What Happens If You Can’t Pay Back a Merchant Cash Advance?

Quick answer: If your sales have slowed, contact your funder before you miss a payment. A merchant cash advance is a purchase of your future sales, not a loan, and many MCA agreements let you request a reconciliation that adjusts your payments to your actual revenue. Problems usually start when a business stops payments without talking to the funder, blocks the debit, or moves its deposits to another account. That can be treated as a default, which can lead to fees, the full balance coming due, collections or a lawsuit.

This article is general information, not legal advice. Your rights depend on your specific agreement, so read it carefully and talk to an attorney about your situation.

Slow Sales vs. Default: Why the Difference Matters

With a loan, you owe the same payment whether business is good or bad. A true merchant cash advance is different: the funder bought a share of your future revenue, so if revenue genuinely drops, the amount you remit is generally supposed to drop with it. That’s what a reconciliation provision is for.

A default is usually triggered by a breach of the agreement, not by slow sales alone. Common examples:

• Blocking or stopping the funder’s ACH debits without notice
• Changing bank accounts or diverting deposits so the funder can’t collect
• Closing or selling the business without notifying the funder
• Taking another advance when the agreement prohibits it
• Giving false information on the application

What to Do If You Can’t Make Your MCA Payments

1. Call your funder early. A funder that hears from you before a missed payment has far more room to work with you than one that finds out from a bounced debit.
2. Request a reconciliation. Check your agreement for the reconciliation section and follow its process. You’ll usually need to send recent bank statements showing the drop in revenue.
3. Ask about a temporary modification. Some funders will agree to reduced payments for a period, or switch you from daily to weekly payments. See daily vs. weekly MCA payments.
4. Don’t stack another advance to cover the first. Taking a new MCA to make payments on an old one usually makes the cash crunch worse.
5. Look at consolidation or refinancing. If you have several advances, combining them into one longer-term payment can lower what you pay each week. See how to consolidate MCA debt.
6. Get professional advice. An attorney or accountant can review your agreement. If you consider a debt settlement company, make sure you understand its fees and how its approach affects your agreements before you sign anything.

What Can Happen If an MCA Goes Into Default

Consequences depend on your agreement and your state, but commonly include:

• Default fees added to your balance
• The full remaining balance becoming due right away
• Collection activity, including contact from the funder or a collection agency
• Enforcement of the UCC lien on your receivables. In some cases a funder can notify your customers or payment processors to pay it directly.
• A lawsuit to collect what’s owed. If the funder wins a judgment, it can use court procedures to collect, such as freezing or levying bank accounts.
• Personal guarantee claims. Many MCA agreements include a personal guarantee, often covering the business’s performance under the contract. If the business breaches, the guarantor may be pursued.

How to Avoid Payment Problems in the First Place

• Take only what your revenue can comfortably support. See merchant cash advance requirements for how funders size offers.
• Understand your total payback and payment before you sign. See how much an MCA costs.
• Read the reconciliation, default and guarantee sections of your agreement.
• Choose payment timing that matches your cash flow.
• Work with a direct funder you can reach when something changes.

Frequently Asked Questions

Will defaulting on an MCA hurt my personal credit?

MCAs generally aren’t reported to personal credit bureaus. But a default can lead to collections, a lawsuit or a judgment, all of which can make future financing harder to get. See how business financing affects personal credit.

Can an MCA company freeze my bank account?

Generally only through a court process, such as after obtaining a judgment. Your agreement and your state’s laws determine what’s allowed, so talk to an attorney if this is a concern.

Can I go to jail for not paying a merchant cash advance?

No. Not paying a business debt is a civil matter, not a crime. Fraud, such as lying on an application, is a different issue.

What is an MCA reconciliation?

It’s a process in many MCA agreements that lets your payments be adjusted to reflect your actual revenue. You typically request it in writing and provide bank statements. If revenue has dropped, your payments may be reduced.

What if I’m a Brookestone Funding client and my sales have slowed?

Call our team at (877) 665-4209 as soon as you see a problem coming. It’s much easier to find a workable solution before a payment is missed than after.