How Does Merchant Cash Advance Restructure Work?

Typically, not everyone is qualified for a bank business loan. Most people who start a new business usually don’t have the credentials yet to prove their trustworthiness to traditional lenders, and this is the reason why funding for their business becomes a struggle. Business owners have an option to take advantage of merchant cash advance to obtain financing for their business to survive. In this article, you’ll learn how a Merchant Cash Advance can help in restructuring your business to help you make the right decision.

What Is Merchant Cash Advance?

A Merchant Cash Advance (MCA) refers to a form of financing, wherein a percentage of a company’s future credit card sales is forwarded to the lender in exchange for a sum of a cash advance. Business owners use Merchant Cash Advances in funding operational expenses and for growing their business. However, there are also some drawbacks of Merchant Cash Advance, and business owners who are stuck or fail to repay may get help with a restructure. First, take a look at why business owners acquire a Merchant Cash Advance. Here are the benefits of availing it:

  • Acquire Cash Funding Quickly: Getting the money from applying for a Merchant Cash Advance usually don’t take over a week to have it deposited in your bank account. It’s an easy and quick funding option that is beneficial for a business owner that needs funds immediately.
  • Excellent Credit Score Isn’t Required: You don’t need an excellent credit score to get approved for a Merchant Cash Advance. The application process can be done and completed online. Therefore, it saves you a lot of time and effort. Most cash advance providers only require an applicant to make a certain amount of credit card sales each month.
  • No Set Payment Amount: As mentioned earlier, a business owner agrees to sell an amount of their future sales to get immediate payment when acquiring a Merchant Cash Advance. This is why no monthly payments are set, and there are no repayment terms. For example, a smaller amount is sent to the merchant cash advance provider if a business that availed a Merchant Cash Advance has an uneventful sales for a month.
  • Other Benefits: You can use the money obtained from Merchant Cash Advance; however, you would like to use it. You wouldn’t be risking your credit rating or assets as the lender cannot seize your assets, unlike traditional business loans; provided that there are no legalities involved and this will be discussed further below.

Drawbacks of Merchant Cash Advance

Merchant Cash Advance also has drawbacks. First, it’s costly compared to other financial products. Usually, the amount that you will pay for your funding is 9% to 50% over a short period of time. Merchant Cash Advance companies decide the amount that you’re going to pay by applying a multiplier which typically ranges from 1.09 to 1.50. For instance, if you took $200,000 and the MCA provider uses a factor of 1.50, you must repay $300,000 ($200,000 x 1.50).

Cash advances like this can only be a short-time solution making it expensive to avail. Only consider using this solution if you’re sure that it will solve your financial problems and your revenues can pay it back during that timeframe. 

How to Restructure Merchant Cash Advance

If a business owner is stuck with MCA and cannot repay, the MCA lender can file a lawsuit to attempt to seize your assets as repayment. There will also be an attempt to freeze business banking accounts and even personal bank accounts. 

Furthermore, they can state that they have the right to keep possession of properties belonging to the business owner until the debt owed is paid. They can also contact other stakeholders to ask them to pay the MCA provider directly because of a defaulted merchant cash advance. However, there are possible restructuring options you might want to consider, and these include the following:

1. Negotiate with Suppliers 

A great way to handle your business cash flow issues is to deal with the suppliers or vendors and negotiate for new terms. Terms with suppliers shouldn’t be perceived as a fixed situation. Many suppliers will treat long-term clients as partners and may find ways to work with them. Talk to your suppliers, and you might get lower costs, spread the costs over a longer-term, or even reduce or waive some penalties or fees. 

2. Work on Cutting the Costs

When you have a default MCA, it’s crucial to start working on your budget. It means that you have to cut unnecessary expenses. For example, you can find ways to save on office rental cost or hire staff that has the skills that your business needed to be able to grow to avoid hiring people that fails to achieve maximum productivity. 

3. Closing Your Business

While closing your business is not the best option to restructure your MCA, it will force the MCA lender to pursue litigation. Shutting down your business would implicate that there’s no cash flow; therefore, you’re not obliged to make more MCA payments anymore. Keep these following tips in mind before you shut your business down: 

  • Don’t switch bank accounts.
  • Don’t interfere with the MCA funder to take ACH payments.
  • Never change processing companies.
  • Don’t withdraw cash in an attempt to reduce the revenue in your bank account.

Note: The lender may accuse you of contract breach and attempt to pursue legal options. That’s why it’s best to avoid these actions.

4. MCA Consolidation

It’s a great option because it allows you to get an extension of your loan term, reducing cash-flow crunches of multiple MCAs. It will help reduce daily payments and provide weekly disbursements to satisfy the existing MCA amount that you have to pay.


When your business becomes default with an MCA lender, some significant problems can arise. However, MCA restructuring can help, and you can take advantage of MCA consolidation. You can also cut your costs, or shut down your business. That’s why it’s advisable only to use the MCA if it’s only necessary to fix an immediate or big financial problem and it’s guaranteed that you can generate enough revenue to repay it.

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