Strategies and options for getting out of MCA debt.
When MCA payments turn a profitable business into a debt vessel, exit options need to be uncovered. Getting out of the MCA debt spiral can be accomplished by working with specific creditors that have experience with MCA-burdened businesses. The correct solution is intrinsically tied to the current pressure that MCAs are creating on your business.
When a business is paying multiple MCA loans simultaneously, the burden on cash flow becomes undeniable. When cumulative MCA payments on a monthly basis exceed standard business profit margins, business owners often take additional MCA positions to cover this gap. If regular business profitability should normally trend at 15% per month, there will be cash flow issues when MCA debt remits exceed that threshold.
More often than not, more MCAs are taken to bridge this gap — not to capitalize on an opportunity, but purely to cover current MCA payments while getting ahead of lost profitability. This debt spiral is extremely common in the MCA industry, and business owners frequently find themselves searching for solutions beyond additional MCA funding.
Getting rid of MCA loans is possible, but the path is not traditionally available through small business channels — and MCA funders certainly are not going to provide it. There is no one-size-fits-all solution.
When a small business is paying multiple cash advances at once, better credit options usually dry up. A common business owner sentiment: I have been able to pay $50,000 per month in MCA debt — would a lender not understand that I could surely afford $20,000 per month payments? This logical conclusion is understandable, but lenders see a business with many debt commitments as not creditworthy. Risking capital to satisfy high-interest debt obligations is an unnecessary leap of faith — and most lenders will not take it.
There are generally three stages a business can be in while carrying MCA debt.
The business feels the pressure of MCA debt but is still solvent enough to keep up with payments due to receivables coming in. Profit margins have been affected, but there is a reasonable expectation that the business can manage its MCA obligations and eventually exit.
MCA debt payments are making it challenging to conduct business as usual. Normal operating expenses are increasingly difficult to cover as MCA remits consume normal profits. Payments may occasionally be missed due to thin ledgers. Debt servicing is a constant, forefront concern.
The business is struggling to keep up with payments with limited cash reserves. Unnecessary expenses are being cut — usually the owner's own draws. Missed MCA payments and negative days are making the business increasingly difficult to manage. At this point, it is unlikely the business would even qualify for an additional MCA.
When a business is in Moderate to Troublesome MCA pressure, it can often benefit from a cash flow savings program. There is still hope that the business will exit its MCAs eventually, but the lost working capital is making things tight. Defaulting is not the right course of action since payments are still being made. In this stage, a cash flow savings program like a Reverse Consolidation is a viable option.
When MCA pressure reaches a Severe level, the cash flow strain has been exacerbated by piling on debt and revenues simply cannot keep up with payments. The business has limited options and may be facing default with one or more funders. Regular business operations are being negatively impacted and the business is in a cash flow emergency. Navigating a resolution with MCA funders at this stage would require working with a debt restructuring company.
Ignoring the early MCA pressure phases until the situation becomes insurmountable leads to default. Often, owners ignore funder notifications of pre-default — then funders go on offense, actuating contract terms put in place to protect their interests.
Defaulting on more than one MCA funder becomes a personal problem, because all MCA contracts are signed with personal guarantees. This means that irrespective of the future receivables framing, business owners are personally on the hook for resolution.
Options may exist for your business that MCA funders will never present. BeyondMCA assists business owners in navigating the MCA exit. We do not work directly with MCA funders and are unbiased as to what solution may be viable for your situation. Keep in mind that MCA funders want to recoup their advance — which means you as a business owner have some leverage.
Businesses needing an unfiltered assessment of their options are encouraged to schedule a consultation, where we can cut through the noise and provide honest, unbiased guidance on what exits are actually available.
