Struggling with debt?

What Happens if I Default on a Merchant Cash Advance?

Defaulting on a Merchant Cash Advance (MCA) can feel like something you just have to do. MCA debt is very toxic, and it’s impossible to keep up with the intense daily and weekly payments—especially if your bank account is negative, you have multiple stacked advances, and you’re worried you’re about to go out of business. Just thinking about all the different MCA’s hitting your bank account daily is exhausting.

At Delancey Street, we’ve worked with hundreds of business owners. We help business owners discver there are strategies to mitigate the damage and avoid going out of business. Below, we’ll help explain what happens when you default on an MCA, what the law says about it, and how our team can help you navigate this complex situation.

Understanding the MCA Default Process

An MCA isn’t technically a “loan.” Instead, you sold a portion of your future receivables in exchange for upfront funding. Despite that, defaulting on an MCA can result in strained relationships with creditors and vendors. MCA lender are NOT afraid of emailing/calling, your vendors, partners, and employees. Often, the first sign is that your daily or weekly debit from the MCA provider gets returned due to insufficient funds. Then, default interest, penalties, and potential legal action can begin immediately. If you signed a COJ (Confession of Judgment), the MCA provider might file it in court—sometimes without notifying you—leading to immediate judgments that can freeze your bank accounts. When a COJ is utilized by a lender, they can immediately issue a judgement on your bank account. When you default on an MCA, often the lenders will include an “acceleration” clause, meaning if you miss even one payment, the entire outstanding balance can be demanded at once. Given the monthly payments can quickly drown you in debt, it’s important you consider your options at this stage.

Potential Consequences of Defaulting on a Merchant Cash Advance

1. Account Freezes & Judgments
   A Confession of Judgment can let the MCA provider totally avoid going through a normal court process, resulting in huge financial issues if the lender uses the COJ. Your assets are gone. The COJ gives the lender a court order so they can immediately seize assets, and funds from bank accounts.
2. Seizure of Assets
   If there’s a UCC-1 filing—or if you signed a personal guarantee—the MCA provider may try to seize business or personal assets.
3. Accumulating Fees & Interest
   Default fees, late charges, and higher interest rates can quickly drown you in debt.
4. Credit Damage
   Both your business credit—and your personal credit if you signed a personal guarantee—can become toxic if you don’t address the debt.
5. Tax Implications
   Settlements or partial forgiveness of debt may result in a 1099-C for the amount forgiven—which can be considered taxable income by the IRS.

Legal Landscape and Why It Matters

State Laws play a huge role in how quickly a lender can enforce a judgment. For instance, if you operate in New York and signed a COJ, the MCA provider can quickly obtain a judgment upon your default. Other states treat COJs differently—and in some places, they’re not enforceable at all.

Because MCAs are structured as a “receivable purchase,” many lenders argue usury laws don’t apply. Some courts have challenged that argument, issuing notices of default or further scrutiny to see if certain MCAs are de facto high-interest loans. Whether your MCA falls under usury regulations can be complicated—it’s why legal counsel is crucial.

Practical Scenarios: From Bouncing Payments to Frozen Accounts

1. Sudden Default
   You’ve been making on-time daily pulls, but an unexpected slowdown makes it impossible to keep up. The MCA tries to debit your account, you fail to make the payment, and you’re now in default. The monthly payments can quickly drown you in debt, and you start receiving continual calls from your creditors. If there’s a COJ in play, you might see a judgment freeze on your account within days.
2. The Practice of Stacking Merchant Cash Advances
   You have multiple MCAs, each pulling daily amounts. One by one, you can’t keep up—and everything results in strained relationships and potential default. The lenders may sue you in parallel—or a single lender might use your personal guarantee—resulting in huge financial issues for you, both business wise and personally.

WHAT HAPPENS IF I DEFAULT ON A MERCHANT CASH ADVANCE

Delancey Street offers a MONEY BACK GUARANTEE for our debt relief services. IF you hire our company, we’re one of the only ones that offer a money back guarantee – that’s how confident we are, we can help you resolve your situation.

We are DelanceyStreet.com, a top tier business debt relief company, dedicated to helping business owners all across the country handle their merchant cash advance debt. We understand how stressful it can be when your business is underwater, about to default, and we believe in providing real solutions which lead to stability.

