Tourism businesses face stiff competition from online service providers like Airbnb, Expedia.com, and others. The tourist industry is also cyclical, with peak seasons during the summer and holidays. When revenue declines, many tourism businesses turn to alternative funding products, such as a merchant cash advance, for working capital. However, merchant cash advances carry more risk than traditional bank loans and lines of credit.
Whether your tourism business is considering a merchant cash advance or struggling to repay one, the experienced debt relief specialists at ReconcileMyMCA.com can help. When you work with us, we will explore how to reconcile your merchant cash advance. Let’s take a look at how merchant cash advances help tourism businesses and your options if you default.
Merchant Cash Advances for Tourism Businesses
A merchant cash advance is a convenient form of business financing available to small businesses, including travel agencies, that draw income primarily from credit card sales. MCAs work differently than traditional business loans in that the merchant receives a lump sum of cash upfront and then repays it from a percentage of credit card sales or other business receipts.
The MCA provider determines the amount of the advance, the term, and the factor rate, which is the cost of capital (and differs from an interest rate). Payments will be lower when the tourism business is slow, and sales volume decreases. Conversely, payments increase when revenue rises. Because there is no fixed payment, MCAs provide tourism and other small businesses more flexibility than traditional business loans.
Is A Merchant Cash Advance Right for a Tourism or Travel Agency?
Small business owners in the tourism industry know that their cash flow faces several challenges, including:
- Seasonality
- Domestic and international crises
- The high rate of cancellations and credit card (and debit card) chargebacks
At the end of every season, your tourism business will likely need short-term working capital to get you through the winter. Suppose a big corporate client cancels their annual retreat, and you need to fund a marketing campaign now on the vacated inventory. These are a few reasons why travel agencies consider merchant cash advances.
How Do Merchant Cash Advances Work?
The MCA provider will advance your tourism business money in exchange for a percentage of your credit card sales. That percentage is based on the following:
- The advance amount
- The payment term
- Prior monthly sales
The cost of funding, or factor rate, is much higher than a bank loan or line of credit, which is based on an APR (annual percentage rate). Factor rates range from 1.2 to 1.5. For example, if the advance amount is $50,000 with a 1.5 factor, the amount you repay is $52,500 ($50,000 x 1.05).
But the actual funding cost combines the factor rate and the payback period. If the payback period is three months, calculated yearly, the corollary APR could rise to a triple-digit figure – an exorbitant cost of funding. If your tourism business does not meet sales projections, you will likely default on the MCA agreement.
Consequences of Default
MCA agreements typically include onerous terms. One is a confession of judgment or COJ whereby your tourism business accepts liability for the advance and waives any legal defenses if a default occurs. In this situation, the MCA provider can quickly obtain a court judgment and begin seizing your tourism business’s assets. In addition, the funder may require you to sign a personal guarantee, meaning they can levy your home, vehicle, bank accounts, and other assets. With so much at stake, having an experienced merchant cash lawyer is essential.
How ReconcileMyMCA.com Can Help Tourism Businesses
If your tourism business is at risk of defaulting on an MCA agreement, contact our experienced debt relief specialists. A typical contract includes a reconciliation clause that requires the funder to restructure the payment plan if your business experiences a receivables shortfall. Without this clause, the advance is considered a demand for payment and is, therefore, a loan, subject to applicable federal and state regulation.
Our team will assess your financial situation and negotiate the payment plan with the funder. However, you must first notify the MCA provider of any receivables shortfall and prove that your tourism business will return to profitability. Let our team handle all the details. We will also consider other options if reconciling your merchant cash advance is not an option. If the MCA provider refuses to negotiate, our capable MCA attorneys will take them to court for breach of contract.
Contact An Experienced Merchant Cash Advance Relief Specialist Today
If your tourism business is struggling under the terms of an MCA agreement, contact our office as soon as possible. We have a proven history of protecting small business owners and helping them reconcile their merchant cash advances. Contact us now by completing the convenient intake form.