SIGNS YOUR BUSINESS IS HEADED FOR A MERCHANT CASH ADVANCE DEFAULT
Are you struggling to keep up with daily repayments on your merchant cash advance?
Do you feel like your business cash flow is stretched to its limit, and you have no way out?
AS SEEN ON major media outlets, Delancey Street is a DEDICATED and EXPERIENCED top-tier business debt relief company committed to protecting you from default situations.
Anyway, let’s look at the bottom line here: If you’re on the edge of missing payments—or have already missed some—your small business could be in a bad position that might lead to a serious default.
Regardless of whether you have SBA loans, merchant cash advance debt, or business credit cards—if you think you’re about to miss payments to lenders, it’s time to pay attention and take this seriously.
Below, we’ll unpack the tell tale signs that often hint your business may be sliding into a merchant cash advance default, explore potential penalties, cite relevant laws and government websites, and then outline defense strategies Delancey Street can use to help you.
1. Frequent Late Payments and Overdue Notices When your merchant cash advance payments keep bouncing or arrive late, it’s a massive red flag. If you want to borrow money in the future, lenders will see the late payments. Often, the MCA provider’s in-house team or third-party collectors will start sending you notices of default.
This can escalate quickly:
- Repeated overdrafts in your business bank account
- Daily or weekly repayment amounts exceeding your available funds
- Notices referencing COJ (Confession of Judgment) provisions
Penalties Involved
Under some lending agreements, a confession of judgement may allow the MCA lender to go straight to court for a judgment without standard due process. This could lead to immediate garnishment of your business accounts—or even personal accounts, if you provided a personal guarantee. The COJ allows the lender to take money right out of your bank account.
Legal Reference:
Many states have varying rules on Confessions of Judgment, but see New York City Civil Court website for official details regarding how COJs work in New York courts.
2. Chronic Cash Flow Problems
Regardless of whether your sales are steady, if a significant chunk of revenue is siphoned off daily or weekly to repay your MCA, you can end up in a persistent cash flow crisis.
Look for these scenarios:
- You’re juggling credit card debt and missed vendor payments
- Recurring short-term loans piling on top of each other—also known as “stacking”
- No capital left to invest in operational costs (e.g., purchasing inventory, paying employees)
Penalties Involved
If you default, the MCA provider could impose default rates, late fees, or penalty interest. Factor rates can skyrocket, raising the cost of your already expensive merchant cash advance.
Legal Reference:
Under the Federal Trade Commission Act, 15 U.S.C. § 45(a), creditors and debt collectors HAVE to adhere to regulations preventing unfair or deceptive acts. For more info, visit the FTC’s official site.
3. Unmanageable Stacking of Merchant Cash Advances
Regardless of the reason you took multiple MCAs—maybe you needed a life line—these debts can quickly stack and spiral.
Signs You’re in Over Your Head
- 2-5 MCAs from different lenders
- Daily repayment totals that exceed incoming revenue
- Consistent personal phone calls from multiple MCA providers
Penalties Involved
Having multiple providers can mean multiple default judgments if you fail to pay. It also negatively impacts your credit score and can result in a lawsuit naming you personally if a personal guarantee was signed.
Legal Reference:
For general guidance on small business debt and best practices, check out the U.S. Small Business Administration (SBA) resources on responsible borrowing.
4. Excessive Fees and “Mystery” Deductions
Many merchant cash advance contracts have hidden fees—ACH fees, administrative fees, etc.
If you notice:
- Your daily debits exceed the agreed-upon figure
- Confusing statements with extra charges
- Difficulty getting a clear explanation from the MCA provider
…this can accelerate a potential default because your repayment amount ends up higher than expected.
Penalties Involved
Once you miss a payment or are short on payment, lenders might trigger default clauses. They could tack on punitive fees, making your monthly payment even higher.
Legal Reference:
Stay informed by reviewing the Uniform Commercial Code (UCC) guidelines on default and secured transactions at Cornell’s Legal Information Institute.
5. Constant Harassment and Collection Calls
When your MCA provider, or their debt collector, floods you with calls, it’s a clear indication you’re nearing—or are already in—default territory.
Often it starts with “friendly reminders,” which can escalate to demands for full repayment immediately.
Penalties Involved
Aggressive tactics can include:
- Potential threats of legal action
- Credit reporting damage
- Possible personal lawsuits if you signed a personal guarantee
Legal Reference:
Under the Fair Debt Collection Practices Act (FDCPA), certain collection practices are limited. While this law is more consumer-focused, its principles often guide how collectors should behave. For details, see the Consumer Financial Protection Bureau.
DEFENSE STRATEGIES: HOW WE’D PROTECT YOU
We understand how stressful it is to face a merchant cash advance default. Our legal team at Delancey Street can intervene before or after a default occurs, using a variety of approaches:
-
Open Communication and Negotiation
We immediately establish communication lines with your MCA provider to discuss new terms or a reduction in overall balance.
We let them know that “No lender wants you to file bankruptcy.” We communicate that you want to make it right. -
Debt Restructuring
Business Debt Settlement and debt negotiation can sometimes reduce your total amount owed.
We use your P/L statements and cash flow data to show why the lender should be flexible.
We make sure lenders can see the downtrend in your revenue. -
Legal Defense Against Confessions of Judgment
If a COJ was involved, our attorneys can challenge its enforceability if it violates local rules, or if you were misled.
AS SEEN ON various media outlets, we excel at exploring every legal angle. We are not scared of fighting lenders. -
Consolidation Options
We might try to consolidate your existing MCAs into one monthly payment with more favorable terms. This business debt consolidation loan can simplify your finances.
Regardless of how many MCAs you have, we can help find a workable single repayment plan. We have relationships with excellent lenders, who want to help turnaround amazing businesses who were taken advantage of by predatory lenders. -
Proactive Restructuring of Your Spending
We’ll encourage you to cut unnecessary costs, maintain minimum payments on essential debts while negotiations are going on, and showcase your business is serious about paying what it can.
WE PROTECT. WE FIGHT. WE WIN.
POTENTIAL PENALTIES AND LEGAL IMPLICATIONS
- Lawsuits and Judgments: An MCA default can lead to immediate lawsuits. If they win, they can take your business bank accounts. We make sure that doesn’t happen.
- Seizure of Collateral: Although MCAs are typically unsecured, some contain security interests or personal guarantees that open the door to seizing assets.
- Credit Score Drops: Defaults may cause long-term harm to personal and business credit.
- Crippling Fees and Penalties: Default interest, late fees, legal fees—all can rapidly multiply your debt.
STEPS TO TAKE RIGHT NOW
Regardless of your situation, here’s what you should do if you’re concerned about defaulting on your merchant cash advance:
- Contact Us at Delancey Street: Our seasoned attorneys and debt settlement advisors can help evaluate your options.
- Review Your Contract: Check for COJ clauses, factor rates, penalty terms, and the exact definition of default in your agreement.
- Prepare Financial Statements: Compile up-to-date balance sheets, P/L statements, and your monthly bank statements. We can prepare your financial docs.
- Talk with Lenders: Sometimes, lenders will restructure your deal if you show good faith and a realistic plan. We can make that process work.
- Protect Assets: If you have a personal guarantee, consider speaking to legal counsel immediately to assess your exposure. You don’t want your personal assets taken away.
WE CAN HELP YOU avoid going out of business.