What to Do About Overwhelming Business Debts & Merchant Cash Advances

Posted By Law Office of Simon Goldenberg, PLLC || 16-Jul-2018

Pay day is just around the corner and as a business owner, you know that your people need to get their wages. However, your clients have been slow to pay this month and you’re out of cash reserves in the bank. This is a pretty common stress when you’re a small business owner, and debts can quickly pile up even further, leaving you wondering where to turn or how you’re going to stay afloat.

This is the type of person that merchant cash advance loans target and appeal to. A merchant cash advance (MCA) sounds simple on principle: the company gives you a sizeable sum, sometimes even as high as $100,000 or more, and gets it to you sometimes in as little as 24 to 48 hours. In return, you agree to pay the principal (and a premium charge) off in installments over a duration of a few months, which can usually be done fairly quickly if you are able to recover the sums owed from slow paying clients.

However, what you quickly find out is that the cash advance actually carries a large premium, and high daily or weekly payments over a relatively short duration of time. You’re stuck making your payments seemingly endlessly while hardly chipping away at the principal on your balance. Suddenly an advance that was only supposed to have held you over for a few weeks is actually compounding your initial cashflow issues.

This is the vicious cycle with cash advance loans, and many companies are in business to make money off your business. The advances are structured in a way that keeps many businesses perpetually in debt so the revenue and profit keep rolling in, all the while your business continues to tread water.

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If you want to get away from this vicious cycle of cash advance loans and business debts, there are a few things you can do, which we’ll discuss here.

Consider a Term Loan

If you have good credit, refinancing these debts with a longer-term loan, lower interest rate loan can be a good move. These loans may last longer, but have better monthly payments that won’t break the bank and place more stress on your business’s financial picture. If you have good credit, rates can go as low as 6%, and usually at the most rates are around 30%, which is still reasonable when you consider many of these temporary cash-advance loan companies can have interest rates as high as 50% or more.

If your credit score is at least 600, you have no outstanding tax liens or bankruptcies, you’ve been profitable for at least one of the last two years, and can supply two years of tax returns, you should look into one of these term loans where you have a much better control over the interest rate.

Consider a High-Rate Monthly Loan

We get it: when running a business, sometimes you need to make decisions that may hamper your credit in order to stay afloat. If your credit isn’t all that great, you aren’t resigned to dealing with an MCA lender just yet. Instead, some lenders will offer high-rate monthly payment loans. Yes, having a higher interest rate can be costly, but these loans could save you a substantial amount of money in comparison to a merchant cash advance, especially if you’re able to pay extra on your loan and have no pre-payment penalties. In fact, a high-rate loan that’s paid off quickly can save you tens of thousands of dollars and help you build up your credit again.

Get a Lawyer to Negotiate Business Debts

Did you know you that sometime business debts that are in default status can be re-negotiated? Whether it’s with a merchant cash advance, an ACH loan, or even credit card debt, you may be able to negotiate the outstanding balance down and pay only a portion of what you actually owe. However, you should avoid default wherever possible, and if you see hardship coming, contact your lender to see if they will reduce your payments to keep you out of default. Before defaulting, get familiar with the terms of your agreement, as your company may be subject to UCC liense, recovery of security collateral, confessions of judgment, and default may trigger a personal guaranty.

It’s best to make sure you have a qualified negotiator on your side though, such as our New York business loan lawyers. That way you can make sure your business’s interests are looked after by someone who is familiar with the laws and your rights as a borrower.

Do you need help with your business’s outstanding cash advances and other debts? Call a New York debt relief attorney from the Law Office of Simon Goldenberg, PLLC today at (347) 389-0245!

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