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What to Do if You Can’t Afford Your Merchant Cash Advance Payments

February 24, 202413 min read

IF YOU’RE LOOKING FOR A BUSINESS DEBT SETTLEMENT COMPANY, VISIT DELANCEY STREET. CLICK HERE NOW.

 

What to Do if You Can’t Afford Your Merchant Cash Advance Payments

Getting a merchant cash advance can seem like an easy way to quickly access funds for your business. However, these advances come with high fees and daily repayment amounts taken directly from your credit card sales. If business slows down, you may struggle to make the payments. Fortunately, there are steps you can take to manage your merchant cash advance debt.

Assess Your Financial Situation

The first step is to clearly assess your financial standing. Review your credit card sales and project future earnings. Compare this to your total repayment obligations, including any fees. This will give you a clear sense of your available cash flow and ability to keep up with payments.Be sure to account for seasonal fluctuations or other external factors that may impact sales. For example, a restaurant may see a dip in winter months. Understand how these changes could impact your ability to repay the merchant cash advance.

Open Communication with the Funding Company

If it becomes clear you will have difficulty meeting the repayment terms, immediately communicate this to the funding company.

  • Explain your situation transparently
  • Highlight any extenuating circumstances impacting sales
  • Explore ways to adjust the payment structure if possible
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Reputable companies may be willing to work with you. The sooner you ask for help, the better. Letting payments slide without communication will only worsen the situation.

Ask About Hardship Programs

Many merchant cash advance companies understand that businesses go through unexpected slow periods. Ask them if they offer hardship assistance programs.These programs temporarily reduce daily payments during slow seasons. They may also waive late fees or allow interest-only payments. This relief can help you get through temporary cash flow issues.

Seek Payment Plan Adjustments

If business is chronically slow and you cannot keep up with payments long-term, discuss adjusted payment plans. For example:

  • Extending the repayment term to reduce the daily payment
  • Interest-only payments for a period of time
  • Partial reduction of fees

Most companies will try to work with you to recoup their investment. Explore all options to find a new repayment structure you can feasibly manage. Make sure any new terms are formalized in writing.

Consult a Business Finance Expert

Navigating complex merchant cash advance relief programs can be confusing. If you are still struggling, consult a business finance expert for guidance.

  • They can review your full financial situation and suggest strategies
  • Advise you on negotiating repayment terms
  • Ensure any adjustments are in your best interest

Getting expert input can help you make informed decisions during financial hardship.

Explore Business Loans to Refinance

If adjusting the payment terms still does not create feasibility, consider refinancing the balance with a business loan.[Business loans from a bank] typically have lower rates and longer repayment terms than merchant cash advances (https://www.fundera.com/business-loans). Refinancing may reduce your ongoing payment burden. A finance expert can help weigh if this is a sound strategy for your situation.

Manage Cash Flow Diligently

To avoid missed payments during financial hardship, diligently manage cash flow. Prioritize directing credit card sales revenue to repaying the merchant cash advance.

  • Carefully track daily sales and payments
  • Reduce unnecessary expenses
  • Pursue business growth opportunities to increase sales

Staying disciplined with cash management prevents falling further behind on payments.

Explore Business Credit Cards

Some businesses shift credit card processing away from the funder to gain more control during hardship.

  • Work with your bank to get business credit cards
  • Route credit card sales through the new processor
  • Structured payments back to the funder to pay down the advance

This method takes diligence but can work if done properly. Consult your finance expert to explore the risks.

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Seek Legal Counsel

If the funding company refuses to work with you at all, things get aggressive with collections, or you face potential bankruptcy – seek legal counsel.

  • An attorney can review the merchant agreement terms
  • Advise you on consumer protection rights and regulations
  • Handle negotiations and legal action if needed

While a last resort, legal guidance may be needed if the situation deteriorates despite your best efforts.

What Laws & Regulations Offer Consumer Protection?

If you face aggressive collections or harassment from your merchant cash advance company, certain laws and regulations protect consumer rights.

Fair Debt Collection Practices Act

This federal law limits abusive debt collection tactics by third-party collectors. Prohibited practices include:

  • Harassing phone calls
  • Publicly sharing your debt information
  • Making false or misleading statements
  • Threatening arrest or legal action not intended to be taken

Violations may result in you suing the debt collector.

State Collection Agency Laws

States have their own debt collection laws. These vary but may further limit collection calls, prohibit harassment tactics, or require licensing for collectors. [Research the specific laws in your state] to understand your rights.

