Strategies for Settling Your Merchant Cash Advance (MCA) Debt

Merchant cash advances (MCAs) can offer quick capital for businesses, but their high costs and stringent terms can become burdensome. If you’re struggling with MCA payments, negotiating a settlement might alleviate some financial pressure. Here’s a comprehensive guide on how to settle your MCA debt for less than the full balance:

Assess Your Financial Situation

• Review outstanding debts, income, expenses, and cash flow.
• Determine a realistic settlement payment you can afford.
• Prioritize debts and calculate potential savings from settling the MCA.

Understand Settlement Implications

• Be aware of the immediate lump sum payment requirement.
• Understand the potential access the funder may retain to your merchant account.
• Consult with an accountant or tax attorney regarding possible tax consequences.

Try Settling On Your Own First

• Open a dialogue with the funder about your financial hardship and settlement options.
• Stay professional, firm, and provide documentation if requested.
• Start negotiations with a higher offer to allow room for compromise.

Understand Settlement Tradeoffs

• Settlements usually reduce balances by 25% to 50%, depending on negotiation skills and leverage.
• Be prepared for lump-sum payments and ongoing access to merchant processing accounts for the funder.

Know When To Hire An Attorney

• If negotiations hit roadblocks or become contentious, consider hiring an attorney.
• Look for warning signs like the funder’s refusal to negotiate or hostile interactions.

Understand The Attorney’s Role

• Attorneys act as intermediaries between you and the funder, negotiating settlement terms.
• Provide requested information promptly to facilitate negotiations effectively.

Legal Costs and Expenses

• Attorneys typically charge hourly fees or request upfront retainers.
• Consider flat or capped fee arrangements for cost certainty.

Settlement Negotiation Process and Timeline

• The process involves consultation, information gathering, negotiation, and finalizing agreements.
• Expect the process to take 4-8 weeks on average, depending on complexity and funder cooperation.

What To Expect In Settlement Agreements

• Settlement contracts end collection efforts but may include terms like accessing merchant accounts or personal guarantees.
• Scrutinize all terms and consider long-term impacts on finances and operations.

Managing Finances After Settlement

• Stick to cash flow projections used for settlement.
• Build an operating reserve, monitor sales and cash flow, and delay owner distributions until the business stabilizes.

Key Takeaways

• Thoroughly review finances, contracts, and the funder’s reputation before negotiating.
• Attempt initial settlement discussions to gauge feasibility before hiring an attorney.
• Attorneys with specific MCA settlement experience often negotiate better outcomes.
• Have realistic expectations about legal fees, timeframes, and settlement terms.
• Carefully manage company finances post-settlement to avoid recurring financial difficulties.