Why Is My Merchant Cash Advance Taking So Much From My Daily Sales?

A merchant cash advance (MCA) can feel like an invaluable tool when your business needs money fast, but they often come with unforeseen consequences. And if you feel like your daily MCA withdrawals are draining your bank account, you aren’t alone. These financing arrangements can become financially debilitating for well-intentioned business owners.

Understanding why your MCA feels so expensive is the first step in fixing the problem. Luckily, once you know the cause, you can explore your legal options.

Why Your MCA Is Taking So Much From Your Daily Sales

Plenty of business owners find themselves overwhelmed by just how much money goes toward their MCA repayment. These contracts are often intentionally vague, meaning borrowers don’t realize their full impact until it’s too late.

Three drivers of the high payback amount include:

• Factor rate: Similar to an interest rate, the factor rate is the cost of your debt. The difference is that the factor rate is usually far higher than a traditional interest rate and applies to the entire balance, regardless of how quickly you pay it back.
• Holdback percentage: The holdback percentage is the portion of your daily sales allocated to your MCA repayment.
• Added fees: Unfortunately, some MCA providers charge added fees that aren’t clear to the borrower.

The quoted amount is often based on projected sales. The actual debits can feel heavier if your revenue dips or the fees aren’t clearly disclosed (which is often the case).

Signs Your MCA Payments Have Become Unsustainable

Many business owners aren’t sure when their MCA payments are something they can handle themselves versus when they’ve become unsustainable, and they should seek out help. Here are some warning signs that things have gone too far:

• You’re missing payroll, rent, or vendor payments.
• You’re frequently overdrafting your business bank account.
• You’ve taken on new advances (this is known as MCA stacking) to cover old ones.
• Your MCA’s are putting pressure on you, resorting to aggressive collection calls, or placing holds on your merchant account.

Your Legal Options When an MCA Is Taking Too Much

If your MCA is taking too much of your daily revenue, you may have some legal options. Some provisions in MCA agreements can be legally challenged, including predatory or misrepresented terms, confessions of judgment (COJ), and personal guarantees.

Depending on the nature of the agreement, a court may recharacterize your MCA as a business loan, which would offer you legal protections not available to MCA borrowers, including interest rate caps and payment protections.

Even if there are no options for challenging the contract, an experienced merchant cash advance attorney may be able to negotiate with your lender for a new payment plan or debt settlement for less than your full balance.

Steps to Take Before You Miss a Payment

Once you’ve missed an MCA payment, your options become more limited. It’s important to be proactive about exploring solutions to your debt problem.

Before you do anything else, pull out your MCA agreement and calculate your true effective cost — the total amount you’ll have to pay back, not just the advance amount. List every MCA and debt obligation in one place so you have a clear idea of what you owe.

Reviewing your contracts will also give you an idea of the various clauses they include. For example, your contract may include a COJ or personal guarantee that your MCA company could invoke if you fall behind on payments. Alternatively, they might include reconciliation clauses that allow you to adjust your payment if your business’s revenue has dropped.

Next, contact a business debt attorney early. They can review your agreement for problematic terms and advise you on your state’s laws. They can give you a better idea of what options are available to you, from legal challenges to restructuring to negotiation.

How Tayne Law Group Helps Business Owners Fight Back Against Predatory MCAs

If you’re struggling with your MCA, a business debt relief attorney can help you review your MCA terms, look for potential legal challenges, and explore other solutions.

Tayne Law Group has years of experience representing small business owners across the country in MCA defense, contract review, and negotiation with funders. If you’ve been the victim of an unworkable MCA, whether it has aggressive repayment terms or misrepresented costs, our firm can help. 

To find out your best next steps before your first missed payment, call (866) 890-7337 or fill 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

How do I know if my MCA is taking too much from my daily sales?

Calculate what percentage of your daily revenue is being collected as MCA payments. If the percentage of revenue being debited is higher than you agreed to, consider exploring options to reduce your payment.

If you’re missing your other financial obligations, overdrafting your financial accounts, or are considering taking another MCA to pay off the first one, your MCA payments may be higher than what your business can sustain.

What holdback percentage is considered too high for a merchant cash advance?

There’s no universal holdback percentage that’s too high. The range typically falls between 10% and 20% of sales. The percentage that’s too high for you depends on your business revenue and other financial obligations. The ideal percentage can also change. For example, a holdback percentage of 15% that was once affordable may no longer be feasible when your revenue drops.

Why are my daily MCA payments higher than what I was originally quoted?

If your daily MCA payments are higher than you were originally quoted, it could be due to hidden fees within your contract. Additionally, if you’ve stacked MCAs to create more cash flow, then your payments will be a higher percentage of your sales.

Can I renegotiate, consolidate, or legally challenge an MCA that is taking too much?

If your MCA is taking too much of your business revenue, you may be able to negotiate, consolidate, or legally challenge it. MCAs sometimes include provisions that are challengeable in court. If that’s not the case, then negotiating or consolidating your MCA debt may still be an option.

What should I do if my MCA payments are putting my business at risk?

If your MCA payments are putting your business at risk, consult an MCA attorney right away. The earlier you start taking steps to resolve the situation, the more options you’ll have. Waiting until you’re already behind on your payments can make resolving the issue more difficult.