A merchant cash advance might seem like an easy way to get fast financing for your business. But if you aren’t careful, it could turn into a headache. Or worse. A merchant cash advance restructure might be needed if it’s becoming too difficult to keep up with MCA payments on top of all your other bills.
What Happens If You Don’t Pay Your MCA?
In an ideal world, you’d pay off your MCA debt quickly and easily. Unfortunately, things don’t always go according to plan. As a small business, your cash flow may be unpredictable, and MCA payments could put extra strain on your finances. Business owners can get trapped in a cycle of debt and struggle to stay in the black with an MCA.
Missing MCA payments puts you in default. And defaulting on an MCA is usually considered a breach of contract, which can result in a lawsuit. Depending on the contract you signed, This can put your business and your personal assets at risk. A merchant cash advance restructure can help business owners avoid facing loan default.
Personal Guarantees
For example, you may have signed a personal guarantee when you took out your MCA. This means that if your business cannot repay the MCA, you are personally responsible for doing so. You could be sued; if you can’t come up with the cash, your bank accounts could be frozen, or the MCA provider could seize property to satisfy the debt.
Confessions of Judgment
Some MCA contracts come with a Confession of Judgment (COJ) clause. If you breach your contract, the MCA provider can obtain a legal judgment against you without first notifying you. Essentially, it waives your right to defend yourself in court. Some states now prohibit COJs, and different MCA agreements have different jurisdictions about where and in what state they can sue.
UCC Liens
If a UCC lien is in place, the MCA company may start contacting your customers and vendors, demanding that they pay them directly instead of you. It’s an embarrassing situation that could harm your reputation (and business credit score).
That’s why it’s important to act quickly if you’re struggling with MCA payments. An attorney can advise you on potential solutions and the legal ramifications for you and your business. That might mean restructuring your MCA.
Merchant Cash Advance Restructure Options
There are a few ways to go about a merchant cash advance restructure.
MCA Reconciliation
Many merchant cash advance agreements come with a mandatory provision known as a reconciliation clause. This essentially says that if your revenue declines and your business is challenged or will fail due to unmanageable MCA payments, the provider needs to restructure the advance so you can meet its payment terms.
To be eligible for MCA reconciliation, you will often have to notify your MCA provider immediately and provide documentation of your decline in receivables. The MCA provider should then work with you to lower the payment until your revenue meets its original target.
If the MCA company refuses to reconcile your advance, they may be in breach of contract, and the MCA may be considered usurous (which is illegal). If you think you’re in the position to reconcile your MCA, but the provider is uncooperative, you may need to work with a lawyer to get things straightened out and enforce the agreement on your behalf.
MCA Consolidation
Another option you may have is to consolidate your MCA debt. This works like any other debt consolidation. You take out a lower-interest installment loan to pay off one or more existing, high-interest debts, such as an MCA. Then, you focus on repayment of the new loan, which has a single, fixed monthly payment.
While this works in theory, one challenge you may face is the credit requirements. You need good credit to get approved for a loan with a favorable interest rate. However, your credit score has probably been damaged if you’ve already missed payments or had an MCA go to collections. If so, this may not be the best option for you.
Merchant Cash Advance Settlement
Finally, you can attempt to settle your merchant cash advance debt. This process involves negotiating with the MCA provider to pay less than you owe. But be aware there are many dangers in doing this on your own.
Why would MCA funders agree to a settlement? In some cases, it may be apparent that you cannot pay back your advance according to the terms. Rather than having to take you to court — which is expensive and time-consuming for both parties — they would often prefer to get a chunk of that money back immediately and move on.
Can you negotiate a debt settlement on your own?
Negotiating a debt settlement is not easy. It requires strong negotiation skills, diligence, and a good understanding of the legalities of the agreement you are signing. Many people find the process too stressful, overwhelming, intimidating, and time-consuming. This is why it can help to hire a business debt relief lawyer with the skills and team needed to secure the best deal for you and help you avoid the pitfalls of signing agreements that make matters worse for you and your business.
Many debt settlement companies promise to settle for pennies on the dollar but require hefty upfront fees and may not do anything on your behalf. Many will even solicit you directly with all kinds of promises of resolving your matters. Be aware of anyone making promises or guarantees, as that is a red flag. Meanwhile, you may end up in a worse position than before, without any way to get out of judgments or liens that can close down your business.
An experienced business debt attorney, on the other hand, is ethically bound to act in your best interest. They often have relationships with creditors’ legal teams and know what it takes to land a settlement and resolve any legal issues successfully.
Get Legal Help for Your MCA
If you’re struggling to keep up with your MCA payments, it’s essential to do something about it ASAP. An experienced business debt relief lawyer can help you determine the best action and strategy to free up cash flow and manage your business debt more efficiently. That might mean restructuring your MCA and settling the debt. Or it could be another solution you might not have considered before speaking with an experienced legal expert.
A financial attorney can also help if you’re being sued or already have a judgment against you. They can represent you in court and ensure your rights haven’t been violated, which can happen with aggressive MCA collectors. If your MCA agreement includes a personal guarantee or Confession of Judgment, it’s important to seek the advice of an attorney right away. Do not wait until there is a judgment or frozen accounts.
Tayne Law has been helping clients resolve their business debts for over two decades. We know the ins and outs of MCAs and their complicated contracts. We can help you deal with MCA debt in a way that fits your budget and allows your business to continue operating. So call us at (866) 890-7337 for a free, no-obligation phone consultation with a team member. Or fill out our short contact form. All conversations are confidential, and we never share or sell your information.
