A merchant cash advance (MCA) provides small businesses with access to working capital when they are unable to access traditional sources of credit. While this type of alternative funding is well-suited for short-term business needs, the risk of default is high. If your small business is struggling to pay back a merchant cash advance, this is the time to contact ReconcileMyMCA.com’s MCA lawyer.
Our experienced debt relief specialists help small businesses nationwide reconcile their merchant cash advances. Given that a typical MCA agreement contains onerous terms like a personal guarantee and Confession of Judgment (COJ), both your personal and business assets may be in jeopardy. We have the skills and experience to reconcile your MCA with the funder and the know-how to protect your business. Contact us today by completing our convenient intake form.
Why Small Businesses Use Merchant Cash Advances – MCA Lawyer
A merchant cash advance allows a small business to obtain working capital from an MCA provider to finance short-term business needs, such as:
- Purchasing inventory
- Purchasing supplies and equipment
- Covering unplanned business expenses
Under an MCA agreement, the funder advances the small business a lump sum payment in exchange for an agreed-upon percentage of its future debit and credit card sales. That percentage is based on factors such as the amount of the advance, the financial health of the business, and prior monthly sales.
The cost of funding is unlike a traditional business loan, which is based on an interest rate or APR (annual percentage rate. Instead, an MCA is based on a factor rate which is expressed as a decimal figure in the range of 1.2 to 1.5. The factor rate is multiplied by the amount of the finance to determine the cost of funding.
This sounds simple enough, but converting the factor rate into an interest rate or APR gives you a figure in the triple digits. Such a high cost of funding can make paying back the advance difficult, particularly if the business fails to meet sales projections.
Types of Small Businesses That Use Merchant Cash Advances – MCA Lawyer
An MCA is well-suited for business with a high volume of electronic payments, such as:
- Retail stores — An MCA provides a retail store with quick funding for stocking seasonal merchandise, reorganizing the store to improve sales, and opening new stores.
- Restaurants — A merchant cash advance can help a restaurant owner purchase new kitchen equipment, obtain volume discounts from vendors, and establish a franchise.
- Beauty salons — Modern beauty salons offer a wide range of services from hairstyling to skincare to massage therapy. A salon owner can use an MCA to purchase state-of-the-art equipment or modernize the store.
- Auto repair shops — An MCA can help an auto repair shop owner purchase diagnostic equipment, parts, and supplies to perform repairs on contemporary, technologically advanced vehicles.
- Florists — Because the flower business is cyclical and depends on seasonal and holiday sales, a florist can use a merchant cash advance to cover expenses when business is slow.
What are the advantages of an MCA for a small business?
A merchant cash advance provides a small business with quick access to working capital when traditional sources of funding are not an option. Lending criteria are less stringent for an MCA than a traditional business loan because funders do not rely on the business owner’s credit rating to advance funds. MCA providers focus on the volume of future sales; however, credit ratings will impact the factor rate. A lower credit score will result in a higher factor rate.
An MCA not only has more lenient lending criteria than a traditional business loan but limited documentation requirements as well. This makes for a quick and simple application process and faster approvals. Finally, a merchant cash advance allows small businesses to manage revenue shortfalls because repayments adjust during the term of the transaction.
What are the risks of a merchant cash advance?
Despite the benefits, an MCA usually comes with onerous payment terms that could result in default if the business experiences a cash shortage. In this situation, the funder will rely on the personal guarantee and COJ to seize the owner’s personal and business assets. It is worth noting that an MCA is a sales transaction, not a loan, which means that small businesses are not protected by consumer lending laws.
Contact Our Experienced Debt Relief Specialists
If your business is at risk of defaulting on a merchant cash advance, turn to the debt relief specialist at ReconcileMyMCA.com. We will work to renegotiate the payment terms with the funder. A merchant cash advance should contain a reconciliation clause that requires the MCA provider to restructure the payment terms if your business experiences a receivables shortfall.
If the funder refuses to negotiate, you may have grounds for a civil lawsuit based on breach of contract. Defaulting on a merchant cash advance could result in business bankruptcy. Don’t delay. Complete the convenient intake form so we can start reconciling your merchant cash advance today with an experienced MCA lawyer.