If your business is struggling to make its MCA payments, don't assume the problem will simply go away.
Depending on the terms of your agreement, missing payments can trigger default provisions, collection activity, additional fees, or legal action.
The exact consequences depend on your contracts, the nature of the transaction, and applicable law.
This is the point where you need to know exactly what you agreed to.
Many MCA agreements involve automatic withdrawals from your business bank account.
When a payment is due, the MCA provider may attempt to withdraw the agreed amount through ACH.
If the account doesn't have enough money, you could encounter:
Failed or returned payments
Additional bank fees
Repeated withdrawal attempts
Increased collection activity
Claims that the business has breached the agreement
If you're experiencing repeated ACH withdrawals that are interfering with essential business expenses, don't ignore what's happening.
Review your agreement and get professional advice about your rights and obligations.
An MCA agreement may define specific events that constitute a default.
Those events can vary considerably between contracts.
A default could potentially involve more than simply missing a payment. Your agreement may contain provisions addressing changes in business operations, bank accounts, representations made when obtaining the advance, or other circumstances.
Once an MCA provider declares a default, the situation can become considerably more serious.
Read the default provisions in your contract before assuming you know what happens next.
You may see a UCC filing associated with your MCA.
A UCC filing can serve as public notice that a creditor claims an interest in specified business assets or collateral.
A UCC filing does not automatically mean the lender owns everything your business owns. What it covers depends on the filing and the underlying agreement.
If you're unsure what a UCC filing means for your business, have the documents reviewed by a qualified attorney.
Some MCA agreements may include a personal guarantee.
If you personally guaranteed an obligation, the consequences of a business default may potentially extend beyond the business itself.
That is why business owners should never assume:
"It's my company's debt, so my personal assets can't be affected."
Whether a personal guarantee is enforceable and what it covers depends on the agreement and applicable law.
Know what you signed.
If an MCA provider believes your business has defaulted, collection efforts may increase.
You could receive:
Telephone calls
Emails
Default notices
Demand letters
Requests for payment
Notices concerning alleged breaches of contract
Communications from collection agencies or attorneys
If the situation continues unresolved, legal action may become a possibility.
If you receive a formal demand, lawsuit, summons, or other legal document, pay attention to deadlines and seek legal advice promptly.
If an MCA provider files a lawsuit, this is no longer simply a financing problem.
It becomes a legal matter.
You may need an attorney to determine whether the creditor's claims are valid, what defenses may exist, and what your legal obligations are.
Ignoring a lawsuit can have serious consequences.
Never assume that refusing to respond will make the lawsuit disappear.
Some business financing agreements have historically contained provisions known as confessions of judgment, although their use and enforceability vary by jurisdiction and circumstances.
These provisions can potentially have significant consequences because they may allow a creditor to pursue a judgment without the same process that would normally occur in a contested lawsuit.
Because the law surrounding these provisions can be complicated and varies by jurisdiction, have an attorney review any agreement containing a confession-of-judgment provision.
When an MCA becomes difficult to pay, the natural reaction is often:
"Where can I get the money to make this payment?"
But that may not be the right question anymore.
The better questions may be:
What exactly did I agree to?
How much do I actually owe?
What happens if I default?
Are there personal guarantees or UCC filings?
Can the debt be restructured or refinanced?
Should I negotiate with the creditor?
Do I need an attorney?
What can I realistically afford to pay without putting the entire business at risk?
These are questions worth answering before the situation gets worse.
An MCA default doesn't necessarily mean your business is finished.
There may be options depending on your circumstances, including restructuring, refinancing, consolidation, negotiation, or other strategies.
But the right answer depends on the facts.
Don't guess. Don't panic. And don't take another expensive advance simply because you're trying to make today's payment.
Get organized. Understand your contracts. Know your numbers. And get the appropriate professional help when legal issues are involved.
Olsen Business & Financial Solutions Consultants (DBA. BizMoolah) can help you organize the financial side of your situation and understand what potential options may be available.
If your situation involves legal claims, lawsuits, personal guarantees, or other legal matters, we may recommend that you speak with a qualified attorney.
Educational information only. BizMoolah does not provide legal advice. Financing, restructuring, consolidation, and other solutions are subject to qualification, availability, creditor approval, contractual terms, and applicable law.