What Happens if MCA Payment Reduction Doesn’t Solve Your Debt Problems

Reducing your MCA payment can create breathing room in your business’s cash flow, but it doesn’t solve all of your problems. While it can lower your daily or weekly withdrawals, it doesn’t reduce the total amount you owe.

Additionally, even if your payments are reduced, you may still struggle to pay them, especially if your revenue decline is severe or ongoing, or if you have stacked MCAs that are each pulling from your account daily or weekly.

Unfortunately, many business owners don’t realize the true cost of their MCA when they initially sign the agreement. Factor rates of 1.2 to 1.5 mean you could owe between 20% and 50% of what you borrowed.

When working with your MCA funder to secure a lower payment, make sure to go about it the right way. Unfortunately, MCA debt relief companies often pitch payment reductions but then use stall tactics that can trigger defaults and make your situation worse.

What Will Your MCA Lender Do If You Can’t Pay?

Like a loan, an MCA agreement is a promise on your part to repay what you’ve borrowed. If you fail to do that, your funder has several recourse options to force you to pay:

• Aggressive collection tactics: Likely the first thing you’ll experience if you stop paying your MCA is aggressive collection tactics, including phone calls that border on intimidation and threats, which can pressure business owners into bad decisions.
• Confession of judgment (COJ): COJ clauses, which many MCA contracts include, allow a lender to get a default judgment against you and your business without going to court first, and you may not even know about it until your accounts are frozen.
• Lawsuits and judgments: If you stop paying your MCA or breach your agreement in another way, the lender can sue. If you don’t appear in court, they can get a default judgment to start collection against you.
• Bank account freezes: Once an MCA lender gets a judgment, they can freeze your business or personal bank account, cutting off access to money you need for payroll, rent, and day-to-day operations.
• UCC liens: Most MCA agreements include a UCC-1 filing that gives them blanket access to your business assets. This means they can even contact your customers and vendors directly to demand that payments be redirected to them.
• Personal guarantee enforcement: MCA contracts often include personal guarantees, making you personally liable for the debt if your business can’t pay it. This puts your personal assets at risk, including your home, vehicle, and personal savings.

Warning Signs That Payment Reduction Hasn’t Fixed the Problem

A reduction in your MCA payments often initially feels like a win, but you may eventually realize that it alone isn’t enough to fix your financial problems. Here are some other red flags that your MCA is still causing financial issues in your business:

• You’re unable to cover basic operating expenses like payroll, rent, and utilities.
• You’re taking on new debt to make your MCA payments.
• You’re falling behind on vendor payments or employee wages.
• You’re using personal savings, credit cards, or home equity to keep the business afloat.
• You’re getting frequent collection calls that include intimidation and legal threats.

If any of these describe your current situation, it’s time to explore your other options to help you get back on track financially and minimize the effects of the MCA.

What Are Your Options After Payment Reduction Fails?

If your MCA is negatively affecting your business even after a payment reduction, you still have some viable options. Here are a few things to consider:

• Structured workaround agreements: You negotiate a revised payment arrangement that accurately reflects what your business can actually afford.
• MCA debt settlement: With MCA debt settlement, you may be able to negotiate a lump sum payoff for less than the full amount you owe. Funders may prefer a reduced amount rather than none at all, making them more amenable to negotiation.
• Legal defenses: Work with an experienced MCA attorney to see if there are any problematic provisions in your contract, such as unenforceable COJs, an illusory reconciliation clause, or usurious terms. You may be able to challenge the entire agreement.
• Bankruptcy protections: Filing for bankruptcy can sometimes (though not always) halt MCA collection and give you the breathing room you need to restructure your debt. If your business is no longer viable, Chapter 7 bankruptcy may give you a clean exit.
• Protecting personal assets: If your MCA agreement includes a personal guarantee, it’s important to understand what steps you can take to protect your personal assets.

No matter which avenue you choose, be sure to consult an MCA attorney who has experience with these types of cases. You’ll have the best chance of a positive outcome, especially if you’re negotiating with your MCA provider or facing legal challenges.

Don’t Wait Until Your MCA Lender Acts First

Many people wait until they’re behind on their payments and their MCA provider has already taken legal action, but it’s best to be proactive. The longer you wait to find solutions, the fewer options you’ll have. After all, once a judgment is entered or your accounts are frozen, you have significantly less leverage.

As you navigate the legal process, a merchant cash advance attorney can be your most valuable tool. Tayne Law Group has years of experience with MCA defense and business debt relief, from navigating settlements to mounting legal defenses. 

If you’re struggling with MCA payments and aren’t sure what to do next, contact us today by calling (866) 890-7337 or filling out our short contact form to set up a free phone consultation. We never share or sell your information, and all conversations are confidential.

FAQ

Can my MCA lender freeze my bank account? 

Yes, MCA lenders can (and often do) freeze borrowers’ bank accounts when they obtain a judgment against them. Confession of judgment clauses make it easier for lenders to get default judgments against their borrowers without warning.

What is a confession of judgment and can it be used against me? 

A confession of judgment (COJ) is a clause in many MCA contracts that allows lenders to obtain court judgments against borrowers without a trial. Some states, including New York, restrict COJs with out of state debtors, but they’re often standard in most other states.

Should I stop making MCA payments if I can’t afford them? 

Don’t stop making your MCA payments without warning, even if you’re struggling to afford them. Doing so could trigger default provisions and acceleration actions. Instead, speak with an attorney if you’re having a hard time making your payments to explore other options.

Can I settle my MCA debt for less than what I owe?

Yes, it’s often possible to settle MCA debt for less than you owe but it is a complicated process. MCA companies would usually prefer to receive a reduced lump sum settlement than spend the time and money required to pursue litigation if they have exhausted all collection remedies. Consult a lawyer experienced in MCA debt negotiation to help you get the best outcome.