The best Merchant Cash Advance Consolidation Programs
Many businesses have short term daily or weekly repayment advances, known as Merchant Cash Advances. The repayment on these advances are short term, usually between 2 and 18 months. Some businesses have several advances with daily debits at the same time. This is causing significant cash flow problems for many businesses. The following is an overview of how the best Merchant Cash Advance Consolidation Programs work.
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Consolidation programs are being offered by some alternative funders to improve or rescue businesses from cash flow emergencies. Getting this help is sometimes the difference between the life and death of some businesses.
Beware: Some Merchant Cash Advance Companies are advertising Merchant Cash Advance Consolidations when they really end up only offering you another advance.
If you need a real Merchant Cash Advance Consolidation & not another advance, discuss this with the lender upfront. Some companies use this lure to simply offer another advance. It depends on the company. Some Companies will try to consolidate, but you may not qualify. If your business has 3 advance, your business may not qualify for a consolidation of all 3, but may qualify for a Consolidation of 2 of the 3 Advances. The Advance with the best terms can be left in place the the other 2 advances may be Consolidated. They are paid off, the term is extended and the Merchant’s daily payment is lowered.
However, beware of companies that advertise a Consolidation which could be a bait and switch to giving you another advance. Try to determine if they are really trying to Consolidate, or making no effort to Consolidate and just want to sell another advance.
There generally are 4 basic types and approaches of MCA Merchant Cash Advance Consolidations. This includes cash flow relief and debt settlement company options.
Merchant Cash Advance Consolidation Type 1:
This approach is a true effort to reduce the daily payments business merchants have to make. The Consolidation or “relief” lender covers the payment of the Merchant’s existing advances by depositing the weekly total of their daily payments into the Merchant’s business checking account once per week. The consolidation lender then debits a lesser daily amount than the daily total of the Merchant’s other advances. This reduced daily repayment for the Consolidation is normally between 20% and 50% lower than what the Merchant is currently paying.
The repayment of the lower amount usually continues for a few months longer than the remaining time the merchant is scheduled to pay the existing advances. The Consolidation lender reduces the daily payments for the Merchant by extending the term of the debt. This arrangement gives businesses cash flow relief. For this type of financing, complete the contact information below.
The following is an Example of how this 1st type of Consolidation works:
Acme, Inc. has 3 daily repayment Merchant Cash advances. Each has a balance of $25,000 and will continue for 20 more weeks. The daily payment on each is $250 for a total daily payment of $750. This equals $3,750 per week and $15,000 per Month on average.
For this type of cash flow relief type Consolidation, the payments are usually reduced in the 25% to 50% range. Let’s assume a 50% reduction is offered. The lender will be referred to as the Consolidation lender.
The Consolidation lender deposits $3,750 once per week into the Merchant’s account. The Merchant then begins repaying the Consolidation lender $375 per day instead of $750. This saves the Merchant $375 per day, $1,875 per week and $7,500 per Month. The Merchant continues paying 40 more weeks.
The benefit to the Merchant is that they have improved their monthly cash flow by $7,500 per Month.
Merchant Cash Advance Consolidation Type 2:
The second type of Merchant Cash Advance Consolidation is less common. It is a true Consolidation. The business Merchant provides the Consolidator the total payoff balances of all of their existing advances. The Consolidator verifies the payoff and then pays off the existing advances. The Merchant then begins to repay only the remaining one Consolidation debt. The Merchant also pays the Consolidation lender for a longer period of time. This allows the Consolidation payment to be lower than what the Merchant had before.
The following is an Example of how this Type 2 approach works:
Acme, Inc. has 3 daily repayment Merchant Cash advances. Each has a balance of $25,000 and will continue for 20 more weeks. The daily payment on each is $250 for a total daily payment of $750. This equals $3,750 per week and $15,000 per Month.
In this type of cash flow relief Consolidation, the Consolidation lender pays off each Merchant Cash Advance for a total of $75,000. The Merchant then begins paying the Consolidation company. The amount and terms of the repayment are lower, as in the 1st Example of $375 per day. The term is now 20 weeks instead of 40.
