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Renegotiating the Terms of Your Merchant Cash Advance Agreement

February 24, 20246 min read



Renegotiating the Terms of Your Merchant Cash Advance Agreement

Introduction Merchant cash advances (MCAs) can provide quick capital for small businesses, but their high costs and onerous terms often create unsustainable debt burdens. If you took out an MCA with unrealistic payment terms, all hope is not lost. Here are tips for renegotiating your MCA agreement to make it more manageable.

Assess Your Current Agreement Before attempting to renegotiate, thoroughly understand your existing MCA agreement. Carefully review:

  • The advance amount, fees, and total repayment amount
  • The fixed daily or weekly payment amount
  • The personal guarantee and confessions of judgement
  • Other key terms like rates, repayment caps, etc.

Knowing the pain points in your agreement puts you in a better negotiating position. Consult an attorney if you need help reviewing your MCA.

Decide What Terms to Target With an understanding of your agreement’s issues, decide what specific relief you will request in renegotiations. Common targets include:

  • Lowering the fixed daily/weekly payment
  • Capping the total repayment amount
  • Extending the repayment term
  • Removing the personal guarantee
  • Rescinding the confession of judgement

Prioritize the terms causing the most burden. Reasonable changes make it more likely the funder will agree to renegotiate the MCA.

Gather Supporting Documentation To demonstrate why your current agreement is unworkable, put together documentation showing financial hardship. This includes:

  • Recent bank statements and financial statements
  • Proof of unexpected business expenses
  • Documentation of slow revenue periods
  • Details on past attempts to repay the MCA
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Quantifiable data carries more weight than verbal explanations in getting funders to revise agreements.

Research the Funder Before reaching out to renegotiate, research your MCA provider online. Look for reviews highlighting their flexibility with struggling businesses. Check if they have an internal team dedicated to working out agreements.

Understanding their reputation and policies guides what terms you can realistically request. The more reasonable your ask, the better chance of successfully renegotiating your MCA.

Send a Written Renegotiation Request Now that you’ve done your homework, it’s time to contact the funder. Send a formal written letter highlighting:

  • The specific relief you are requesting
  • Hardship documentation demonstrating why existing terms are unworkable
  • A reasonable counteroffer with terms you could fulfill
  • Your commitment to finding a workable solution

Follow up persistently if you don’t immediately hear back. Be professional and focus on solving the problem rather than blaming the funder.

Negotiate in Good Faith If the funder responds, good faith negotiations can lead to an amended agreement. Be honest about your financials and how much you can realistically repay each week/month.

Listen carefully to their concerns and constraints in finding a compromise. Having an attorney involved demonstrates seriousness and can help mediate when negotiations get tense.

Get Any Changes in Writing Verbal agreements mean nothing in contract law. Before making any payments on a renegotiation, ensure new terms are formalized in writing. Thoroughly review amended contracts before signing to guarantee changed provisions.

If the funder drags their feet on providing a written addendum, follow up persistently until received. Do not start making payments until you have a signed, revised contract in place.

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Other Alternatives if Renegotiation Fails Unfortunately, some funders may refuse to revise MCA agreements in any substantive way. If hitting a wall in negotiations, discuss options with an attorney including:

  • Refinancing or consolidating the MCA into a lower cost SBA loan
  • Filing business bankruptcy to discharge the MCA debt
  • Challenging the agreement’s validity in court
  • Offering a low lump sum settlement

While not ideal outcomes, these alternatives may be necessary if the MCA terms are wholly unworkable and the funder refuses to budge.

Use Renegotiations to Advocate for Reform Renegotiating individual MCA agreements treats the symptoms rather than root causes. The small business finance sector needs systemic reforms including:

  • Caps on rates and fees charged by funders
  • Transparent pricing disclosure before signing
  • Ability to prepay MCAs without penalty
  • Licensing or regulation of alternative funders

If renegotiating your MCA, advocate for these changes. Share your experience with local leaders and legislators to support small business finance reform.

Conclusion Renegotiating oppressive MCA agreements gives struggling business owners a path to financial stability. With preparation and persistence, amended contracts with sustainable payments can help companies avoid bankruptcy or closure.

If your business took on an unrealistic MCA, don’t despair. Follow the guidance above to ease your debt burden while advocating for wider industry change. There are people ready to help you find an equitable solution.

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