Selling a business is rarely simple, but it becomes even more complicated when a merchant cash advance (MCA) is involved.
Since MCAs don’t function like traditional loans, the way they affect a sale can be confusing for business owners trying to move on. It’s crucial that you understand how MCAs work, what obligations you have, and what options are available before attempting to sell your business.
Understanding MCA Debt and Business Sales
How Merchant Cash Advances Work
A merchant cash advance provides a lump sum of money upfront in exchange for a percentage of a business’s future sales. Repayment happens daily or weekly through automatic withdrawals or a split of credit card transactions. Instead of a standard interest rate, MCAs use a “factor rate” to determine the total payback amount, which often makes them far more expensive than conventional loans.
Because MCA contracts are structured around future receivables, lenders often file a UCC-1 lien against the business’s assets. This legal claim can prevent an owner from transferring or selling the business until the debt is satisfied. In some cases, personal guarantees are also included, meaning the owner remains liable for the debt even if the business changes hands.
Why MCA Debt Complicates a Business Sale
MCA debt complicates a business sale because of the way MCA contracts are structured and enforced.
Unlike traditional loans, MCAs are typically secured with a UCC-1 lien on the business’s assets and future receivables. This means the MCA provider has a legal claim on the business’s income and, in some cases, its property. A buyer is unlikely to move forward with a purchase if these liens are in place, since they don’t want to inherit obligations or risk disputes over ownership of future revenue streams. Clearing or negotiating these liens is often required before a sale can close.
Additionally, many MCA agreements include personal guarantees, which keep the original owner personally liable for repayment even after the business is sold. This adds another layer of risk — unless the debt is paid off or settled during the transaction, the seller may continue facing collections, lawsuits, or credit damage long after they’ve handed over the business.
These complexities make potential buyers wary and can reduce the business’s overall value, delay negotiations, or even derail the sale entirely.
Can You Legally Sell a Business with MCA Debt?
Legally, yes — you can sell a business that has MCA debt attached to it. However, the debt doesn’t simply disappear in the process. A buyer will want to know about any outstanding obligations before taking over, and liens must typically be cleared before the transaction can close. In practice, this means the MCA debt usually needs to be paid off at or before the sale.
Transferability of MCA Contracts
Generally, MCA contracts are not transferable in the way a traditional business loan might be. That’s because a merchant cash advance is tied specifically to a business’s future receivables; the provider advances money today in exchange for a cut of that business’s future sales.
If the business is sold or ownership changes, those receivables no longer belong to the original entity, which usually makes the contract void unless the MCA provider gives explicit consent.
Lender Approval and Restrictions
Some MCA agreements contain clauses requiring the business owner to notify the provider of a potential sale or transfer. In these cases, the MCA company may demand that the advance be paid in full at the time of sale, or they may negotiate a settlement to release the lien on receivables.
Personal Guarantees and Liability After the Sale
One of the biggest complications in selling a business with an MCA is the issue of personal guarantees. Most MCA contracts require the business owner to sign a personal guarantee, which makes them personally responsible for repayment if the business cannot or does not pay.
Unlike traditional loans that may limit liability to the business entity, personal guarantees give MCA providers the right to pursue the owner’s personal assets (such as bank accounts, wages, or property) in the event of default.
This liability doesn’t automatically disappear when the business is sold. Even if ownership transfers to a buyer, the seller may remain on the hook for any unpaid MCA balance.
Unless the debt is fully satisfied, settled, or explicitly released by the provider, the MCA company can continue collection efforts against the former owner. That means a seller who fails to address the MCA before closing could face lawsuits or aggressive collection tactics long after walking away from the business.
Challenges of Selling with MCA Debt
Here are some of the main challenges that come up when trying to sell a business with merchant cash advance debt:
- UCC liens on business assets: Most MCA providers file a UCC-1 lien against the business’s assets and receivables. This makes it nearly impossible to transfer ownership cleanly until the debt is resolved. Buyers generally won’t take on a business that has active liens because it clouds ownership and complicates financing.
- Reduced buyer interest and valuation: MCA debt can be a red flag that indicates financial distress. Potential buyers may assume the business is struggling with cash flow or has limited financing options. As a result, some may walk away from the sale, while others may lower their offers to account for the added risk.
- Personal guarantees and ongoing liability: Many MCA contracts include personal guarantees, which keep the seller liable for repayment even after the business is sold. Unless addressed during the transaction, this could leave the former owner facing collections or lawsuits, even without owning the business anymore.
- Complicated negotiations: Because MCA repayment is tied to future receivables, both parties must carefully structure how the debt will be paid — whether it’s from sale proceeds, a negotiated settlement, or the buyer assuming responsibility (which is rare and not recommended). These negotiations often prolong or even derail deals.
- Limited flexibility at closing: When you close on the sale, liens must typically be cleared, and MCA providers are rarely flexible. Unlike banks, MCA companies often enforce strict contract terms, leaving little room for restructuring. This can delay the sale or force the seller to use more of the proceeds to satisfy debt than planned.
Options for Business Owners Before Selling
If you plan to sell your business while carrying MCA debt, here are some potential approaches:
- Pay off the advance prior to the sale. The cleanest solution is to use business revenue or other financing to satisfy the MCA before marketing your business to buyers.
- Negotiate a settlement. In some cases, MCA providers may accept a lump-sum settlement for less than the full balance owed, particularly if you demonstrate financial hardship.
- Deduct the debt from sale proceeds. Work with the buyer and closing agent to ensure the MCA is paid directly out of the sale funds.
- Consult an attorney. Because MCA contracts can be complex and aggressive in their enforcement, professional legal guidance is strongly recommended to avoid post-sale liability.
How a Lawyer Can Help
An experienced MCA and business debt lawyer can be extremely valuable when selling a business that has merchant cash advance debt, since MCA contracts are often aggressive and complex. Here’s how they can help:
1. Reviewing the MCA Contract
MCA agreements are usually written to favor the provider, with terms that can be confusing or misleading. A lawyer can review the contract to identify potential loopholes, unfair clauses, or opportunities to negotiate better terms.
2. Negotiating with MCA Providers
Attorneys experienced in MCA cases know the tactics providers use and can negotiate on your behalf. They may be able to settle the debt for less than the full amount owed, restructure payments, or secure a release of liens to clear the way for a sale.
3. Handling Liens and Personal Guarantees
Because most MCA debts come with UCC liens and personal guarantees, a lawyer can work to ensure those are properly resolved before closing. This reduces the risk of future liability and ensures the buyer receives the business free of any financial burdens.
4. Protecting You Legally
If the MCA provider uses aggressive collection tactics or threatens litigation, an attorney can defend your rights. They can also help structure the sale agreement so you’re not personally on the hook after transferring the business.
At Tayne Law, we’ve been advising business clients regarding their MCA and other debts for over two decades. We offer a no-obligation phone consultation to learn how we work and how we might be able to help you. Give us a call at toll-free at (866) 890-7337 or fill out our short contact form. All calls are confidential.