Uniform Commercial Code

Merchant cash advance agreements involve complex commercial contract law. The Uniform Commercial Code (UCC) governs these types of business financing contracts.An attorney can review if the agreement complies with the UCC in areas like:

  • Disclosure of fees and payment terms
  • Restrictions on suspending business services
  • Notice requirements before debt sale or legal action

Any violations could potentially nullify parts of the agreement.

Truth in Lending Act (TILA)

The TILA requires lenders clearly disclose costs and terms upfront in consumer credit agreements. Business funders debate whether merchant cash advances qualify as consumer lending.

  • If ruled as consumer credit, TILA violations may impact the agreement’s validity or fees owed
  • The law offers additional protections related to billing errors and credit reporting
  • An attorney can provide a full analysis regarding TILA’s applicability

Equal Credit Opportunity Act (ECOA)

Under the ECOA, lenders cannot discriminate based on protected characteristics like race, religion, sex, or age. If you experience discrimination from a business funder:

  • Document details of the interaction
  • Consult an attorney to discuss ECOA violation claims
  • You may sue for damages if discrimination is proven

Consult an Attorney to Explore Defenses

These various consumer protection laws offer potential defenses if facing collections pressure or litigation. A business attorney can fully advise you on the viability of any claims or counterclaims based on:

  • Breaches of the signed agreement
  • Violations of state and federal statutes
  • Issues with the debt’s validity or amount owed
  • Discriminatory lending practices
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Defenses may result in reduced payments, waived fees, or case dismissal. Given the complexity, seek legal counsel to ensure you understand your rights and options.

What Are the Risks of Stopping Merchant Cash Advance Payments?

Temporarily pausing payments to your merchant cash advance company is an option but comes with considerable risks. Be aware of the potential consequences:

Aggressive Collections & Harassment

Unregulated funders may engage in harassing tactics like:

  • Hundreds of robo-calls per week
  • Calls to your home and business contacts
  • False threats of arrest or litigation
  • Credit damage

Reputable companies should not harass but may aggressively pursue payment. Expect frequent calls and letters demanding repayment.

Withholding & Suspension of Services

Many funders integrate with payment processors and POS systems. They may:

  • Freeze merchant accounts
  • Withhold access business management tools
  • Stop providing payroll or other services

This disruption can severely impact operations. Expect loss of services if payments lapse.

Debt Sale to Collection Agency

Delinquent debts get sold to third-party collection agencies. These agencies are notorious for harassment and aggression.

  • Debt buyers pay pennies per dollar of debt
  • They aggressively pursue borrowers for profit
  • You lose ability to negotiate with original lender

A debt sale also damages your business credit standing with banks/future lenders.

Litigation & Judgments

If internal collections fail, funders sue delinquent borrowers for repayment. Key risks if sued include:

  • Court judgments ordering payment of full balance, fees, and interest
  • Bank levies allowing seizure of business or personal bank funds
  • Tax refund garnishment
  • Damaged business credit ratings

Judgments also appear on your credit record, impacting future lending options.

Business Bankruptcy

As a last resort, stopping payments could force your company into bankruptcy:

  • Allows temporary protection from creditors
  • Liquidates company assets to pay debts
  • Closes or restructures your business
  • Significant legal expenses

Bankruptcy also devastates your personal credit standing for years.Clearly the risks of defaulting on a merchant cash advance are substantial. Avoid stopping payments if any possible. Exhaust all options to adjust repayment terms or obligations. Seek expert help managing the debt burden before considering default.

Key Takeaways

  • Closely monitor cash flow and sales projections to spot potential issues repaying your merchant cash advance early.
  • Proactively communicate any financial hardship to your funding company. Explore adjustments before defaulting.
  • Consult a lawyer if you face harassment from collectors or want to examine possible legal defenses.
  • Stopping payments without resolution should be an absolute last resort due to the considerable financial risks involved.

Delancey Street Can Help With Merchant Cash Advance Hardship

[Delancey Street’s small business lawyers] have extensive experience helping companies struggling with their merchant cash advance debt. We assist with:

  • Negotiating adjusted repayment terms
  • Navigating complex hardship assistance programs
  • Refinancing high-cost debt with better business loan options
  • Disputing harassment from aggressive collections agencies
  • Exploring potential legal defenses based on consumer protection laws
  • General business finance guidance and cash flow management

If you cannot afford your merchant cash advance payments, contact our attorneys today for dedicated support getting your finances back on track. Call [212-210-1851] or visit [https://www.delanceystreet.com] to schedule your free consultation

 

IF YOU’RE LOOKING FOR A BUSINESS DEBT SETTLEMENT COMPANY, VISIT DELANCEY STREET. CLICK HERE NOW.

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