If you took out a merchant cash advance to cover business expenses, you might regret that decision now. MCAs are tricky agreements that can trap you in a cycle of debt if you aren’t careful. So, if you’re struggling with MCA debt, you might wonder if you can stop paying. Here’s what you need to know.
Reasons to Get Out of Your MCA Contract
A merchant cash advance isn’t a loan — it’s a type of alternative business financing. Technically, it’s an advance on your future sales. So, MCA lenders aren’t subject to the same rules and regulations as traditional bank loans. Although they offer quick cash and are easier to qualify for, they carry significant risks if your business struggles with payments.
Some reasons why you might be looking to get out of your MCA include:
- The payments consume a large amount of your credit card sales, affecting the profitability of your business.
- You find yourself borrowing more, or “stacking” MCAs, to keep up with your obligations.
- You didn’t understand the terms of your contract when you signed it.
- You made a personal guarantee, and now your assets are at risk due to missed payments.
- You’re worried about being sued by the MCA company.
Try Lowering the Repayment Amount First
Before you attempt to get out of your MCA agreement completely, try getting the repayment amount lowered first. If you’re falling behind on payments, lowering your daily revenue toward repaying the MCA can give you some breathing room.
MCA contracts must include a clause that allows you to reset the payment amount, known as reconciliation if needed. If the contract does not include this, it could be considered an usurious loan (which is illegal).
Working with an experienced debt relief lawyer is a good idea when renegotiating the contract. They will know the local laws and your rights as a borrower. An attorney will help ensure the new contract has favorable terms and works for your business and budget. They can even help negotiate on your behalf.
How to Stop Paying an MCA
If you decide to stop paying your MCA completely, there are a few options you can consider.
Take Out an Installment Loan
One of the ways you can end your current MCA contract is by taking out a loan and paying off the balance with the proceeds. This is often your best financing option, as an installment loan (also known as a term loan) often has more favorable repayment terms for small business owners than MCA loans. For one, your payments are usually due in monthly installments (hence the name) rather than daily or weekly over several years. This gives you more flexibility to manage your cash flow. Plus, the monthly payment is the same amount every time, so you know exactly how much you need to pay. And the interest rates are much lower, meaning you pay less in interest/fees overall.
Similarly, you can consider debt consolidation loans and get a lump sum to pay off multiple merchant cash advance loans and other small business loans. Traditional loan providers could offer lower interest rates, but they often involve lengthy application process and may require collateral such as real estate.
Remember, though, that these options are best for those with a decent credit score. So, if you have poor credit, you likely won’t be approved for a loan.
File for Bankruptcy
Most people would like to avoid this option. However, if your financial situation is hindered by MCA and other debt, filing for bankruptcy could give you the breathing room you need.
The type of bankruptcy you should file for depends on a few factors, including your business’s structure, the types of debt you have, how much you owe, and more.
One option is a Chapter 7 bankruptcy. However, you should only pursue this if you plan to close your business. Business debts aren’t discharged under Chapter 7 as they are for individuals. So, people who go this route will close down the business and then personally file for Chapter 7 to wipe out their liability for any personal guarantees or other business debts.
If you want to keep your business running, consider a Chapter 11 or Chapter 13 bankruptcy.
Anyone can file for Chapter 11 bankruptcy, including individuals, corporations, partnerships, and LLCs. No debt or income requirements or limitations exist for filing bankruptcy under Chapter 11. It’s considered a more complex and expensive option, so businesses tend to opt for this type. Chapter 11 bankruptcy helps your business keep operating while your debts are reorganized.
Chapter 13 is available to individuals and sole proprietors who have regular income. Other small businesses, such as corporations or partnerships, aren’t eligible for relief under this type of bankruptcy. To qualify, you need enough income and are subject to debt limitations. For cases filed between April 1, 2022, and March 31, 2025, your debt can’t exceed $1,395,875 in secured debt and $465,275 in unsecured debt.
Settle the Debt
Finally, if you are delinquent on a merchant cash advance, you may be able to negotiate a debt settlement. This involves paying back less than you owe, requiring expert negotiating skills. It can be helpful to hire a debt settlement attorney with experience in settling clients’ debts. They can ensure you reach a deal quickly and that it fits your budget. In the meantime, you can focus on running your business and getting your finances back on track.
How Tayne Law Can Help
Dealing with MCA debt requires help from an experienced legal professional who will put your best interests first. If you want to keep your business running and find a solution for your merchant cash advance debt, contact Tayne Law. We’ve been helping people resolve their business debts for over two decades. We provide a free consultation to learn about your situation and discuss possible solutions. So call us at (866) 890-7337 or fill out our short contact form. There’s no obligation to get free legal advice; we never share your information.
