Intimidating?

For many business owners with merchant cash advance debt, the idea of negotiating with the funder directly, regarding obtaining a new financial arrangement for repayment of the MCA, may feel overwhelming and stressful. The short answer is that a merchant can most certainly attempt to negotiate with the MCA funder directly.

Stacking Multiple Positions Often Leads to the Need to Renegotiate Terms.  

The need to negotiate with a funder about new terms or obtain a settlement, is most common in the MCA world, when a business originates multiple different MCA’s. As the MCA funder continues to “pull” debits via ACH, the business revenues decline and payments soon become fiscally impossible. This is the number one reason a merchant chooses to take a 2^nd or multiple positions with multiple funders. This is known in the industry as stacking. The hope is that the new MCA will pay off the prior. Sadly, this rarely occurs. Soon the business, its revenue and financial health, are in emergency mode.

Know Your Rights and Options:

A merchant seeking to negotiate new terms directly with an MCA funder, should first understand all the options and laws available to them. This ensures the merchant owner is fully informed of the various types of negotiations and can make a decision and approach the MCA funder armed with various structures it can use in the negotiations.

Communication prior to a Default is Critical:

An MCA funder is a predatory lender. Predatory lenders want to get into a deal and get out as soon as possible. The sooner they can redeploy their capital, the sooner they can generate even more profit. A loan in the guise of an MCA, is designed to be a short-term loan and the repayments, whether daily or weekly extremely burdensome.

A predatory lender’s “goods or services” is providing money. Therefore, they worry a lot about defaults that hit their bottom line. This is because a merchant cash advance funders most often are deploying investor money or using their own personal cash. A non-communicating and defaulting merchant only increase a funder’s concern and panic. On the flipside communication “soothes” the funder and calms it down.

Accordingly, preferably prior to a default, it is imperative to communicate with the funder and to explain the facts from your side.

Examples of MCA Negotiation and Settlement Structures:

• Reconciliation

First and foremost a merchant must be aware of their legal right to a reconciliation or true up, if their business revenue declines.

In other words, when the MCA was first originated, the businesses prior 3-to-6-month revenue average (based on bank statements) was for example $100,000 dollars monthly. According to the MCA agreement the funder is entitled to take 10% of all future revenue until it is repaid in full. However, on the same hand the funder must take on the risk that the business might fail, file bankruptcy or have its revenues decline. Imagine now the funders payback amount is $150,000 dollars. In this example, the funder should receive $10,000 weekly.

What happens if after holding the MCA for 2 or 3 months and not having defaulted, the businesses revenues now are averaging $60,000 per month, the law holds that the funder is obligated to provide the merchant and business with a reconciliation or true up.

The funder assumed the risk of a revenue decline. They must assume the risk legally. If they are a bona fide and true purchaser of receivables, they will lower the weekly payment to $6,000 dollars. If, however the funder refuses to lower the payment amount or conduct a reconciliation, you may have a legal claim against the funder. 

• Settlement

In the world of MCA debt, the ultimate goal is to reach a settlement. A legal settlement is drafted most often in a document called a Stipulation of Settlement. One gets to a settlement through negotiation, mediation, arbitration and litigation, or a hybrid of all.

When facing litigation i.e., being sued for defaulting, one is best off retaining an attorney with MCA defense experience. However, what about negotiation? On the one hand it is not necessary to retain an attorney to negotiate a settlement. On the other hand, an MCA debt relief attorney has a lot of experience with negotiating and knows the legal department or owners of the various funders and can leverage off past cases the attorney has had with the funder.

• Types of Settlement

1. Conventional Consolidation: Think an SBA loan or a FDIC bank loans that consolidates the MCA positions.
2. Extend payback term: One can propose to the funder that they lower payments and extend the term for repayment. (Be aware a legal MCA cannot have a formal repayment schedule or a defined / finite repayment period. Nonetheless an extension of the term for repayment stops the pulls, sets a final all-encompassing repayment amount that now will not accrue legal fees or interest.
3. Lumpsum: Some merchants receive funds that allow them to pay a lumpsum for a full and final settlement by paying a lump-sum.
4. Be sure any settlement is comprehensive, so that it addresses all the claims and allegations made by the funder against the merchant and business. Make sure to have your Stipulation of Settlement reviewed by an MCA debt defense attorney for legality and to include protections.

Make Certain all Negotiations are in Writing and Documented.

Make sure to document all communication. If you reach out by email, send it as urgent. If you speak over the phone, follow up with a “summary of our conversation” email. Do not leave anything to chance. He said – she said fails in Court. Facts and indisputable evidence like an email does not.

Furthermore, by communicating and having everything documented you avoid miscommunications, defaults and other deleterious repercussions down the road.

A communicative merchant is a major calming factor for these predatory lenders. They won’t think the worst which means there is a greater chance they won’t file a UCC lien or commence a lawsuit. The funder will understand you are serious about repayment but are presently suffering a revenue decline. They will usually take a communicative merchant’s file out of legal and pass it onto a funder negotiator, collector or representative to negotiate.

In summation, it is entirely possible to negotiate directly with a merchant cash advance funder. Kindly note that an individual (Even an owner) member of a business cannot represent the business in New York. Instead, the business must retain counsel and have an MCA debt relief lawyer represent the business. Litigation can be stressful, expensive and elongated. Why not give diplomacy and negotiation a chance?