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How to Stop Paying Merchant Cash Advances
Merchant cash advances (MCAs) provide quick capital to small businesses by purchasing a percentage of future credit card sales. While convenient, the extremely high effective interest rates and aggressive collection tactics have caused financial distress for many business owners. If you have taken an MCA and are struggling with payments, here are some options to consider.
Attempt to Renegotiate Terms
The first step is to contact your MCA provider and explain that you are unable to keep up with the daily repayment amounts ((https://www.reddit.com/r/smallbusiness/comments/wk8x5q/merchant_cash_advance_help/), (https://www.quora.com/How-do-I-negotiate-with-a-merchant-cash-advance-company)). Ask if they can reduce the percentage taken from daily credit card sales to a more manageable number. Some providers may agree to temporarily lower payments if it means continuing to receive some revenue rather than none at all.Be prepared to provide financial documentation to back up your claims of hardship. This could include recent bank statements, credit card processing statements, profit and loss statements, etc. The better you can demonstrate an inability to pay, the more leverage you have to negotiate reduced payments.
Explore Debt Consolidation Options
If the MCA provider refuses to budge on repayment terms, debt consolidation could be an option. This involves taking out a new loan to pay off multiple existing debts at lower interest rates.While you would still have a loan to pay off, the more manageable payment terms could provide some financial breathing room. Be aware that debt consolidation loans often use assets like real estate as collateral, so make sure you understand the risks.
Attempt Refinancing
Some small business financing companies specialize in refinancing merchant cash advances. They will pay off your existing MCA balance in exchange for you agreeing to new repayment terms.While still expensive, a refinancing loan may have lower rates and more flexibility than the original MCA. Shopping around among alternative lenders increases your chances of finding reasonable offers.
File Chapter 11 Bankruptcy
If the repayment terms are completely unworkable, Chapter 11 bankruptcy allows a business to restructure debts under court supervision. Filing stops collections efforts and a repayment plan is created based on what the business can actually afford.Chapter 11 can be complex and expensive, so be sure to work with an experienced small business bankruptcy attorney. While allowing you to eliminate or reduce MCA payments, bankruptcy also has negative consequences like damaged credit.
Attempt Settlement for Pennies on the Dollar
When MCA providers see bankruptcy coming, they often become more agreeable to settling for a fraction of what is owed ((https://www.quora.com/How-do-I-negotiate-with-a-merchant-cash-advance-company)). It is basically them deciding to take a small loss instead of being forced to write off the entire outstanding balance.Settlements typically range from 25% to 50% of what is owed. The process can take some time and usually involves the help of a lawyer to negotiate. Be aware that any forgiven debt may be treated as taxable income.
Stop Making Payments and Close Business Accounts
As a last resort, some small business owners facing financial ruin from MCA payments decide to simply stop paying ((https://www.reddit.com/r/smallbusiness/comments/wk8x5q/merchant_cash_advance_help/)). They close the business bank accounts that the MCA company withdraws funds from.While extremely damaging to your credit and opening you up to potential lawsuits or harassment from collections agencies, voluntarily shutting down your business may be the only option if negotiations fail and you cannot afford bankruptcy. You can always start over again in the future.
Beware of Scams Claiming to Eliminate MCA Debt
In their desperation to escape overwhelming MCA payments, some business owners fall victim to debt elimination scams. Watch out for any company claiming they can make your MCA debt disappear or that you can avoid payments by establishing a new identity ((https://www.avvo.com/legal-guides/ugc/merchant-cash-advance-scams)). These are fraudulent tactics that will only lead to further legal and financial problems.
Consult an Attorney to Understand All Options
Navigating the complex legal and financial issues around stopping merchant cash advance payments is extremely difficult without professional help. Connecting with an attorney that specializes in small business debt relief enables you to understand the pros/cons of each approach and chart the best path forward ((https://www.findlaw.com/consumer/debt-bankruptcy/how-to-negotiate-with-creditors.html)). They can also represent you in sensitive negotiations and legal proceedings.While MCA loans provide easy access to capital, they often do more harm than good for small business owners. If you have fallen into the trap of predatory lending and unpayable debts, know that options exist to eliminate or reduce payments. With patient negotiations, financial restructuring, and sometimes even bankruptcy, you can escape MCA payments and regain control of your business’s future.
