Merchant Cash Advance (MCA) agreements are short-term financing options where businesses receive a lump sum in exchange for a portion of future sales. Unlike traditional loans, MCAs take a percentage of daily sales for repayment instead of using fixed monthly payments.
A breach of contract typically occurs when the business fails to meet its contractual obligations. This often means missing payments, but it can also involve actions like changing ownership or filing for bankruptcy.
What are the key elements of an MCA agreement?
An MCA agreement typically includes the following:
- The lump sum provided to the business
- The total sum to be repaid, including fees
- The portion of daily sales used for repayment
- The estimated time for full repayment
- The owner’s promise to repay if the business cannot
There may also be additional terms specific to your agreement. These could include limits on borrowing more money or rules about keeping your business financially healthy. Any changes or non-compliance to these elements can lead to potential contract breaches.
What actions or situations often lead to breaches of MCA agreements?
Situations involving financial difficulties or misconduct – whether intentional or unintentional – may lead to a breach of contract. This includes:
- Missing payments due to cash flow issues or poor financial management
- Diverting credit card sales away from the agreed-upon account
- Changing business ownership or status without informing the MCA provider
- Declaring bankruptcy, which can disrupt the repayment schedule
- Withholding financial data, preventing the MCA provider from verifying sales
- Failing to maintain a minimum level of sales or revenue, if specified in the agreement
If an MCA provider sues you for breach of contract, act quickly to protect your rights and explore resolutions. It’s crucial to consult with an attorney who can help you review your contract thoroughly and understand the specific breach allegations to prepare your response effectively. They can also help you negotiate with the MCA provider and explore settlement options to potentially resolve the issue out of court.
There are ways forward
When MCA providers are pressing, it is easy to feel cornered. However, you likely have more options than you realize. An attorney can help you understand and pursue options that align with your situation.