6 Debt Restructuring Strategies That Consolidation Companies Won’t Mention
With the current slowing of many industries due to the COVID-19 pandemic, there is a good chance that your business cash flow has slowed as well. While MCA lenders have been slightly more flexible throughout the Coronavirus pandemic, some may still be unwilling to work with their borrowers.
You may be in a difficult situation where you are no longer able to pay for your merchant cash advance debt. Maybe your cash flow is solid, but you did not realize the merchant cash advances you accepted would make such a dent in your daily cash flow.
You’ve searched the internet and found various companies that say they offer merchant cash advance consolidation programs. But, what are these programs?
What is a Merchant Cash Advance Consolidation?
A merchant cash advance consolidation is simply a business debt consolidation loan, but it performs similarly to a merchant cash advance.
Yes, if you are approved, this loan will pay off all your current merchant cash advances and, in theory, give you a better repayment plan, but your daily or weekly payments will continue and you will now have a larger debt.
In order to obtain a merchant cash advance consolidation, the lender will examine your credit and a decent credit score will be required.
The lender will also examine your financials very closely. Your sales, operating overhead and profits will be carefully evaluated.
Your business will need to be in sound financial condition as merchant cash advance consolidations are only provided to healthy business enterprises.
Be Sure to Choose an MCA Consolidation Loan Company Carefully
There’s one other major point to consider if you’re thinking about applying for an MCA consolidation loan.
You must be wary of the companies that are offering you a merchant advance consolidation loan.
In truth, these consolidation loans are very akin to a merchant cash advance. Essentially, you may be only going from the frying pan to the fire.
You pay off your troubled debt with a consolidation, but your new debt obligation further chokes your business.
Your debt service becomes larger and longer in time.
Yes, this new advance may lower your daily drafts, but is it a long-term and permanent solution? Or is it merely a short-term band-aid that will keep you stuck in the same financial downward cycle?
It is essential for any business owner to consider other debt resolution options as opposed to going farther down the merchant cash advance rabbit hole.
What Other Options Do You Have Besides MCA Consolidation?
Before you apply for a consolidation loan from a company that could just be offering you another merchant cash advance in disguise, you owe it to yourself to consider some alternatives that may be a better plan for your business.
In previous articles we’ve talked about whether it’s better to consolidate using an MCA consolidation loan or to consult with an MCA attorney, but the following list is intended to illustrate a slightly different point. Below we have outlined 6 methods or strategies that an MCA consolidation company will likely never tell you about which you should consider before signing a loan application.
In our law firm, we always consider a bankruptcy filing to be the final option to consider for our clients. It is preferred to pursue other possible debt resolution options before considering bankruptcy.
Negotiating with the subject lender and settling out of court is the ideal resolution option because very often, with skillful negotiation, and the commitment of the client to stick with the plan, very favorable results can be obtained thereby avoiding the need to file bankruptcy.
Restructure or Liquidate
When contemplating aggressive measures to address a business owner’s difficult financial position, the first thing that must be considered is whether to work on a plan of restructuring or, in the alternative, simply liquidate the assets of the business and shut it down.
The question of whether to begin a plan of restructuring or to possibly liquidate the business is a relatively simple analysis.
Is there enough of a future marketplace for the business to survive during a difficult period of restructuring?
If it is determined that there is not a sufficient marketplace for the business to survive its restructuring, it is only logical to liquidate the business.
If you, as a business owner, are facing these kinds of tough decisions, we wholeheartedly recommend the hiring of a qualified and experienced legal professional with extensive business turnaround experience. A qualified and independent legal professional will assist with these critical evaluations and help you to create a viable action plan.
Eliminate Cash Flow Crunch
In embarking upon a business restructuring plan, the first goal that must be accomplished is to eliminate the bleeding of cash.
Any debt restructuring or business “turn-around” plan must provide for the collection of sufficient minimum operating revenue to at least cover the payment of ongoing business expenses such as payroll, taxes, rent, utilities, essential supplies, transportation costs, and so on.
Customarily, this means that the Company will likely have to reduce or cease payments on past due loans, leases, and trade credit lines while the business operations are being turned around.
The business and its independent legal professionals work together to negotiate with creditors.
There are normally two stages of these negotiations.
The most important negotiation obviously is with any traditional banking institutions where the business has credit or a loan(s) outstanding.
Typically, traditional banks lend on a secured basis. This means they hold a lien on business and assets, and therefore, the bank has the capability to foreclose. This also means the ability to seize equipment and exercise a right of off-set on the business bank accounts held in that bank.
Simultaneously with this traditional bank negotiation process, the business should also contact all of its unsecured trade creditors like its merchant cash advance lenders and credit card companies and put them on notice of the need to restructure the repayment of that debt.
Communication with Creditors & Vendors
First and foremost, it is simply good business practice to notify your creditors about the situation your business is facing.
Most trade creditors will agree to a temporary suspension or reduction of your debt payments as an alternative to going straight to litigation. Lenders do NOT desire to litigate if they can avoid it.
It may make more sense to the lender to accept a settlement at forty cents on the dollar as opposed to incurring thousands of dollars in legal fees to sue.
Even if they are successful in winning a judgment (which might take a year or more) there is no guarantee that they will be able to collect. And if you eventually go bankrupt, the lender may end up with nothing.
Smart lenders and their attorneys know this very well and this is why almost all lenders are willing to negotiate in good faith to hopefully bring about a settlement resolution.
Seek Qualified Legal Advice from an Experienced Business Debt Attorney
The hope in pursuing a business reorganization is that, over time, with discipline and some skillful negotiation, the business owner will eventually reverse the trends that have been negatively impacting the company.
Then the business can begin to track towards a healthier overall business operation and balance sheet position.
Here again, your independent qualified legal professionals can provide assistance in presenting restructuring requests to asset based lenders, factors or investors.
Assuming a business is honest in trying to fulfill its fiduciary responsibility to its creditors, then an out-of-court settlement resolution will produce a higher return to creditors and a quicker payout than the results of a bankruptcy filing.
When you hire a skilled and independent legal professional, you greatly improve the likelihood of an overall successful outcome.
Contact an Attorney at the Business Debt Law Group
The attorneys at Business Debt Law Group are highly skilled independent qualified legal professionals, with the senior partners possessing more than sixty years of combined legal and business turnaround experience, we can assist you in resolving all of your creditor issues or a merchant cash advance lawsuit and ultimately, to help your organization to get back on a healthy track.
Before you try to take out a merchant cash advance consolidation loan to try to solve your business’ problems, you should contact one of our attorneys to see what other, better options you may have. Our consultations are free and we are ready to help you get your business back on track.