Starting a business is exciting but also poses challenges, not the least of which is gaining access to working capital. Given that traditional business loans require borrowers to have good credit and time in business, startups often turn to alternative sources of funding, such as a merchant cash advance (MCA).
While an MCA can help a startup meet its short-term business needs, there are risks involved. Merchant cash advances typically come with onerous terms that could result in an event of default and force a young business into bankruptcy. If your startup business is struggling under the terms of an MCA agreement, turn to ReconcileMyMCA.com.
Our team of debt relief specialists works with startups, entrepreneurs, and small businesses nationwide to reconcile their merchant cash advances. When you consult with us, we will take the time to learn about your business and financial situation and help explore all your debt relief options. Contact our office today or complete the convenient intake form so we can start reconciling your cash advance.
When is an MCA a good idea for startups?
A merchant cash advance provides a startup with working capital to fund short-term business needs, such as:
- Purchasing inventory at a discount
- Obtaining supplies and equipment
- Meeting payroll
- Paying unplanned business expenses
In short, an MCA may be the right funding solution if your startup has strong daily sales. A merchant cash provider will advance your business a lump sum payment in return for a percentage of your future debit and credit card sales through daily ACH payments. That percentage is based on factors such as:
- The advance amount
- The payment term
- Prior monthly sales
That sounds simple enough, but the cost of funding is not the same as a bank loan or line of credit. A merchant cash advance is not tied to an interest rate or Annual Percentage Rate (APR), but rather a factor rate that is multiplied against the advanced funds.
Factor rates range from 1.2 to 1.5, but these values are misleading. For example, if the advance amount is $100,000 with a 1.2 factor, the amount you repay is $120,000 ($100,000 x 1.09).
However, the cost of funding is actually determined by a combination of the factor rate and the payback time. A payback period of 3 months, calculated on a yearly basis, could be very expensive: converting the factor rate into an APR can result in a triple-digit figure. If your startup fails to meet sales projections, paying back the advance can become challenging and the risk of default is high.
What Happens When Startups Default on an MCA
Merchant cash advances are often pitched as “no collateral required,” but this is also misleading. A typical MCA agreement includes onerous provisions, such as a Confession of Judgment (COJ).
In a COJ, your startup accepts liability for the advance and waives all legal defenses in the event of a default. This allows the funder to file a judgment with the court without a hearing and quickly begin to seize the business assets. In addition, an MCA provider typically requires the owner of a startup to sign a personal guarantee, which means the funder will go after your personal assets (home, car, bank accounts).
How Our Experienced Debt Relief Specialists Can Help
If your startup cannot meet the payment terms of a merchant cash advance, you do have options. First, a properly structured MCA agreement will include a reconciliation clause that requires the funder to restructure the repayment plan if you are facing a receivables shortfall (as long as you notify the MCA provider that you cannot make the payments).
This is where ReconcileMyMCA.com can help. Once you submit the intake form, our debt relief specialists will assess your financial situation and work with the funder to reconcile your cash advance. We will leverage our negotiating skills to restructure the payment plan so that your startup has breathing room.
If the MCA provider refuses to negotiate the payments, we have the resources, including our group of experienced MCA attorneys, to obtain a favorable result. Finally, we offer a subscription service to provide ongoing merchant cash advance assistance.
If your startup is at risk of defaulting on a merchant cash advance, we will provide you with trustworthy advice and work with the MCA provider to reconcile your cash advance. We have a well-deserved reputation as tough negotiators and a proven history of achieving favorable outcomes. Defaulting on a merchant cash advance could doom the startup you’ve worked so hard to launch. Don’t delay. Contact our office or submit the intake form today.