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Can You Negotiate MCA?

Merchant cash advances (MCAs) have become an increasingly popular financing option for small businesses in recent years. But with high interest rates and fees, business owners may wonder if there is any room to negotiate better terms. The short answer is yes, you can negotiate an MCA, but your leverage will depend on multiple factors.

Understanding Merchant Cash Advances

What is an MCA?

An MCA provides a business with a lump sum of capital in exchange for a percentage of future credit card and/or debit card sales over a set period of time. Merchant cash advances allow business owners to access capital without providing collateral or having strong credit scores. The MCA provider essentially purchases a portion of the business’s future receivables at a discount.

MCAs are a form of alternative business financing. They appeal to businesses that cannot qualify for bank loans or want faster access to capital compared to traditional lending. MCAs do not have set monthly repayment amounts like a term loan. Instead, repayments come as a fixed percentage of daily credit card sales.

Costs of MCAs are very high compared to other financing options. Annual percentage rates often exceed 30-50%. The total cost grows exponentially the longer it takes to pay back the advance. Business owners should exhaust other, cheaper financing options first before considering an MCA.

Can MCA Terms Be Negotiated?

Yes, there is often room to negotiate MCA terms and pricing to secure a better deal. However, your leverage depends on multiple factors:

• Your business and personal credit scores
• Time in business
• Processing volume
• Industry risk level
• Competitiveness of the MCA market

Higher credit scores, more years in business, higher processing volumes and lower industry risk give you greater negotiating power over MCA terms. You also have more leverage if the MCA provider faces stiff competition for your business.

Specific MCA Terms to Negotiate

You should negotiate these key MCA terms to reduce costs and risk:

• Advance amount
• Fixed daily percentage
• Payback period
• Early termination fees
• Personal guarantee
• Rate discounts
• Future advances

How to Negotiate an MCA

Follow these steps when negotiating an MCA:

1. Research Multiple Providers:
   • Gather MCA quotes from at least 3-5 providers to compare terms and find the best offer.
   • Look for MCA brokers instead of direct lenders. Brokers have more flexibility to customize offers and incentives to win your business.
   • Ask providers detailed questions about pricing models, contract terms, account management and customer service. Gauge flexibility.
2. Stress Test Offers:
   • Thoroughly review MCA contracts before signing anything. Calculate total costs under different repayment scenarios.
   • Test the impact of various daily repayment percentages and payback periods in a spreadsheet. Figure out the best option if you repay early or need more time.
   • Review contract language around personal guarantees, liens, future advances and other areas that affect risk.
3. Start Negotiations:
   • Present the best competing offer you received and ask if the provider can beat the terms. Be specific on where the offer falls short for you.
   • Emphasize larger processing volumes, longevity in business or personal assets offered as collateral as justification for improved terms.
   • If the provider cannot match terms, explain you have more favorable offers on the table but would prefer to work with them. See if that changes the dynamic.
   • Negotiate for conditional approval contingent on due diligence if the provider insists on more information first. Avoid having credit pulled multiple times.
4. Get Terms in Writing:
   • Any negotiated terms must be provided in an updated written contract before signing. Do not trust verbal agreements alone.
   • Review the contract to ensure previously negotiated terms are properly documented to your satisfaction before proceeding.
   • Make sure you understand key terms related to costs, repayment amounts, timing and guarantees before signing anything. Ask questions if unsure!

Using Leverage to Negotiate an MCA

You can negotiate better MCA terms by emphasizing factors that make you a lower risk:

• Highlight Processing Volume: Providers want to see consistent, high credit card sales volumes. This signals you can reliably repay the advance. Tout monthly volumes well above the advance amount and year-over-year growth percentages.
• Emphasize Time in Business: Longevity reduces risk and failure rates. Mention how long you have profitably operated the business if 5+ years. This helps justify better terms.
• Offer Business Assets as Collateral: Pledging business assets (equipment, property, inventory, A/R) as collateral reduces risk over unsecured MCAs. Leverage assets to negotiate better advance rates/terms.
• Secure Personal Guarantor: Backing an MCA with a personal guarantee from a guarantor with high net worth/credit scores lowers risk over just the business owner guaranteeing.
• Paying Back Early Is Your Leverage: Committing to pay back early through higher daily payments reduces total interest costs. Use this pledge to negotiate a larger advance amount or lower rate.
• Getting Multiple Offers Drives Competition: Having a more favorable competing MCA offer in hand forces providers to improve terms to win your business. Use this dynamic to your advantage.

