loan, you could be held personally liable for any outstanding balance.

 

Likelihood of getting into a debt trap

If your business fails to do well, you might have to take out another small business loan to repay your MCA and get stuck in a cycle of debt repayment. 

 

Confession of judgment

Some MCA companies may ask you to sign a confession of judgment that means you forfeit your legal rights.

Why do businesses take out MCA's

WHY DO BUSINESSES RESORT TO MERCHANT CASH ADVANCE 

Many small to medium-sized businesses resort to merchant cash advances despite compelling risks and disadvantages. Here are some reasons why they might turn to MCAs: 

1. They need money fast

Small businesses often need help with a cash crunch. A lack of cash or capital can happen when unexpected expenses arise. In such cases, they may need quick access to funds. 

2. They lack a credit history

Many small businesses don’t have good credit histories or credit score either because they are just starting out or due to poor revenue. In addition, some small businesses cannot get traditional bank loans due to bad credit.

3. Their current line of credit has been exhausted

Many companies have used their available credit lines and now have no more options.

4. They are facing liquidity issues

Some small businesses face liquidity problems with insufficient funds for daily operations. These businesses usually sell off assets such as inventory, equipment, or real estate to raise capital.

5. They want to expand their business

Some small businesses want to grow and need additional funding to help them achieve their goals. They do not qualify for a traditional term loan or business line.

business owner running to find 9 options to escape a merchant cash advance.

9 WAYS TO ESCAPE A MERCHANT CASH ADVANCE TRAP?

If you find yourself in the vicious trap of an MCA loan, here are nine ways you can get out of it without having to file for bankruptcy

Get a term loan with lower interest rates.

If this is an option, try to get a new term loan from traditional lenders like banks and credit unions that offer better terms and lower interest rates so that you can pay off your MCA loan. Ensure you do your due diligence before taking out a new loan. 

Use Personal Funds

Use personal funds to pay down your MCA loan if you have personal funds or consider a personal loan or low-interest credit card. It won’t solve your problem immediately, but it will give you breathing room while you look for alternative solutions. If you don’t have any personal savings, reach out to friends and family members who might be willing to lend you money.

Sell or rent out your business assets

This strategy is one of the most common methods of getting out of an MCA loan. Sell or lease your business assets like inventory, machinery, vehicles, office furniture, etc. The proceeds from these transactions can go towards paying back your MCA loan and increasing your cash flow.

Increase the profitability of your business

While this is easier said than done, consider increasing your product or service prices if you’re running low on cash. You could also cut costs by reducing employee hours or cutting unnecessary expenses.

Apply for a Small Business Administration loan

The SBA offers several types of business loans that are designed specifically for small businesses. These loans carry comparatively lower interest rates and require more extended repayment periods than other loans. The SBA loan is a viable option for small businesses looking to get out of debt.

Apply for an Asset-based loan

An asset-based loan is another type of loan that enables you to borrow against the value of your business’s assets. This type of loan carries higher interest rates than conventional loans because it requires a higher risk assessment. However, it does allow you to repay the loan over a more extended period and is easier to get

Negotiate With The Lender

You can negotiate with the lender to reduce the APR or extend the agreement term. Approach the lender and ask if they can reduce the monthly payments. However, if your contract has a confession of judgment clause, renegotiating may not be an option. Another option may be to ask for forbearance, where the lender pauses the payment temporarily. 

Debt Settlement

If you are out of options because of a poor score, settling your debt may be one of the feasible options. Another consideration is a reverse consolidation. 

Hire an MCA lawyer

If you cannot handle the legal process alone, hire an MCA lawyer to represent you and give you advice during the debt negotiation, settlement, or bankruptcy phase. 

File for Bankruptcy

Bankruptcy should be your last option when there’s no other way of getting your business out of the financial problem. 

 

FAQS

How do I get rid of MCA?

If you ask yourself, “How do I get rid of MCA?” you’re not alone. Merchant cash advances (MCAs) can be challenging to pay off and quickly put a business owner into a deep financial hole. 

The good news is that plenty of options are available to those who need to find their way out. One of the most frequently asked questions businesses have regarding getting out of an MCA is how long it will take them to do so – there is no one-size-fits-all answer to this question. 

However, if you understand your options and plan carefully, reducing the burden of MCA payments may be possible by seeking alternative financing or debt consolidation services.

When scouting out new financing partners or debt relief services, research any fees associated with their services and their impact on credit scores to make informed decisions about which option is right for you. With careful planning and consideration, getting out of an MCA on time and getting back on track with your business finances is possible!

What happens if you don’t pay a merchant cash advance?

When it comes to dealing with a cash advance, people often have a lot of questions. One of the most common questions is: What happens if I don’t pay my merchant cash advance? 

The answer to this depends on the terms of your loan agreement — but in general, failure to repay your loan could lead to collections and legal action against you or your business. 

Other FAQs that need answering include: How are repayments calculated? What options do I have if I struggle to repay the loan

9 out of the ten questions people ask center around these topics. Therefore, you must get all the answers before entering a business financing situation like this one.

Can a cash advance company sue you?

Among the many questions business owners face when considering getting out of a cash advance loan, there are some more frequently asked questions. One example is “Can a cash advance company sue you?” The answer can vary depending on the situation.

In general, if you have defaulted on an ongoing MCA loan and not made a conscious effort to communicate with the lender about your repayment terms or intentions, then yes – the company has the right to take legal action against you. 

Experts recommend that every business owner enters discussions early and openly to determine any potential outcomes should payment issues arise.

Such conversations with lenders can often result in new repayment structures or compromised options that suit both parties. A cash advance company will always be willing to work with customers to achieve their mutual success.

What happens if I default on a merchant cash advance?

Many FAQs exist regarding business cash advances (MCAs) and other risky business loans. One of the most common is, “What happens if I default on a merchant cash advance?” The short answer is collection agencies can contact you, and you can be subject to legal action.

To avoid these scenarios, before taking out an MCA or any similar type of loan, ensure you understand all the terms and conditions of the loan agreement. Additionally, review your budget carefully to ensure that you can manage the payments without getting into debt.

Suppose things still don’t go as planned, and you need help with repayment. In that case, several options are available to assist you, such as debt settlement agreements, refinancing loans with lower interest rates, or consolidation and forbearance programs. Communication with your lender is critical to avoiding unnecessary trouble down the road.

Do merchant cash advances report to credit bureaus?

Getting out of a cash advance or other harmful business loans can be tricky, and that is why it pays to understand the terms and conditions of such loans and possible solutions to get out of them. One common question people have when looking at merchant cash advances is whether they report to credit bureaus since this will affect their ability to get funding elsewhere.

The answer to that question is a complex one. Generally speaking, an MCA does not report directly to credit bureaus (neither personal credit nor business credit), but there are exceptions as some lenders choose to do so. 

If you miss payments and enter into collections, the creditor may report it to the bureaus to recover their money. To mitigate potential complications from your lender reporting adverse action-related debt, you must find solutions for paying off these loans (or renegotiating payment plans) before defaulting on them.

 

Support

Mark J. Kane, Founder & CEO of Sunwise Capital, is a distinguished entrepreneur with over 16 years in business financing. Beginning as a psychologist, he quickly became a trailblazing Hospital Administrator. Mark has built multiple ventures, notably accelerating a startup to $18M within months. His transition to Sunwise Capital stems from a deep-seated desire to empower business owners with strategic financial solutions. Recognized for his expertise, Mark's leadership at Sunwise Capital reflects his commitment to fostering business growth and success. about the author.

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