If your business has missed a Merchant Cash Advance (MCA) payment, timing can become important. Unlike traditional bank loans that may include grace periods, MCA agreements often operate on shorter timelines. In some cases, missed payments may lead to increased collection activity or account restrictions, depending on the terms of the agreement.
Here is the protocol business owners should consider to sustain their operations, cash flow, and assets.
Note: Services provided exclusively for businesses. Not consumer or personal debt relief.
1. Don't Panic And Don't Rush to Get Another MCA
The most common mistake business owners make when they miss a payment is taking out another MCA to cover the first. This can accelerate a business’s financial strain. Adding another high-cost daily payment to a cash flow that is already struggling rarely solves the core issue. It usually just digs the hole deeper.
2. Review Your Reconciliation Clause
Merchant Cash Advances are typically structured as purchases of future receivables rather than traditional loans, although the specific structure depends on the contract terms. Because they are tied to your sales, most contracts contain a Reconciliation Clause.
- What it is: A requirement that the funder adjust your daily payment if your business sales have dropped.
- Your Action: If your revenue has decreased, you may have a right to ask the funder to reconcile your account. This process is designed to help lower your daily payment to reflect your actual income.
3. Maintain Your Operating Capital
If you have missed a payment, your primary business bank account may be at risk. MCA agreements may include an ACH Authorization, which may allow the funder, depending on the agreement, to attempt additional withdrawals or increased debits in the event of default.
- The Risk: A funder may attempt to pull a large lump sum in a single day, which could cause other essential business payments, like payroll or rent, to bounce.
- The Move: Business owners may consider speaking with a qualified professional with experience in MCA-related matters to better understand their options.
4. Understand Potential Escalation Measures
MCA funders often revert to potent tools that may differ from those used in traditional lending structures. It is important to know if these are in your business contract:
- UCC Liens: The funder could file a lien against your business. If a default occurs, in some instances they may notify your customers or credit card processors to send your revenue directly to them.
- Legal Judgments: In certain jurisdictions, funders may move quickly to secure a judgment against the business, which may, depending on applicable law and procedures, lead to enforcement actions such as asset restraint or seizure.
5. Explore Business Debt Resolution Options
Because MCAs occupy a unique area of commercial law, they are often subject to approaches that may vary depending on the creditor and circumstances. Working with experienced professionals may assist businesses in:
- Managing Communications: Assisting in organizing and responding to creditor communications.
- Pursuing Potential Settlements: Exploring potential resolution options that may be more sustainable for your business's long-term health.
- Coordinating Legal Support: If necessary, coordinating with independent legal professionals to address specific contract disputes.
Coastal Debt Resolve is not a law firm and these materials do not constitute legal, financial, or professional advice.
Required Disclaimers
- Business-Only: Services provided exclusively for businesses. Not consumer or personal debt relief.
- No Guarantees: Debt resolution outcomes are not guaranteed. Results vary based on business circumstances and creditor participation.
Legal Advice: Coastal Debt Resolve is not a law firm and these materials do not constitute legal, financial, or professional advice. Any legal services are provided by independent attorneys. We may refer clients to independent attorneys or coordinate with counsel retained separately by the client.
Frequently asked questions
Unlike traditional bank loans that may offer grace periods, MCA funders often move quickly. Within a few days of a missed ACH withdrawal, a funder may attempt to "sweep" your business account for the full balance or begin the process of filing a UCC lien. It is important to assess your business's liquidity immediately.
Many MCA agreements include a Reconciliation Clause. Because these advances are a purchase of future sales, the funder is often required to adjust the daily debit if your business revenue has decreased. Requesting a reconciliation may help align your payments with your current cash flow.
"Stacking" occurs when a business takes out a new MCA to pay off an existing one. While this may provide a temporary fix, it adds another high-cost daily payment to an already strained cash flow. This often leads to further financial complications rather than solving the underlying debt issue.
Depending on the terms of your agreement and your jurisdiction, a funder may use ACH authorizations or seek legal judgments to restrain business assets. In some cases, they may also notify your credit card processor to intercept your daily sales through a UCC lien.
Professional resolution teams assist businesses by managing communications with commercial creditors and exploring potential settlement options. The goal is to pursue a more sustainable financial arrangement that allows the business to maintain operations.