Merchant Cash Advance Debt Restructuring Type 3:
In this case, a Merchant has several merchant cash advances and is having trouble repaying them. The Merchant either cannot qualify for the weekly cash flow reduction and Consolidation program, or wants a different option.
The Merchant still must have cash flow relief. In this method, the Merchant contacts their existing MCA Merchant Cash Advance lenders directly. The Merchant tells the Merchant Advance companies that they soon will not be able to continue paying the daily payments. They need a pause or reduction in the daily payment, or both. Some Merchant Advance companies are more receptive to this request than others. Each request will be considered on a case by case basis and the final decision will be at the discretion of the lender.
It is important for the Merchant to make a strong case for a reduction or pause in payments. They cannot be too demanding but they must give strong reasons. The Merchant Cash Advance lender must know the Merchant truly has short term cash flow issues it won’t survive. By addressing the problem now, the Merchant and Merchant Advance company both win. The Merchant can be put in a position to repay the remaining advance, and the Merchant Advance company will can be repaid. If an agreement cannot be reached, the Merchant will miss payments or default.
Merchant Cash Advance Debt Restructuring or Consolidation, Type 4:
Debt Restructuring companies or options can be considered the last and most dangerous for Merchants. This should only be considered if the Merchant cannot get a Consolidation program and is not able to renegotiate better sustainable repayment terms with their existing advance companies.
In most cases the Advance companies will work with the Merchant as much as possible to reach a workable solution. If that does not happen, the Merchant may be forced to consider remaining alternatives.
There are a few final options:
The Merchant has talked with their Merchant advance companies and could not come to an agreement to reduce or pause payments enough. They determine they cannot continue to make the payments much longer. The Merchant can hire a business Attorney to negotiate a settlement or reduced payments with the Advance companies on their behalf.
The Merchant contracts with a 3rd party Debt Settlement company. This option may be the least desirable of all the options because debt settlement companies may take actions that are not in the Merchant’s or Merchant Cash Advance company’s interest.
A Debt Settlement relief company often tells the Merchant they will get the daily payments to stop and tells the Merchant to sign a contract for them to negotiate with the Merchant Advance Companies. The Merchant is often told to begin paying the 3rd party debt settlement relief company instead. They may tell also tell them to close the business checking account from which the daily payments are being debited and open a new account at another bank to pay them. This is almost always a major mistake and may cause both the Merchant and Merchant Advance companies the worst problems.
Debt Settlement Relief Company Pitfalls
These scenarios may cause several major problems for the Merchant. The Merchant cash advance contracts are always between the Merchant and the advance companies, not the Debt Settlement companies. The MCA companies are under no obligation to talk to or agree to anything the debt settlement companies are asking for. Knowing this, some debt settlement companies call the Merchant Cash Advance companies, tell them their customer cannot repay and the Merchant Cash Advance company better accept a very low settlement amount rather than get nothing. The Merchant may have begun making payments to the debt settlement company and may still not be much better off than they were before, if at all.
What is a Certificate of Judgement?
The Merchant cash advance company may have a COJ, certificate of judgement. If the Merchant closes their business checking account from which the daily payment is debited, it often considered an immediate default per the contract. The Advance company may be able to get a Court judgement within 1 to 2 days.
This judgement is used to debit funds from any account the Merchant has with any bank.
The Debt Settlement company should be concerned with this. They may only be concerned about the contract they have with the Merchant to pay them now. The debt settlement company may provide little or no assistance to the Merchant to deal with these consequences. Payments are made to the debt settlement company in the short term leading up to the Merchant being hit with severe actions by their existing Merchant Advance companies.
With some of this information, consumers whose businesses have Merchant Cash Advances may be able to better determine the best Merchant Cash Advance Consolidation programs or cash relief programs they should choose. Merchants should do further investigation on their own. Each situation and contract may be different and call for different decisions and actions.