How MCAs Can Help Retailers

Retailers are facing an unprecedented challenge as the pandemic decimates the industry. While big-box retail chains will likely survive, the majority of retailers are small businesses, many of which are turning to Merchant Cash Advances (MCAs) to weather the storm. 

Given the continued decline in brick-and-mortar retail sales, businesses that experience a receivables shortfall are at risk of defaulting on their cash advances. That’s the time to contact Our debt relief specialists work with retailers nationwide that are struggling under the terms of a merchant cash advance agreement. 

When you consult with us, we will assess your financial position and advise you of all your options. We have the skills and experience to help you reconcile your MCA and give your retail business room to breathe during these trying times. 

Why do retailers take MCAs?

An MCA allows retailers to leverage future credit card and debit card sales to gain access to working capital. This alternative funding product is particularly well-suited for businesses that make a lot of sales through electronic payments. Retailers typically utilize MCAs for several reasons, such as: 

  • Purchasing inventory
  • Reorganizing/expanding a store
  • Purchasing up-to-date equipment
  • Accessing temporary, seasonal cash flow
  • Covering unplanned business expenses

In this arrangement, the MCA provider advances the retailer a lump sum payment in exchange for an agreed-upon percentage of its future sales. The funder bases the advance on a factor rate, which is not to be confused with an interest rate or an annual percentage rate (APR). The factor rate is multiplied by the amount of the advance to arrive at the total cost of funding. 

By contrast, an interest rate reflects the percentage of the principal charged on a traditional business loan while the APR is the total cost of a loan for one year, including the interest and additional fees. The factor rate is expressed as a decimal figure, which is usually in the range of 1.2 to 1.5. When the factor rate is converted into an interest rate or APR, however, the figure can rise into the triple digits.

Finally, the MCA provider determines the percentage of future sales the retailer will pay based on the amount of the advance, the financial health of the business, and prior monthly sales.  But the retailer must be able to make sales quickly enough to pay back the advance during the term of the funding, which, in many cases,  may only be up to 1 year. 

What are the advantages of an MCA for retailers?

A merchant cash advance provides retailers with a number of benefits, such as quick access to working capital, particularly in cases when tapping traditional sources of funding is not an option. MCA providers do not rely on credit ratings since they are more concerned with the stability and volume of the retailer’s future sales. Credit scores do impact the factor rate, a lower score invariably yields a higher factor rate.

Because of the more lenient lending criteria and limited documentation requirements, the application process is quick and simple, and getting approved for an MCA is much faster than it is for a traditional business loan. Finally, an MCA can also help a retailer manage cash flow issues since the payments adjust to revenue at any given time during the term of the funding.

Caveat Emptor: MCAs Also Come With Risks for Retailers 

There is a downside to merchant cash advances: this type of alternative funding is far more expensive than a traditional business loan. Also, if the retailer does not meet its sales targets, it could default on the MCA agreement.  

An MCA agreement typically includes a Confession of Judgment provision whereby the retailer accepts liability for repaying the advance and waives its legal defenses. In the event of default, the MCA provider can file a judgment with the court and begin seizing the retailer’s assets.

Moreover, many MCA providers require retailers to sign a personal guarantee, which puts the owner’s personal assets, including his/her home, at risk. Given the present market conditions, a retailer who is unable to repay a merchant cash advance may be forced into bankruptcy. 

How Helps Retailers

If your retail business is struggling under the terms of a merchant cash advance, working with our experienced debt relief specialists can mean the difference between reconciling your cash advance and losing the retail store you’ve worked so hard to establish.

An MCA agreement typically includes a reconciliation clause that requires the funder to restructure the payments if a sales shortfall prevents your retail business from making the payments. It is crucial to contact us soon as possible so that we can reach out to the MCA provider and renegotiate the terms of your merchant cash advance into a payment plan that works for you. 

If the funder refuses to reconcile your cash advance, we will determine whether you have a legal basis for a lawsuit based on breach of contract. Finally, we will also advise you of your other options, such as refinancing your cash advance with a more traditional lending product.

Above all, we are committed to protecting your assets and helping your retail business endure these challenging times. Please contact our office or complete the convenient intake form so we can start working on reconciling your retail merchant cash advance.