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Debt Elimination

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Scott's Story: Rebounding From Unsupportable MCA Debt

Case Study | March 31, 2019

A man checking a machine

“If I had it to do over again, I would’ve hired Second Wind Consultants four years before I actually did.”

–Scott L., CEO, Electric Components Manufacturer

After the last economic downturn, Scott L.’s company revenues took a 50% hit. At first, he was optimistic that things could be turned around, but as his own customers started to go out of business and many of his major accounts began shifting their purchasing to overseas suppliers, the situation became bleak. To add insult to injury, the manufacturer for which he was an authorized distributor decided to handle their distribution in-house, cutting off one of Scott’s top product lines and leaving him with inventory he couldn’t offload. After a series of desperate maneuvers, Scott was facing $80,000 in debt, bankruptcy and total financial ruin.

The Challenge

In an attempt to keep his head above water, Scott acquired his first Merchant Cash Advance in 2013. At first, it seemed to improve his situation, but he shortly realized that servicing the new debt as sales continued to dwindle was causing a cash flow crisis.

Eventually, Scott sought the services of a “corporate restructuring” firm. He was instructed to put money into an account, some of which would be used to pay the firm’s fees and the rest of which would be allocated to Scott’s various creditors. To his dismay, Scott never received a single statement regarding how the funds were being used and sank between $15,000-$20,000 into the endeavor before abandoning it completely, with all his pre-existing debt still looming.

By now, it seemed as if Scott’s only option was to begin “stacking” multiple MCAs. At his darkest hour, Scott was acquiring a new MCA approximately every three weeks to attempt to resolve his outstanding debt, with each new advance costing upwards of 15% of his gross sales. Shortly thereafter, Scott had no recourse but to default on his advances. The MCA companies responded by filing UCC letters with Scott’s clients, freezing nearly $23,000 of receivables, effectively shutting down his ability to do business. Scott’s attorney attempted to negotiate payment installments, but the creditors insisted that they wanted the $23,000 up front and reiterated that they were coming for more.

The Solution

Scott found Second Wind Consultants in 2017 by performing a Google search for “getting out of business debt.” He recalled having spoken with Aaron Todrin—a bankruptcy attorney and president of the company—a few years prior. Regrettably, at the time Scott had decided to explore other options. However, after speaking to Aaron a second time and hearing how working with SWC would be the lifeline he needed to avoid bankruptcy, Scott decided to take action.

From there, Jared Nugent was assigned to the case. As Scott and Jared began discussing Second Wind’s strategy for the business, Scott thought surely it was too good to be true. Jared began by immediately protecting the business from all payments demanded from the MCA collections department, and worked tirelessly–making daily and weekly calls–to come to an agreement that satisfied both parties. “It took nine months, but my business debt is now gone, and the assets that I personally guaranteed are safe.”

The Results

Second Wind was able to settle the original $80,000 in MCA debt for a one-time payment of $10,000 with a full release of all personal guarantees and confessions of judgment. The next day the MCA company released the lien on the $23,000 in receivables so that the company was able to collect from its clients. “Jared is so knowledgeable, I thought he was an attorney himself; he certainly knew a lot more than my attorney did.” Scott says he would emphatically recommend Second Wind Consultants to anyone who finds themselves struggling with unsupportable debt.

“If I had only listened to Aaron years ago and signed on with Second Wind Consultants then, I never would have had to take on the first MCA and could have avoided a lot of heartache and headache,” Scott sighs. The upshot is that with the frozen receivables now coming in, Scott says the business got the fresh start it needed and is now on a healthy path towards sustainable growth.

Yes, resolve business debt.

Find out more about the rational and ethical path to preserving the value of your business and resolving unsupportable debt.

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