Merchant Cash Advance Help: 6 Steps for the First Review

So, you’ve been funded, and now you have a stack of debt to pay back to the merchant cash advance (MCA) company. When business slows or you have unexpected expenses, the payments seem really high, and you might not know how to fit them in your budget without getting the account into trouble. You feel trapped.

Starting with an MCA is an uphill battle, and when the payments are becoming a struggle, that slope can seem like a cliff. It’s expensive, but it’s not automatically unlawful. In a first review, check against your own papers and records the six points: the deposit, cash flow, the adjustment clause, renewals, the real cost, and collection steps. Try to get all your numbers sorted, decide whether your complaint is about affordability or an actual dispute, or an urgent legal event.

The first step is to compare your funder’s official statement to the payment that hit your bank account. Differences between those two can be due to all sorts of fees, and to brokers paying themselves as well. If you have another MCA, how much was paid to the old funder as a payoff? That gap doesn’t mean your funder is lying, but you need to know what’s in it before you do anything else.

If you didn’t expect a particular deduction, or if the explanation of that deduction keeps changing, then you need to be able to get a grip on it. You should always keep the original offer and the entire signed package on every loan or financing product you have. Whenever the deposit is different from what you expected, note the difference in both figures. Then ask for an itemized breakdown of all the figures in the total.

Step two, whether the business can sustain the total withdrawals, can be even trickier. Gross revenue means cash received, not cash available. That money has to pay salaries and rent, buy supplies and inventory, and pay taxes as well as debt. Log into your online banking, open up the account activity and find two weeks to look at, one a regular week and one a slow one. Count the total hits for each MCA. Then count late fees, overdrafts, bounced checks, returned payments, unexpected withdrawals, payroll not covered, new MCA funding to make up payroll or bills that were already due.

Step three: if you’ve seen your volume drop since funding, you may be paying more than you expected. If your funder has a reconciliation clause, they may be able to recalculate your payments based on your lower earnings. Check the original agreement for a clause that describes this, because sometimes the criteria are really specific about the percentages, the time they’re based on, and how to submit a request.

Find out why they did or didn’t make the adjustment. There are different reasons to be turned down, and those reasons are not the same thing. You may have sent the request in but are missing a document. That’s not the same as a request that isn’t recognized, which is not the same as not being eligible. Keep a dated copy of all documents, bank statements, sales figures and proof of delivery, as well as your lender’s formal response.

The answer makes a difference to both payment negotiations and legal analysis. A New York appeals court’s test of whether a funding contract is a loan is to ask these three questions: does the contract have a reconciliation provision, a fixed end date, and a declaration that the funder can collect in the event of bankruptcy? Falling sales doesn’t excuse ignoring the contract.

Renewals

Step four is renewals. Much of the new money can go to pay the old funder’s remaining balance. You’ll get a cash infusion, but you also have a new large debt and new daily withdrawals. Four numbers are important: what you owe on the old MCAs, the net cash received, the total amount of the new agreement, and the combined daily payments. Ask for all that in writing, and check the payoff letters to make sure any other agreements are actually paid off. Check both contracts before you sign.

The Real Cost

Step five is the real cost. A factor rate and a daily payment tell you only part of what it costs. Check the total cash received, the total collection amount including fees and charges, and the timing of the payments. The factor rate is a contractual multiplier, and it’s not the same as an APR. It’s better to get the early payoff figures in writing, rather than assuming the remaining cost disappears if you pay sooner.

There is no one good or bad settlement percentage, and no standard amount that counts as an unreasonable interest rate. Each agreement, each funder, and each MCA must be examined on its own, not measured against a single standard. An MCA package may or may not be a loan, and a court’s review looks at the contract, the lender’s conduct, and the governing law; a label like advance or loan doesn’t automatically settle the question.

Step six: Collection beyond routine demands means any court action, any hold placed on any account, and any demand sent to customers or payment processors. Keep every page of every notice, in the original envelope. Include the delivery information: time, date, method, sent to whom.

When a company warns you of impending suit or a third-party action, that’s different from telling you that the suit was filed, that the judgment was entered, or that the restraining order was issued.

Don’t think that a funder can’t enforce your agreement because you questioned the balance, disputed the charges, or made offers to settle. If the case is filed, a lawyer can check service of the summons, deadlines, contract terms, and your possible defenses.

A dollar amount above what you could afford is not the same as an illegal charge. But a business-advance contract doesn’t put the funder outside the law. The Federal Trade Commission can step in when financing practices are unfair or deceptive. Yellowstone Capital agreed to pay more than $9.8 million to settle an FTC charge that it kept making withdrawals from funded business owners’ accounts even after the balance had been paid off.

When you ask for help, remember to say why: the cash was short, your receipts dropped and the adjustment request was denied, the payoff letters don’t match the contract figures, or you’ve been served with court papers. Explain the stage you’re at.