HOW DEFAULTING ON MERCHANT CASH ADVANCES AFFECTS YOUR CREDIT SCORE
Defaulting on a merchant cash advance can be a serious negative blow to your credit score. It can lead to financial damage and put both your business and personal finances at risk. We can help you understand the consequences, the possible legal pitfalls, and the strategies available for defense.
AS SEEN ON major media outlets, Delancey Street is a premier business debt relief company, and we’re dedicated to explaining how defaulting on a merchant cash advance might impact your credit—and how we can help you navigate potential legal consequences.
What Happens to Your Credit Score When You Default
Defaulting on a merchant cash advance typically causes a negative mark on your credit profile. That negative mark can lower your overall creditworthiness, making it more difficult to secure new financing, such as SBA loans, business credit cards, or term loans. According to the Consumer Financial Protection Bureau, payment history is one of the biggest factors that credit reporting agencies weigh when calculating your score. Many MCA lenders will look at your past history, before issuing a new MCA.
Regardless of whether you’re working with OnDeck, PayPal Working Capital, Kabbage, or another lender, here’s what could happen:
- Collections: The lender might report your default to credit bureaus, or to DataMerch – an MCA default database..
- Aggressive Collection Attempts: They might use confession of judgment (COJ) clauses if you signed one, which could allow them to take your wages or seize assets without lengthy court proceedings. This means you automatically lose your asset.s
- Legal Action: The lender may sue if the debt remains unpaid, which can result in judgments on your personal or business credit report.
Potential Penalties and Laws
Defaulting on a merchant cash advance can result in severe penalties. Regardless of the reasons for the MCA default, MCA lenders typically want their money, and some might even engage in more aggressive collection methods such as sending someone to your place of business. Here are a few things you should know:
- Confession of Judgment (COJ): Some merchant cash advance agreements include a COJ- Confession of Judgement, enabling the lender to obtain a judgment without formal litigation. Once a judgment is entered, they might take your wages or other assets, they can instantly seize your business bank account. .
- Uniform Commercial Code (UCC) Liens: Lenders often file a UCC-1 Financing Statement, which can encumber your business assets. These liens can appear on your credit reports and hamper your ability to get new financing.
- Personal Guarantee: If you signed a personal guarantee, lenders can pursue you personally, potentially impacting your personal credit score.
To learn more about specific laws that govern debt collection and business lending, you can visit the Federal Trade Commission or the Small Business Administration for additional resources.
DEFAULTING CAN LEAD TO SERIOUS CONSEQUENCES
Regardless of the Situation You Will Suffer
Regardless of your cash flow status. Your funds will be taken
Regardless of the reason for your default. Your reputation will suffer
Regardless of how dire things seem. You have options
The repercussions remain the same: negative credit listings, potential legal judgments, and ongoing financial strain.
Defense Strategies to Protect Your Credit And Your Business Reputation
We are Delancey Street, and we believe in creating strategies to help protect your business.
Here are some ways we can help you:
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NEGOTIATE WITH LENDERS
- We work directly with MCA to explain your financial challenges. We explain that either they accept a reasonable offer, or it goes the hard way.
- We work to potentially lower interest rates, stretch repayment terms, or settle for a reduced principal amount.
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DEBT CONSOLIDATION
- You might benefit from merchant cash advance consolidation, or a term loan, or even invoice factoring.
- By consolidating multiple debts, you can reduce your overall monthly payment burden and simplify your payment schedule.
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LEGAL DEFENSE AGAINST LAWSUITS
- If you’ve been sued by a lender, our sister law firm can help.
- We handle everything from confession of judgment defenses to settlement negotiations—aiming to prevent lenders from immediately trying to take your wages.
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CREDIT REHABILITATION PLANS
- While working on settling or restructuring debt, we focus on protecting your credit score.
- We help craft a strategic plan so you can rebuild creditworthiness over time.
DEDICATED. EXPERIENCED.
We know how merchant cash advances work and what to do if you find yourself in default. Our team prides itself on dealing with creditors and aiming to lower your overall debt balance. We have a sister-law firm run by an attorney who is prepared to protect you from lawsuits. Our approach can help you move toward a debt-free future—while minimizing damage to your credit.
What Should You Do Now?
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Contact Your Lender
- Before doing anything else, ask for a modified payment plan.
- If they refuse, contact us at Delancey Street.
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Organize Your Documents
- Gather your bank statements, the agreements you signed with your merchant cash advance lender, and any related letters.
- Keep an eye out for any COJ or personal guarantee clauses you might have agreed to. This is important so your lawyers know how to build a defense strategy for you.
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Call Delancey Street Today
- The sooner you reach out, the sooner we can help you defend your credit score and negotiate with lenders.
Final Thoughts
Defaulting on a merchant cash advance can have immediate and significant effects on your credit score. It can also expose you to lawsuits, judgments, and a spiraling debt problem. According to the Consumer Financial Protection Bureau, communication with your creditors is often the first and most important step in handling potential defaults.
We can help you through the entire MCA default process. Our business debt relief experience, combined with our legal team, makes sure that you have powerful advocates on your side. Regardless of how complicated your business debt seems, we’re here to guide you and fight for you.