Defaulting on a merchant cash advance can have serious legal and financial consequences for you and your business. If you default on a merchant cash advance, a MCA lender can take legal action against you and your business.
This can result in a lawsuit being filed, and if a judgment is entered against you, the lender can attempt to seize your assets, levy your bank accounts, and garnish your wages, even if you did not pledge business or personal collateral to secure the funding. So it’s really important as a business owner to avoid defaulting on a merchant cash advance.
If your business does start to struggle to follow the MCA repayment terms, you should carefully analyze your business expenses to find any unnecessary monthly costs that can be eliminated, which can free up cash so you can resume paying your advance. Ways to reduce business expenses and free up cash include negotiating with vendors and suppliers to reduce costs.
You should also consider researching alternative financing options that offer better terms and lower interest rates than your current merchant cash advance. MCAs tend to have high missed payment penalties and interest payments that build up quickly. Paying off the MCA by refinancing the debt with a different lender that offers better terms may be a way to reduce the overall burden of the outstanding debt on your business.
There are also a number of debt consolidation and debt settlement companies in the USA that can also help you reach a settlement agreement on your defaulted merchant cash advance. But it’s essential to choose a reputable debt settlement company with experienced lawyers who can provide proper legal support and negotiate with your lender for a more affordable settlement.
One of the best options for restructuring a merchant cash advance is to negotiate directly with your MCA lender. Lenders are aware that many businesses may face cash flow issues, and they are willing to help. Lenders will bombard you with late reminders and call you to pay off the debt, but that is standard practice for all lenders if you stop communicating with the lender. So if you are having difficulty making payments, it’s important to contact your lender and be honest with them and explain your situation. They are usually willing to work with you to establish a new repayment plan that is more manageable.
Reverse consolidations also provide an alternative way to restructure a merchant cash advance and avoid default. A reverse consolidation company will loan you the necessary funds to cover your daily MCA payments. You will make repayments to the reverse consolidation company instead of the MCA lender that can be 20 to 25 percent less than what you would normally repay to your MCA funders. You continue paying the consolidation company until the merchant cash advance is fully repaid. However, it’s important to note that debt consolidation does not reduce the total debt you owe. And because you are making smaller payments, you may end up repaying the debt for a much longer term than the original cash advance.
If you do default on a merchant cash advance, your MCA lender may attempt to seize your business and private assets. They may also contact your vendors and merchant processors and state that their liens are superior liens, and that the merchant processors and vendors should pay them directly since you have defaulted on your loan.
If you do receive a summons and complaint after defaulting on a merchant cash advance, it’s important to respond promptly and seek legal advice. A qualified attorney that has experience with merchant cash advance financing can help you navigate the legal system to try to protect your assets. They can also negotiate with the lender on your behalf to try and reach a settlement that is favorable to you.
You cannot represent yourself in U.S. courts if you default on a merchant cash advance. Legally, business entities must be represented by a lawyer if they intend to go to court to fight the lawsuit. So it’s crucial to work with a reputable law firm that specializes in small business loan defaults and has experience in protecting personal and business assets. The law firm can advise you on the best steps to take to protect your assets and negotiate with lenders on your behalf.
In some cases, you may be asked to sign a confession of judgment which was part of your contract when you took out the merchant cash advance. A confession of judgment limits your legal options if you default on a merchant cash advance. If you agreed to a confession of judgment as part of your contract, you have given the MCA lender permission to get a judgment against you without advanced notice or a hearing.
It’s important to note that every situation is different, and there is no one-size-fits-all solution to dealing with a defaulted merchant cash advance.
Defaulting on a merchant cash advance is a serious issue, so it’s really important to reach out to your MCA lender, negotiate, and be transparent with them. They will work with you. By taking proactive measures, you can navigate the situation and come out on the other side with your finances and business intact. If you are struggling to repay the merchant cash advance you received from Business Finance Source, please contact us as soon as possible so we can help you get back on track.