Novemebr 5, 2019

What Really Happens If You Default On A Merchant Cash Advance

Understanding A Merchant Cash Advance

It’s important to understand a Merchant Cash Advance (MCA) is not a “loan” rather, they are a sale of a portion of future credit and/or debit card sales. You take the money, and over the next 4-18 months, you repay the funder a daily or weekly amount equal to a percentage of your sales.

So, what happens if your business goes through a seasonal slowdown or you can’t afford the daily rate because your cash flow is inconsistent?

What Happens If You Default On A Merchant Cash Advance?

If you default due to closure of business, then the merchant cash advance has no real means of collecting on you. If you default due to the fact the repayment is too much of a burden, you can negotiate to change the terms.

But beware, below are examples where you can get into trouble if you default via one of the means below.

• Switching bank accounts
• Interfere with the MCA taking ACH payments
• Change merchant processing companies
• Take cash, or other forms of payments, to reduce deposits in your bank account.

If you default due to one of the reasons above, the MCA can accuse you of breaching contract, and could pursue legal recourse. Providing you avoid these actions and wind up your business affairs in a clean manner, there’s nothing to worry about.