Opening a franchise can be a lucrative business opportunity. But once the business is up and running, a franchisee may struggle to cover expenses. After the startup cost or initial investment, the franchisor may not assist with funding. There are alternative funding options, such as a merchant cash advance (MCA), if unexpected expenses arise.
Merchant cash advances are not risk-free; they often include onerous repayment terms that could force a franchise to close. Whether you are considering a cash advance for your franchise or have already defaulted on an MCA agreement, consult an experienced debt relief specialist at ReconcileMyMCA.com. In the meantime, let’s look at how merchant cash advances can help franchisees and what to do if you default.
Merchant Cash Advance for Franchises
Obtaining a bank loan for a franchise is challenging. Most banks will not consider funding a franchise even if you have perfect credit and outstanding revenue. However, MCA providers are more inclined to provide lump sums of cash upfront to help maintain your cash flow.
Whether you need to renovate your location, hire new staff or pay off outstanding debt, an MCA will provide you with working capital. A merchant cash advance is a quick and easy way to finance franchise expansion as funds are often available within days. MCA companies provide a franchisee with upfront cash for a fixed percentage of future credit card sales.
Merchant cash advances are not loans, so the terms differ from a traditional bank loan. In particular, monthly credit card sales volume determines the repayment terms. When business is slow and sales volume decreases, payments will be lower. Because there is no fixed payment, MCAs provide more flexibility to a franchisee that lack access to traditional sources of capital.
Is A Merchant Cash Advance Right for My Franchise?
A merchant cash advance provides a franchise with working capital for business needs, such as:
- Purchasing inventory
- Obtaining supplies and equipment
- Meeting payroll
- Covering unexpected business expenses
In short, an MCA may be the best solution if your franchise has consistent daily sales. The funder will advance your business a lump sum payment in return for a percentage of your credit card sales, based on:
- The advance amount
- The payment term
- Prior monthly sales
However, the cost of funding is much higher than a bank loan or line of credit. A merchant cash advance does not have an interest or Annual Percentage Rate (APR) but rather a factor rate.
Factor rates range from 1.2 to 1.5. If the advance amount is $100,000 with a 1.2 factor, for example, the amount you repay is $120,000 ($100,000 x 1.02). Ultimately, the funding cost combines the factor rate and the payback period.
Suppose the payback period is three months, calculated yearly. A factor rate converted into an APR may result in a triple-digit figure. That is an expensive cost of funding. In short, your franchise may default on the MCA agreement if it does not meet sales projections.
What Happens When a Startup Defaults on a Merchant Cash Advance
A typical MCA agreement includes a Confession of Judgment (COJ), whereby the franchisee accepts liability for the advance and waives all legal defenses in the event of a default. The funder can quickly file a judgment with the court without a hearing and begin seizing the business assets. Also, MCA providers typically require franchisees to sign personal guarantees, which means the funder will go after your home, car, bank accounts, and other assets.
How ReconcileMyMCA Can Help
If your franchise cannot meet the payment terms of a merchant cash advance, our debt relief specialists can help. We will negotiate with the funder to restructure the payment terms according to the reconciliation clause in the MCA agreement.
Once you submit the intake form, we will evaluate 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 franchise has breathing room. If the MCA provider refuses to negotiate, our experienced MCA attorneys will take them to court.
Contact An Experienced Merchant Cash Advance Relief Specialist Today
If your franchise is at risk of defaulting on a merchant cash advance, contact the debt relief specialists at ReconcileMyMCA.com. We have an impressive track record of protecting business owners from unscrupulous MCA providers and will work to protect your rights and your franchise. Contact us now by completing the convenient intake form.