The merchant cash advance (MCA) industry has grown significantly, with many small businesses turning to MCAs as a source of funding. However, small business owners who take out MCAs may find themselves struggling to repay the debt. If you are a small business owner with an MCA debt, what can you do to protect yourself from the risks associated with it?
Understanding the risks and consequences
One of the main risks is the danger of falling into a debt trap, where you cannot repay the debt and have no choice but to take out more MCAs to cover the payments. Other risks include:
- A lawsuit: An MCA lender can sue you for defaulting on your payments, which can result in costly legal fees.
- Business closure: If you are unable to repay your MCA debt, you may have to close your business after a seizure of assets due to a UCC lien enforcement. This can be devastating to you and your employees.
- Reputational damage: Defaulting on an MCA could damage the reputation of your business, especially if it leads to closure. This can be difficult to recover from.
In addition, an MCA lender might have required you to sign a personal guarantee, which means you can be held personally liable for the MCA debt if your business is unable to repay it. This can put your personal assets at risk of seizure or garnishment. The guarantee may involve personal assets such as your home, car and savings.
Protecting your business in the world of MCA debt
The risks due to your MCA debt can be significant and damaging. Thus, you need to take action quickly to avoid serious consequences. By seeking legal advice, you may explore your options and know your rights. In addition, having legal counsel may help you better protect your business as you navigate the complex world of MCA debt.