Missing one mca payment should not cause your business problems. But what if you have more missed mca payments? What can you do to avoid problems? In this post we will talk about what you can do if you cannot pay cash advance payments and the best steps to take.
First consider if you can get out of your merchant cash advances. Paying off your advances or extend the term may be best. Pay offs can be done through a longer term loan as well as asset based loans. Contact us below to get started!
What can you do after missed mca payments?
Communicate with the lenders immediately.
Contact the cash advance companies right away. Do not think the problem will work itself out or that you will probably catch up in a couple of days. Communication is key. It is better if you contact them before you miss more payments. However, if you already missed a payment then contact the advance companies that day or the next day at the latest.
What do I tell the mca companies?
It depends on your situation. What is your cash flow situation right now? Can you begin making the payments again right away? Figure out what you can pay, when, and how often. Let them know what is happening with your business. If you have a good reason for missing payments, tell them that reason. If you can back it up with documentation, all the better. Being proactive and communicating will be your best option at the beginning.
Can you start making payments again?
Call the cash advance companies even when you can start making payments immediately. They still want to know why you missed mca payments. That will help your case. You may end up missing another payment later you did not expect to miss. It is better if you are already on record as being in contact with the lender.
Missing consecutive payments
If you expect to miss more payments consecutively, then you want to decide if you can payoff the advances first. Paying off advances with another loan is better than continuing to miss payments. You can choose from unsecured options such as a bank statement loan, and a large business loan if you need a lot.
Bouncing more mca payments.
If you know you cannot sustain your payments then paying off the advance may be the best option. This is because missed payments will make it much more difficult for your business to borrow in the future and make this your worst option. Many merchants would rather not take out a new loan. However, if you are approved for a new loan that can payoff loans you cannot pay, you should strongly consider doing so. Many businesses cannot even get approved for a payoff and don’t have that choice.
Paying off your merchant cash advances may be the best option. But when is it better to payoff and when is it better not to? It is usually better to payoff the cash advances when you know you cannot keep paying the current payments. Paying the advance off with another loan works very well if you have less than 3 months or so left on the exiting advances. Taking out a loan to payoff a low balance is still much better than missing mca payments and defaulting. You can avoid damaged credit, court action and trouble getting loans in the future.
When does it make sense to payoff one loan with another?
Example: A merchant has an advance with a daily payment of $100 and has a remaining balance of $3,000. He has 30 payments left but he cannot keep making those last payments and will go past due and default. Before going past due the merchant is offered another loan for 6 months to payoff the $3,000. The new daily payment will be about $35 per day for 120 days. The borrower can afford this easily. Problem solved. The business now has a payment they can afford and does not have to worry about paying the advance on time.
Payment plans after delinquent mca payments
Payment plans are best when the business can neither keep making the daily payments or paying off the advance. The cash advance company may be very willing to set up a payment plan. They will be able to get payments in full and the merchant will make the total sum of payments. It is up to the lender to do this. If your business wants to go this route then be ready to explain to the cash advance company why a payment plan will work for both of you.
Extending the term
Extending the term is usually similar to a payment plan. Sometimes it is more informal and the cash advance company will just let the borrower continue making payments past the term without a formal contract. At other times a formal new contract will be written that replaces the old contract. Expect the mca company to charge penalties, fees and more interest as part of the new contract.
Getting your mca cash advance company to lower the payments works best when your business just needs short term cash flow relief for a week or two. Your business may just have a brief cash flow problem it needs to work around. Be aware that mca companies are not receptive to businesses calling in multiple times and asking to lower payments for a while. It is supposed to be a rare request rather than one of convenience. Some lenders may only do this once during the term of the contract. If you think your business will need to ask for lowered payments several times then find a different option.
A pause for one to three weeks may be all a business needs. As with lowered payments, your business has to be sure it will be able to restart and continue payments when the payment pause is over. You should not pause payments if you need a longer term permanent solution. Sometimes businesses will ask to pausing payments when they know they will have a problem again when the regular payments start back up. If this is you, then you should put all your efforts into solving the problem permanently on the front end.
Settlements after significant missed mca payments
A settlement directly with the mca cash advance company can be considered when other options will not work. Settlements usually happen after a merchant has failed with a payment plan or lowered payments and not able to handle regular payments anymore. It is a step before a default but still considered better than a default situation.
Beware of 3rd party settlement companies that tell you to put a stop payment on a merchant cash advance company.
We believe this is the worst choice in almost all cases. Many settlement companies will tell you to do this to buy time for them to negotiate with the mca cash advance companies on your behalf. However, they still want you to pay them a lot of money upfront before they start negotiations for you. We believe this is a very bad idea for your business for several reasons.
Let’s break down why:
Your advance will be declared in default immediately when you put a stop payment on them. You certainly will not want to even consider this if you have not read your MCA contract in detail. The contract will tell you all the actions the advance companies can take when you put a stop payment on their daily Payments. Putting a stop payment on a merchant cash advance will definitely result in the strongest response against you by the mca companies. If they have a coj, then they will file it against you almost immediately. The settlement companies telling you to do this do not have to deal with the problems you will have! Do not do this!
Beware of companies that tell you to close your business checking account
MCA companies will react in about the same way as when you put a stop payment on their daily payment. They usually consider closing your business checking account as an intentional default.
What is an intentional default?
An intentional default happens when a borrower takes an intentional action not to make good on the contract. This is almost always combined with little or no communication with the cash advance company. Lenders think of the borrower as trying to evade an obligation and contractual promise to pay. Worse, their contract usually includes specific language that talks about what actions and remedies they can take if the borrower closes their account. We believe this is a bad option for almost all borrowers. Contact us above for much better options!
Defaults are the least desirable option. The lender has declared that they are taking a loss on the loan. The worst adverse action has already been taken against the merchant, which may include filing a coj confession of judgement. All efforts should be taken to avoid a default on a cash advance.
If the mca company has a coj confession of judgement, they can have it enforced through a court in one or two days. Sometimes they can have it affirmed by a court the same day.
What can the cash advance company do then? They can have the sheriff contact any bank they wish and demand that the bank verify if your business has a checking account there. If so, the cash advance company can debit all the funds out of your account.
The tips above can guide you on how to handle specific situations with cash advance payments. If you continue to struggle with debt long term the National Foundation for Credit Counseling, NFCC can help with budgeting and strategic long term debt planning.
FAQ Frequently asked questions on missed mca payments
I missed an mca payment. What can the merchant cash advance company do?
If you have only missed one or maybe two payments then the mca companies are unlikely to
take any other action besides trying to contact you. If you have not talked with them yet then contact them
My cash advance company has threatened to take action against me for missing payments. What can I do?
If your mca company has threatened to take action against you it means they probably have not done so yet. You still may
have an opportunity for a good result. Look at what you can pay and consider offering to make that amount of a payment to them.
If they refuse then put your offer in writing and email it to them. This may work strongly to your benefit if there is future court action against you. It demonstrates that you communicated with the cash advance companies. You attempted to work out a solution and still fulfill your obligation to them based on your worsened financial situation and they refused. Whatever your outcome ends up being, this action should put you in the best possible position later.