The construction industry is booming with contractors and small business owners taking out merchant cash advances (MCAs) to fund their projects. A contractor may take out an MCA to cover the costs of a new project, only to have the project fall through and be left with a significant debt. What are the potential consequences when the contractor defaults on an MCA?
Aggressive collection tactics
MCAs are secured transactions and not traditional loans, which is why they are unregulated and not covered by the Fair Debt Collection Practices Act. This can leave the contractor vulnerable to aggressive collection tactics. The lender may make threats to collect the debt through constant phone calls and emails.
Asset seizure
In addition, the lender may seek a UCC lien enforcement against the contractor’s business assets. This can result in the seizure of assets which can be devastating for the contractor’s business as well as their personal life.
Legal action
If the lender is unable to collect the debt through other means, they may file a lawsuit against the contractor. The lawsuit can result in a court judgment, which can lead to bank account levies or wage garnishment. This can have a significant impact on the contractor’s financial stability.
Impact on business reputation
Defaulting on an MCA can also damage the contractor’s business reputation. They may struggle to pay employees or suppliers, which can lead to project delays or cancellations. This can have a long-term impact on the contractor’s ability to operate a business, making it difficult for them to secure contracts or financing.
Finding ways to resolve MCA defaults
Defaulting on an MCA can have serious consequences for contractors in the construction industry. By seeking legal counsel, contractors may find ways to resolve their MCA defaults, protect their interests and rights, and strive to get back on track. Having a legal advocate on their side may also help them get the assistance and support they need throughout the process.