[Case Study] Small Business Saved: Payments to Merchant Cash Advance Companies Slashed by 77%
E.J. Simonsen | Jul 20, 2023
When faced with financial challenges, small business owners often seek a lifeline to keep their operations running smoothly. Unfortunately, this is when they often fall prey to the alluring offers of merchant cash advances (MCA) companies.
Merchant cash advances present themselves as an appealing alternative to traditional small business loans. However, they come with inherent risks. By pledging future income in exchange for an immediate cash injection, businesses often find themselves trapped in a cycle of debt. With interest rates averaging 150%-400%. What initially seemed like a promising solution quickly becomes a dangerous pitfall for small business owners.
If you're looking for ways to tackle mounting debt or unreasonably high payments to an MCA lender, this in-depth case study covers the options considered and how The Lane Law Firm helped a locally owned Texas business reduce MCA payments by up to 77%.
Our Client: A Beloved Small Business in Texas Falls Victim to an MCA Debt Trap
Southerland & Sons Construction, a highly regarded general contractor serving Seminole, TX for over 20 years, was facing its most difficult financial challenge ever as supply chain issues caused materials and labor costs to soar. In an effort to maintain smooth operations during uncertain times, they worked with a new lender to bolster their cash position.
Unfortunately, their new lender happened to be a part of the merchant cash advance industry. An industry notorious for brokers making enticing promises of adjustable payments, access to credit lines, and the conversion of a merchant cash advance into traditional long-term financing.
At first, the MCAs seemed like the perfect solution for the cash-strapped construction company. The business received lump sum cash injections in exchange for promising to pay back a fixed percentage of their future sales. With a streamlined approval process, no intensive credit checks, and cash injections within 24–48 hours, it seemed that they had found the financing mechanism they needed.
The Problem: Overwhelming Payments and Looming Lawsuits
However, within a few months, the owners realized they had fallen into an inescapable debt-trap. One in which the only way to make the required payments was to take another MCA. As they began to miss payments, the MCA lenders abandoned their friendly demeanor and aggressively pursued legal action. First came the bombardment of default notices and UCC liens against the business and its customers. Then the process servers with lawsuits in hand soon followed.
With UCC lien notices flooding in, crippling weekly payments of $46,234, and a slew of lawsuits, Southerland & Sons Construction faced the grim possibility of shutting down permanently. This meant letting go of their dedicated employees and leaving behind loyal customers who had been relying on their services for years.
With limited options and even less time, they needed a law firm that could help them to:
- Drastically reduce the crushing weekly payments owed to multiple MCA lenders
- Stop the lawsuits from progressing, while also halting the constant harassment of MCA collectors
- Keep the business operating to uphold their commitment to long-time customers
- Protect their valuable name and reputation
Our Solution: Craft a Strategic Debt Payment Plan
When owners at Southerland & Sons contacted The Lane Law Firm, they told us they had considered solutions like bankruptcy and debt consolidation. However, what they most desired was a law firm who could devise an innovative, customized approach that would allow them to remain in control of their 20+ year old company, pay their debts as promised and substantially change the MCA's payment terms. Then they would be able to make said payments without losing their livelihood.
Drawing upon our years of experience in helping numerous small businesses in Texas navigate their way out of debt, especially from MCA debt-traps, we devised two potential strategies:
- Chapter 11, Subchapter V, Business Bankruptcy: The Lane Law Firm would develop and submit a comprehensive restructuring plan to the court. This would compel the MCA lenders to comply with court-ordered terms that would reduce the outstanding balance by 80-95%, adjust the APR to 0% and extend the significantly reduced payments over a period of three to five years. This plan offered guarantees but was costly and the debts would not be paid back in full.
- Business Debt Resolution: The Lane Law Firm would leverage their expertise in dealing with MCA companies and negotiate balance and/or lower payments. This plan would provide Southerland & Sons Construction with financial relief quickly and quietly without a formal bankruptcy filing. Moreover, it would be less costly and allow for full repayment of the debt, assuming the payments would be lowered to a reasonable amount.
Initially, Southerland & Sons Construction decided that Chapter 11 bankruptcy, Subchapter V, was the best option. This would allow them to not only put an immediate stop to all ongoing lawsuits, but also offered an opportunity to significantly decrease their outstanding balances and make payments at a 0% over a longer term.
However, upon careful consideration, the owners decided they wanted us to pursue the Business Debt Resolution option. Having our legal team successfully negotiate a stop to the lawsuits and favorable payment terms would provide a less complicated and quicker solution than bankruptcy. Further, it would eliminate any chance that restructuring the debt under bankruptcy might tarnish their long-standing reputation in Seminole. With a decision made and a well-devised plan underway, we began negotiations with each MCA lender and their legal team.
The Results: Weekly Payments Slashed by Up to 77%
Fortunately, with a well-thought-out plan and a forthright negotiation approach, we obtained the results for which Southerland & Sons Construction were seeking—much needed breathing room. Unlike most of our clients who need debt elimination or permanent payment reductions, Southerland & Sons Construction believed in their ability to repay all of their MCA debt if given the opportunity. They now have that opportunity, thanks to a $30,000 a week reduction in their weekly payments—albeit for a month or so. Moreover, we put an end to the relentless harassment and legal pressures from MCA lenders, collectors, and their lawyers.
As a result, we not only ensured the uninterrupted operation of their business but also safeguarded their highly regarded reputation.
As evidence, the following shows the original payments versus the reduced payments we successfully negotiated for Southerland & Sons Construction. Hats off to both sides as a solution was found that worked for everyone.
*Outcomes can be independently verified via conditions and stipulations as filed in the New York State Unified Court System.
- $5,000/week for 4 weeks (61% reduction)
- $9,000/week for 4 weeks (30% reduction)
- $12,500/week until paid off
- $4,000/week for 4 weeks (58% reduction)
- $7,000/week for 4 weeks (27% reduction)
- $9,600/week until paid off
- $2,000/week for 4 weeks (68% reduction)
- $4,000/week for 4 weeks (36% reduction)
- $6,250/week until paid off
- $2,000/week for 8 weeks (77% reduction)
- $4,000/week for 4 weeks (54% reduction)
- $6,000/week until paid off (31% reduction)
- $2,500/week for 6 weeks (72% reduction)
- $4,500/week for 6 weeks (50% reduction)
- $6,500/week for 6 weeks (28% reduction)
- $8,646/week until paid off
The Conclusion: Crippling MCA Payments Overcome by Skilled Legal Intervention
If you're a Texas small business owner whose facing unsustainable MCA payments or harassment from predatory MCA lenders, solutions are readily available. As demonstrated in this case study, one of the many options is what is referred to as Business Debt Resolution (BDR), which can help restructure debt or debt payments.
If you need assistance, don’t wait—seek experienced legal guidance immediately. If you or your business is in Texas and you have questions about how to regain control of your business finances, schedule a free consultation by clicking the button below.