Is Your MCA Company Required to Lower Your Payments? What the Law Actually Says

If your business revenue has declined, your merchant cash advance (MCA) payments can quickly feel unaffordable. You might find yourself wondering what your options are and whether you have the right to a payment reduction. 

The answer depends on the nature of your MCA agreement. Many contracts have clauses that give borrowers the right to request a payment adjustment if their revenue has declined, but MCA funders don’t always make it easy. An attorney who specializes in small business debt can help ensure you have access to the relief you’re entitled to.

Is an MCA Company Legally Required to Lower Your Payments?

The short answer is: no. There’s no broad legal duty for creditors or MCA funders to modify an agreement just because the business is experiencing financial hardship. 

That being said, many individual MCA agreements do include such requirements. Most MCA contracts include a reconciliation clause that allows business owners to adjust their daily or weekly payments if their revenue declines. These provisions help ensure that payments are proportional to the business’s revenue, and that they match the holdback percentage outlined in the contract.

When Your MCA Funder May Be Required to Adjust Your Payments

If your MCA agreement includes a reconciliation clause, the MCA funder is contractually required to adjust your daily or weekly debits when your actual receivables come in lower than projected.

For example, let’s say your contractual holdback rate (the percentage of your revenue that’s withdrawn for MCA payments) is 15%. During a seasonal slump, your business revenue declines, but your MCA provider continues to withdraw the same amount. Because your revenue is lower, the debits now equal 20% of your revenue.

If your MCA includes a reconciliation provision, your provider must reduce your payments to align with the 15% holdback rate upon request. Each contract lays out the exact procedure to request reconciliation, and it may include a written request and certain documentation.

It’s important to understand that reconciliation isn’t just a courtesy or something your lender can choose to do to be nice. It’s a structural feature that legally distinguishes MCAs (purchase of future receivables) from traditional business loans. Funders that don’t follow through on reconciliation or see it as optional are weakening the legal foundation of their own product.

When an MCA Funder Is Not Required to Reduce Your Payments

Funders don’t have a legal responsibility to proactively lower your payments if your revenue declines. It’s your responsibility to request it. Additionally, MCA’s don’t necessarily have to offer any other hardship modifications, such as longer repayment terms or settlement offers.

Some MCA companies will voluntarily offer repayment modifications outside of those that are contractually required. However, these almost always come with strings, such as extended terms, additional fees, new personal guarantees, or renewed confessions of judgment.

If your MCA provider offers a modification, read the terms carefully (or have an attorney read it for you) before signing it.

What to Do If You Need Lower MCA Payments

If your business’s revenue has declined and you need to lower your MCA payments, here’s a step-by-step guide to help you request reconciliation for hardship assistance from your funder:

• Step 1: Review your MCA agreement. Revisit your agreement’s reconciliation clause to review when and how you can request formal reconciliation. Make sure to follow the outlined steps exactly to avoid refusal.
• Step 2: Document everything. Keep proof of delivery of your request, and document every interaction with the funder in writing.
• Step 3: Have an attorney review before you sign. Avoid signing any modification, consolidation, or “courtesy” reduction agreement until you’ve had a professional review it for red flags or traps.
• Step 4: Consider legal action. If the funder ignores or refuses your reconciliation request, a business debt attorney can review your situation and help you explore your options.

When a MCA Provider’s Refusal to Reduce Payments Becomes Legal Leverage

When an MCA funder refuses to honor a clear reconciliation clause, it undermines their position that the agreement is a true sale or advances of receivables. 

The good news for you is that this opens the door to argue for a recharacterization of the MCA debt. In other words, you could request that a court recharacterize the MCA as a loan, which would make it subject to usury limits, lender licensing requirements, and other consumer protections that don’t exist for MCAs.

This is why it’s so critical to have an attorney by your side early on. An experienced MCA attorney knows the laws in your state, how courts have acted on similar cases, and when it’s time to take legal action.

How Tayne Law Group Helps When MCA Funders Refuse to Reduce Payments

Tayne Law Group represents business owners across the country in MCA disputes, including reconciliation refusals. We help clients by reviewing their contracts and challenging agreements that don’t legally qualify as true sales of receivables.

MCA situations often move quickly. Because of the nature of these agreements, MCA providers issue default notices and move to enforce confessions of judgment, giving them the power to seek judgments without going through the traditional court process to freeze your bank accounts.

Because your MCA will act quickly, it’s important for you to be proactive about having the right help by your side. If your MCA payments have become unmanageable, your funder has refused to honor a reconciliation request, or you’ve received a modification offer that you’re not sure if you should sign, reach out for help. 

Contact us today by calling (866) 890-7337 or filling out our short contact form to schedule a free phone consultation. We never share or sell your information, and all conversations are confidential.

Frequently Asked Questions

Is an MCA company legally required to lower my payments if I can’t afford them?

MCA funders aren’t always required to lower your payments if you can’t afford them. However, if you have a reconciliation clause in your agreement, they may be required to lower your payments if they exceed your contractual holdback rate after a decline in your revenue.

What is a reconciliation clause, and is my MCA company required to honor it?

A reconciliation clause gives business owners the right to have their payments adjusted if their revenue has declined and their payments make up too large a percentage of it. These clauses are a hallmark in many MCA agreements, and a funder’s refusal to abide by one could be a breach of contract.

Can I be sued for asking my MCA company to reduce my payments?

No, your MCA provider can’t sue you for requesting reconciliation. However, if you default on your payments while waiting for your lender to approve your reconciliation request, you may trigger other contractual enforcement actions, including the use of a confession of judgment, if your agreement includes one. Therefore, it’s important to continue making your payments in the meantime.

What happens if my MCA funder refuses to lower my payments?

If your funder refuses reconciliation under a valid clause, you could have grounds for legal action. A court may even recharacterize your debt as a business loan rather than an MCA, which gives you additional legal and consumer protections.

Should I sign a modification agreement my MCA company offers?

Don’t sign a modification agreement from your MCA company without legal review. These modification agreements often include provisions to extend your total repayment period, add fees, or require new personal guarantees. While it seems like immediate financial relief, it often ends up being a larger long-term financial burden.