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MCA debt relief

BY Value Capital Funding

March 18, 2024

Financial Chronicles: Untangle How Does MCA Debt Relief Affect Your Credit

For small business owners experiencing the pain of multiple Merchant Cash Advances (MCAs), navigating towards financial stability can often feel daunting. At Value Capital Funding, we’re committed to demystifying the financial repercussions and uncovering the truths about how MCA debt relief impacts your personal and business credit profiles. MCAs, an acronym for a business merchant cash advance, do not typically report to credit bureaus, meaning your pursuit of MCA debt relief is likely to be credit neutral. Let’s dive in and understand the nuances of MCA debt relief.

 Decode the Credit Impact of Debt Relief

 Debt relief comes in various forms, but when it pertains to MCA debt relief, the impact on your credit score is negligible. This is because MCAs are structured as cash advances against future sales, and unlike traditional loans, they don’t factor into credit reports. However, it’s crucial to distinguish this from relief measures for other business debts, such as business credit cards and bank loans, which do affect credit scores.

 Understand the Credit Score Dynamics

 Understanding credit scores is essential when considering debt relief options. A credit score is a reflection of your creditworthiness at a single point in time and is influenced by factors such as payment history, debt levels, and the age of credit accounts. With MCAs being off the credit radar, your FICO score remains untouched through MCA debt restructuring.  Same is true for business credit bureaus: since an MCA is not a credit instrument, they are not reported to business credit bureaus like Experian, Equifax, and Dun & Bradstreet.

 The Role of Debt Settlement in Credit Scores

 Typically, debt restructuring, or even debt settlement,  can affect your credit score negatively because it indicates that you’ve paid less than what you initially owed. However, with MCA debt restructuring, your credit profile remains intact. The process is designed to alleviate your financial strain without damaging your credit standing.  Because the restructuring transaction doesn’t negatively affect one’s personal or business credit profiles, it is often said that these transactions are done discreetly, or confidentially, in that there will be no public record or notice of the transaction.  It is important to know that if you’re battling larger MCA balances of say, $1,000,000 or more, there may also be private capital available to help refinance, consolidate, or settle those balances using a lump sum, monthly-pay, fully amortizing term loan that has a 10% -12% fixed-rate APR, and that matures in anywhere from 12-20 years.  That means no balloon payments, just a much lower fixed monthly payment that you can live with, that is budget-friendly and lasts for years, not 1 year or less, like most MCAs.

 Debt Consolidation and Its Credit Ramifications

 When it comes to overwhelming MCA debt, MCA debt consolidation doesn’t apply in the traditional sense. Since these advances aren’t reported, consolidating them doesn’t carry the same credit ramifications as consolidating reported business debts, where the effects can vary.

 Credit Repair Strategies During and After Debt Relief

 Even though MCA debt restructuring doesn’t affect your personal or business credit profiles, we always advise maintaining a watchful eye over all aspects of your business finances. Keeping your good-standing credit accounts in check and managing your reported debts – like credit cards, and other bank loans like SBA – responsibly will help preserve your overall credit health.  In fact, because MCAs suck the vital cash flow out of a business, many with multiple open positions MCA instruments have robbed Peter, to pay Paul.  Many we see first tell us that they are currently supporting their MCA payments by delaying or withholding payments to vendors, suppliers and even their own salary.  These are tell-tale signs that the path you’re on is unsustainable. Naturally, tackling the MCA issue head on will likely then make it easier to support any other debt you have on your books.

 Navigate Credit Reporting Agencies 

For most forms of debt relief, staying informed about how your financial activities and maneuvers are reported to credit agencies is vital. For MCAs, this concern is off the table, allowing you to discreetly focus on improving your business’s cash flow and growth potential without the shadow of public credit reporting implications. 

Untangle Your Financial Chronicles with Value Capital Funding Today!

If done correctly, and with the right partner, navigating the world of MCA debt relief should not be an overwhelming task where you also need to be worried about the effects on your credit profile. With Value Capital Funding, you can quickly chart a course towards financial freedom without the anxiety of impacting your credit report. Contact us today for a confidential consultation and start untangling your high cost daily and weekly-pay MCAs with solutions that respect and preserve your credit profile.