10 Sep 23

How do I settle my MCA?

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Last Updated on: 10th September 2023, 07:16 pm

How Do I Settle My Merchant Cash Advance?

Merchant cash advances provide quick access to capital for businesses, but the high costs and aggressive repayment terms can create financial stress. If you’ve taken out an MCA but are struggling to keep up with the daily payments deducted from your credit card sales, you may be looking for ways to settle your outstanding balance.

Understand MCA Repayment Terms

With a merchant cash advance, you receive a lump sum payment upfront in exchange for a fixed percentage of your future credit card sales. There is no set repayment schedule – instead, the MCA provider deducts a predetermined percentage of your daily credit card transactions until the full balance plus fees is repaid.

The total repayment amount is usually 1.2 to 2 times the original advance. Rates often equate to 50-100% APR or higher. Payments continue automatically until the full amount is collected by the provider.

Review Your MCA Agreement

Carefully review the terms of your merchant cash advance agreement, including:

  • Original advance amount
  • Fixed daily deduction percentage
  • Total repayment amount owed
  • Allowances for early repayment
  • Fees for late payments

Understanding these terms will help you calculate the remaining balance and determine if early settlement is possible. Look for any clauses about changing payment processors as well.

Attempt Early Repayment

Some MCA providers allow you to pay off the remaining balance early with no prepayment penalty. This requires you to come up with a lump sum for the remainder but lets you exit the agreement quickly.

Early repayment can be very difficult since access to capital was likely the reason for taking the MCA originally. But if at all possible, it can stop the daily deductions from your credit card sales.

Ask to Change Payment Processor

Since MCA payments are taken as a percentage of credit card transactions, you may be able to stop deductions by switching processors. This can buy you time to come up with funds for settlement.

However, your MCA agreement likely prohibits changing processors specifically to avoid payments. Doing so may trigger fees and penalties for breach of contract.

Attempt Refinancing

If eligible, you may be able to pay off your MCA balance by refinancing into another type of business financing with lower rates and longer repayment terms.

Options like business credit cards, SBA loans, or online installment loans can potentially help consolidate your MCA debt. This depends on your credit profile and ability to qualify.

Negotiate a Settlement

Rather than refinancing, you may be able to negotiate a lump sum settlement with your MCA provider for less than the remaining balance. They have incentive to settle rather than risk nonpayment through default.

Be transparent about your financial situation and ability to continue making daily payments. Have a clear settlement offer based on what you can afford.

File for Bankruptcy

As a last resort, filing Chapter 7 or Chapter 11 business bankruptcy may discharge your outstanding MCA debt. This has severe impacts on your business credit standing and operations.

Consult an attorney about the bankruptcy process and potential for the MCA provider to contest discharge of the debt. Be prepared for collections activity.

Accept Collections

If you are simply unable to make any further payments on your MCA, you will have to accept the consequences of default. The provider will send the unpaid balance to collections agencies.

This damages your business credit but may open the door for negotiating a reduced lump sum settlement with collectors. However, they will aggressively pursue the full balance.