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What can happen if I default on a merchant cash advance?

On Behalf of | Mar 7, 2024 | Merchant Cash Advances

Missing debt repayments or defaulting on a loan can have severe repercussions. The fallout could be mild in some cases, but merchant cash advances (MCAs) taken out by businesses can have more stringent terms and harsher consequences. Unfortunately, these situations can be unavoidable, especially if external factors impact the business’s earnings.

The penalties for defaulting on MCAs can vary, depending on the agreement between the lender and the debtor. Still, some possible scenarios usually happen to businesses that default on MCAs, including the following:

  • The business can be subject to paying additional fees on top of the advance, including legal costs, late fees and other charges.
  • The lender or merchant may enforce the existing agreement or take legal action to go after the business, including the employer or owner, if they are responsible for the defaulted repayments.
  • The merchant can seize the business’s assets placed as collateral for the advance, causing potential losses.
  • The missed payments can reflect on the debtor’s record, making it challenging to seek more funding in the future.

Additionally, specific collection-related policies may not apply to MCAs, exposing debtors to aggressive collectors who may perform their duties unethically.

Determining ways to address issues involving MCAs

Other times, debtors may find it challenging to comply with an MCA’s terms because of unreasonable clauses that may seem unfair and unfavorable. These instances can increase the likelihood of defaulting on payments, leaving the debtor in hot water. If a business owner faces risks of missing payments or defaulting on an advance, seeking legal counsel can be vital. Doing so can help determine the appropriate options to address the situation, considering the debtor’s unique circumstances.