Downsides of MCAs to Consider

While MCAs provide fast financing, there are several downsides to weigh:

• Expensive Way to Borrow: MCAs are an extremely expensive way to borrow money with APRs often exceeding 30-50%. You risk very high costs if business slows. Other financing options likely exist at lower cost.
• Repayments Reduce Cash Flow: Having a percentage of daily credit card sales automatically deducted reduces cash flow available to operate the business. This can strain finances if sales decline seasonally.
• Hard to Budget Variable Payments: Since MCA payments fluctuate based on processing volumes, it is harder to predict how much capital will be available month-to-month. This complicates financial planning.
• Short Payback Periods Magnify Risk: Typical MCA payback periods of 6-12 months leave little room for error. Even a moderate downturn means you struggle to repay the advance and fees balloon.
• Personal Guarantees Put Personal Assets at Risk: Many MCAs require owners to personally guarantee repayment with personal assets. This jeopardizes personal finances if the business falters.
• Difficult to Refinance or Renegotiate: If business slows, providers are generally inflexible about renegotiating terms or refinancing with better terms. You remain stuck in the original contract.

When Are MCAs a Good Financing Option?

If you understand the high costs and risks, MCAs can still be appropriate financing in certain circumstances:

• Need Fast Funding: MCAs provide funding in days or weeks, much faster than bank loans requiring months of processing. Speed is the main advantage of MCAs.
• Have High Credit Card Sales Volumes: Businesses with regular credit card sales exceeding $10K+ per month can reliably repay an MCA advance amount through a fixed percentage deduction.
• Have Limited Financing Options: For newer businesses or those with challenged credit, MCAs may be the only near-term financing option available to fund growth plans.
• Can Repay Quickly: If your business can reliably repay an MCA within 6 months through high processing volumes, the total interest paid may be acceptable to you.

How Much Can You Borrow with an MCA?

MCA providers generally allow you to borrow $5,000 to $500,000+ based on these factors:

• Time in business
• Average monthly credit card sales
• Repayment period
• Credit scores
• Industry risk

For example, a business with 3+ years operating history, $100K in monthly credit card sales and strong personal credit scores could likely secure a $500K MCA. Most providers allow second advances once the initial MCA is repaid, so over time businesses can access larger amounts. Having a history of reliable repayments with the provider builds additional trust and capacity.

Our Recommendations on MCA Financing

• Only pursue an MCA if you absolutely need fast financing and cannot qualify for other, cheaper funding options.
• Get quotes from multiple providers and negotiate the lowest rates/best terms possible before committing.
• Treat an MCA as a short-term solution while working to improve business credit scores and financials for cheaper, longer-term financing.
• Closely monitor cash flow and processing volumes to ensure adequate capital remains to repay the MCA and operate the business.
• Have a backup plan ready in case volumes decline so you can still fulfill the MCA contract.
• Avoid personal guarantees and liens on personal assets if at all possible.
• Commit to early repayment if possible to mitigate interest charges. Paying an MCA off early saves significant money.

The Bottom Line

Yes, you can and absolutely should negotiate an MCA rather than accepting the initial terms offered. But your leverage depends on business metrics like processing volume, credit scores and time operating. Favorable market conditions also support better terms. We recommend exhausting other financing options first due to MCAs’ high costs. With strong negotiating tactics and the right circumstances, an MCA provides fast access to growth capital despite its risks.