Second Wind has recently become aware of a disturbing new MCA tactic in the wake of COVID 19 disruption to businesses.
Business owners are reporting new MCA solicitations – positioning MCAs as ‘relief funds.’
Many business owners have become educated about the dangers of MCAs. Anticipating this sentiment on behalf of small business owners, this latest MCA pitch suggests an advance can be considered short term, and paid in full by SBA disaster relief funds when received.
Implied in this pitch, is that an MCA should be thought of as an advance against coming SBA funds!
The problem is, at the point at which any SBA funds may become available, it is highly likely that MCA debt-service has created a stacking situation. Because MCA terms are so aggressive, long before any SBA funds became available to the business owner, a second MCA may well be required to service the first.
At the point at which a business has been forced to ‘stack’ MCAs in order to support debt-service and cash requirements, it is unlikely that SBA monies would extract the borrower from the SBA debt-spiral when it arrives.
Taking on an MCA now, will likely lead to a second. Or third. In our experience, the MCA spiral almost always leads to one place for business owners – insolvency.
We urgently suggest you do not look to MCAs for even temporary relief.
There are options. Alternative “asset-based” and “factoring lenders” should be your first stop. This article will help you see the real-term difference between the cost of ‘factoring’ versus a merchant cash advance.
Additionally, as Second Wind will report more on soon, the SBA may release ‘immediate’ emergency payroll funding to help bridge the gap. Stay tuned, or contact your bank for more information.
Finally, consider approaching landlords, utility companies, and even suppliers directly. Where possible, most providers and suppliers (and even bank lenders) understand the necessity to extend terms whenever possible under the circumstances. It’s in all of our best interests to sacrifice as much as we can momentarily, to preserve businesses, business relationships and our economy as a whole.
If you’ve already taken MCAs – there’s a solution.
If you’ve found your business barely hanging on because of MCA debt service, contact Second Wind. We can fully resolve MCA debt from your business – without bankruptcy or legal messes.
To all of the businesses in our family – those we’ve helped directly and those who follow us – stay healthy and stay tuned for frequent updates on issues immediately affecting business owners.
– The Team at Second Wind Consultants