REGARDLESS of how you got here. REGARDLESS of the lender you used. REGARDLESS of whether you’re about to default or already in default. Our goal is to help you figure out the best path forward.

Here’s the bottom line
Merchant cash advances (MCAs) are considered the sale of future receivables, rather than a traditional loan. Because of this, they aren’t always covered by usury laws. They often carry sky-high factor rates, daily withdrawals from your bank account, and tough repayment obligations. If you miss payments or outright default, serious consequences can follow.

Potential Consequences of Defaulting On an MCA

1. Legal Action by MCA Providers

   • Many MCA agreements come with a confession of judgment clause (COJ) which can allow the MCA provider to seek a judgment against you without typical due process. This means, overnight, your assets can be seized by a lender. There is no delay.
   • Depending on your state, lenders might file this COJ quickly, leading to wage garnishments or asset seizures. There is no delay.
   • Visit New York Courts to learn more about confession of judgment requirements in New York.

2. Personal Liability

   • MCAs often include personal guarantees. This means the MCA provider could pursue your personal assets if your business can’t pay.
   • Personal liability can affect your home, your bank accounts, or other personal property if a judgment is entered.
   • Many lenders will utilize this personal guarantee in order to hold you accountable, even though it’s not a loan.

3. Frozen Bank Accounts

   • Some MCA agreements allow the provider to directly debit your account daily or weekly. If you’re in default, they may argue breach of contract and seek a court order to freeze your business accounts. The contract you sign, is usually one-sided, so it’s impossible to fight it.
   • According to the Federal Trade Commission, unfair or deceptive practices by lenders can be challenged, but in many MCA contracts, the language is structured to favor the MCA provider.

4. Credit Score Fallout

   • While MCAs aren’t always reported to credit bureaus like traditional loans, defaults sometimes end up on business (and personal) credit reports, especially if litigation ensues. Certain lenders like Ondeck, report to credit reporting agencies.
   • This could get in the way of future financing opportunities.
   • For more on how credit issues are handled, check the Consumer Financial Protection Bureau website.

5. Collection Harassment

   • Once you miss payments, collection calls can get very increase. Aggressive MCA providers may use phone calls, emails, and even in-person visits to recover funds. Lenders will even email your parters, and virtually anyone in your orbit.
   • Any truly abusive or harassing behavior could be reported to agencies like the Federal Trade Commission.

ARE YOU WONDERING HOW BAD THIS CAN GET?
Defaulting on an MCA can lead to lawsuits, personal asset seizures, or forced closures. It can sometimes force businesses into bankruptcy if no alternative solutions are found. Many lenders prefer you default on their MCA, because they can charge you punitive fees, and inflate the overall amount of money you owe them – and then use the COJ to immediately seize it.

DEBT RELIEF DEFENSE STRATEGIES
First, you should understand that each lender wants to get paid. This means many MCA lenders are open to negotiation—IF you act in time. At Delancey Street, we’ve represented hundreds of business owners in dire situations. We do the following:

1. Immediate Review of Your MCA Agreement

   • We check for potential legal flaws which could render parts of the agreement unenforceable.
   • We look for hidden fees, predatory rates, or unlawful clauses that might invalidate the agreement.

2. Negotiation with MCA Providers

   • Once we identify leverage points, we engage the MCA providers directly.
   • Our aim: reduce the outstanding balance, lower factor rates, or stretch out the payment schedule.
   • Because we’re a top tier business debt relief company, and we’ve been quoted in major media outlets, our reputation helps us reach workable resolutions.

3. Defending Against Legal Action

   • If the MCA provider files a lawsuit, we mount a robust defense.
   • That includes challenging any improperly executed confession of judgment, or disputing inflated balances.
   • We use state-specific defenses, referencing relevant laws in your jurisdiction.

4. Exploring Alternatives

   • We might suggest business debt consolidation, invoice factoring, or even an SBA loan (see SBA.gov for details) to pay off your MCA and protect cash flow.
   • We look at your entire debt landscape, not just the MCA, to create a holistic recovery plan.

5. Mitigating Personal Liability

   • If you signed a personal guarantee, our attorneys review whether it’s enforceable.
   • Sometimes, personal guarantees contain loopholes which can help you.

