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Unpacking MCA Repayment Terms and Conditions

BY Value Capital Funding

March 29, 2023

Regional Bank Crisis & An Inverted Yield Curve: Here’s Your SMB Playbook 101

Regional Bank Crisis & An Inverted Yield Curve: Here’s Your SMB Playbook 101

Cleaning up one’s small business balance sheet and refinancing or restructuring expensive Merchant Cash Advance (MCA) instruments for MCA debt relief is especially important during an inverted yield curve and a regional bank crisis of confidence. During an inverted yield curve, interest rates on short-term debt are unusually higher than those on long-term debt, making it more difficult for businesses to access affordable financing. This can lead to some businesses resorting to MCAs, which often have much higher cost of capital and fees than traditional FDIC Bank term loans and lines of credit. However, MCAs can be risky and can lead to a debt trap for some small businesses.

During a regional bank crisis of confidence, businesses will most often find it more difficult to access credit or refinance existing debt, which can be especially challenging for those with existing MCAs. Refinancing or restructuring MCA debt for MCA debt relief and to restructure business debt using lower cost FDIC bank financing can be a way for small businesses to substantially reduce their debt service costs and improve their financial position during, or when the likelihood of an economic downturn increases.

Cleaning up one’s small business balance sheet can involve reviewing expenses, reducing non-essential spending, and most importantly, paying down expensive debt. This will help small businesses improve their cash flow, their creditworthiness, and reduce their debt-to-income ratio, which can make it easier to access affordable financing.

Restructuring MCA debt for MCA debt relief and to restructure business debt most effectively involves having an attorney negotiate with lenders on your behalf to reduce interest rates, fees, and even the outstanding balance owed. It also involves extending the repayment period to give the business the cash flow room it needs to breathe and regroup. This can help small businesses reduce their debt service costs and improve their cash flow, making it easier to weather an economic downturn. MCA debt restructuring for MCA debt relief and to restructure business debt is often used after traditional sources of refinancing the expensive debt have proven to be unsuccessful.

In summary, cleaning up a small business balance sheet and refinancing or restructuring expensive MCA instruments for MCA debt relief and to restructure business debt can be important strategies for small businesses during any point in the economic cycle. However, during an inverted yield curve and a regional bank crisis of confidence, it may very well be the difference between a business’s own survival or its demise. These strategies can help small businesses improve their financial position, reduce debt service costs, and access affordable financing during challenging economic times.

Like Warren Buffett says: When the tide goes out, we get to see who’s swimming naked! Is your balance sheet recession proof?

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