Merchant Cash Advance (MCA) Debt Relief

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Before enrolling into an MCA debt relief program, one should know that attempting to settle MCA debts is quite a bit riskier than settling consumer debts such as credit cards.

What Do MCA Debt Relief Companies Do?

Business debt relief companies work with unsecured business debts such as merchant advance loans. They attempt to settle these debts with the lenders directly through a negotiation process. This process can be long and stressful because a settlement agreement is not reached from day one, not even close.

In most instances an MCA relief company will ask you to go into default on your loans and open a new bank account at a different bank. This can be a nightmare for a business owner in and of itself. So, why then would anyone ever consider hiring a company to settle their MCA loans – especially without a guarantee on successfully settling them? We will explore some pros and cons below to see when it might make sense.

 

Advantages of MCA Debt Relief

  • Get out from under your MCA’s for sometimes pennies on the dollar

Depending on the desperation of ones financial situation, you could pay as little as 25% or even less to clear your debts.

The severity of ones financial hardship will be the biggest determiner in how much you will ultimately save.

  • Drastically reduce your payments while paying your debt faster

This is one of the biggest advantages of an MCA debt relief program. You get to see your debts go away faster while having more operational business cash-flow.

  • Avoid bankruptcy

No one wants to file bankruptcy. If all goes well with coming to a settlement agreement with your lenders, you can avoid Chapter 7 bankruptcy (liquidation) or Chapter 11 bankruptcy (business reorganization).

  • Wipe the slate clean with your debt once and for all

This is the ultimate reward of going through a debt relief program. By lifting the black cloud of high-interest debt that’s been hanging over your head, you can focus on your business stress-free. You can also look for more affordable funding options for business expansion and capital.

  • Typically no negative credit impact like with consumer debt relief

Merchant cash advance lenders typically do not report to the credit bureaus. Since MCAs are not loans in the technical sense, MCA relief will not negatively impact your credit.

Disadvantages of MCA Debt Relief

  • Unfortunately, it’s not a one size fits all program

MCA debt relief is reserved for extreme financial hardships that justify going this route. Under the next heading, we will cover some extreme hardship scenarios that may qualify you for such a program.

  • You may be required to pay income taxes on the amount you save

Let’s say you have a pre-enrollment balance of $100,000 that you get settled for $50,000. Your lenders will write off the $50,000 you saved as a loss for them and report the loss to the IRS. This may require you to add the $50,000 as income an applicable schedule and pay income tax on it. You can see more details about tax implications by visiting the IRS page Topic No. 431 Canceled Debt – Is It Taxable or Not?  

  • High debt settlement fees with no guarantee

Most MCA relief companies will charge a fee based on a percentage of your enrolled debt amount. This fee will sometimes be capped to a certain percentage based on state regulations. MCA debt relief companies can charge upwards of 25% of your enrolled debt amount with no guarantee on effectively settling your debt.

  • An MCA relief program can be long and stressful

Business debt relief companies do not pay out to your lenders as you pay in. They will hold your money in an escrow account while your loans go further and further into default. They will use the length of your default as bargaining leverage when negotiating your settlement. This can be a stressful time during your program and can push your lenders into taking legal actions they have available to them.

They can file a UCC-1 lien. This can give your lender the right to confiscate equipment vital to operating your business. They may not go this route if they deem the equipment they can lay claim to is not of suitable replacement for the amount you owe. See more details by visiting Value Penguin’s page “What is a UCC-1 Filing? How Do UCC Liens Work?”

If you signed a Confession of Judgement, they may file a judgement against you. In such case, you may need to hire an attorney to plea your case for you.  To see more information on an MCA judgement, visit Business Debt Law Group’s page “Merchant Cash Advance Lawsuit”.

  • You may end up owing more in the end

If the MCA relief company you hire is unsuccessful in resolving your debt(s), you may owe more than when you started. Since your loans will stay in default status for quite a few months at a minimum, if they are not successful at settling them, your debts will have most likely grown significantly from accrued interest and late fees.

Qualifying For MCA Debt Relief

As we mentioned above, there are circumstances when MCA debt relief makes sense. Below are some such circumstances.

  1. If you have already gone into default on your loans for quite a few months or longer due to extreme hardship.
  2. If you will soon to have no choice but to default on your loans due to extreme hardship.
  3. Your business has closed down and you no longer have a revenue stream from it. This would most likely justify bankruptcy more than debt relief.

MCA Relief Alternative – Why Restructuring May Make More Sense

The best alternative for MCA debt relief is MCA restructuring. This is a much safer option and way less stressful.

Safer because restructured terms are agreed to in the beginning of the program and your lenders are paid as you go. Your lenders are also not being asked to accept less than you owe. They are only being asked to legally restructure your term.

Less stressful because you are not hanging in default with your lenders during a restructuring program. They will typically agree to stretch your term out by double or triple, significantly lowering your payment and freeing up your business revenue. Typically, they will also agree to receiving payments weekly instead of daily.

Qualifying for MCA debt restructuring is easier as well. This is because you do not need to prove hardship to the same degree as with a relief option.

If you would like to receive a saving quote for restructuring your MCA debt, click the button below.

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Merchant Cash Advance Debt Relief

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