OUR STEP-BY-STEP DEFENSE

1. We Investigate Your Situation Carefully
   We collect every communication, contract, payment history, and bank statement. Sometimes, small details can unravel an MCA claim.

2. We Strategize And Keep You In the Loop
   We figure out the best angle of attack. Is the MCA violating your state’s lending laws? Is the factor rate unconscionable? We outline your defenses, build a timeline, and pinpoint the best negotiation approach.

3. We Negotiate Fearlessly
   If the lender sees we have a strong case, a settlement often becomes their best option. They realize pushing for the max can lead to them getting less if they lose in court.

4. We Resolve
   Our target is to reduce your total liability, protect your personal assets, and keep your business afloat. Once done, you move forward free of the burden.

HOW WE DISMANTLE OVERREACHING MCA CLAIMS
We look at the factor rate. We consider each clause. We speak to the lender. We compare your revenue. We figure out if the MCA was layered with fees which shouldn’t exist. We push back, using state and federal consumer protection statutes when possible. We gather every piece of evidence. We make calls. We never back down.

We focus. We protect. We defend. We settle.

PENALTIES AND LAWS TO KEEP IN MIND

• Confession of Judgment (COJ) – Some states like New York have strict rules on how COJs are entered. If they aren’t followed, the judgment can be vacated. Other states in the country also have a COJ clause.
• FTC Regulations on Unfair or Deceptive Practices – Under Section 5 of the FTC Act, lenders can’t use blatantly deceptive tactics, which might open the door to defense if the MCA misled you.
• Uniform Commercial Code (UCC) – UCC-9 (secured transactions) can come into play if the MCA tries to claim a security interest in your receivables or other assets.
• State usury statutes – Some states do investigate whether an MCA is truly a purchase of receivables or a disguised high-interest loan. If it’s seen as a loan, it might be subject to usury caps.

WHAT SHOULD YOU DO IF YOU’RE WORRIED ABOUT DEFAULT?

1. Gather Documentation
   Collect every agreement, notice, or email from your MCA provider. Make sure to send them all to our team.
2. Open the Lines of Communication
   Sometimes, lenders are willing to renegotiate. If that fails, contact Delancey Street.
3. Consult with a Professional
   Because time is critical. The sooner you act, the more options you have.
4. Cut Non-Essential Spending
   Show your lender you’re serious about repayment—if that’s your plan. Or show the court you’re not being reckless.

Regardless of your strategy, do something now. Don’t let the MCA spiral out of control.

WE ARE HERE TO HELP
AS SEEN ON Forbes, American Express, and more—Delancey Street is a well-known name in business debt relief. We’ve successfully helped numerous clients reduce their merchant cash advance debt, often negotiating major reductions in the principal owed.

DELANCEY STREET SAVES A BUSINESS OWNER OVER $400,000
This could be you. Our team once saved an entrepreneur from multiple stacked MCA debts which were about to force her into bankruptcy. We negotiated on her behalf, spread out her payments, and reduced her total debt by $400,000—letting her resume normal operations.

OUR MONEY BACK GUARANTEE
It’s simple: if we don’t perform as promised in the agreement, we’ll give you your money back. Because we believe in results, period.

Secret Consequences Nobody Talks About

Yes, there’s more. These tidbits aren’t commonly found by a quick Google search:

• Surprise Cross-Default Clauses
  One lender might have language in its contract which says if you default on any other obligation, you automatically default on theirs. This can create a chain reaction of defaults across multiple MCAs instantly.

• Daily Bank Freezes
  Some MCA lenders regularly monitor your bank activity. If they see suspicious withdrawals or insufficient funds, they can push to freeze your account and hamper your overall liquidity.

• Potential UCC Liens
  Under the Uniform Commercial Code (UCC), an MCA provider might file a lien against your business assets (like equipment or receivables). Now your entire operation is under the cloud of a lien. See SBA.gov for additional insights on how UCC filings can affect small businesses.

• Lawsuits in Multiple Jurisdictions
  Some MCAs use “choice of venue” clauses. You might be forced to defend lawsuits in states you’ve never set foot in. Defending that can be costly—especially if you’re not prepared.