What Happens If I Default?

What happens if I default on a Merchant Cash Advance (MCA)?

9/11/20232 min read

What Happens If I Default on a Merchant Cash Advance?

A Merchant Cash Advance (MCA) is a popular source of quick business financing. Unlike traditional bank loans, MCAs are typically repaid with future sales from credit card transactions. However, the high fees and complex contracts associated with MCAs can pose a threat to your business and finances if not managed carefully. So, what happens if you default on an MCA?

Defaulting on an MCA: The Consequences

Defaulting on an MCA is usually considered a breach of contract. If you default, the MCA provider can pursue getting that money from you and your business. They may attempt to freeze your personal and business bank accounts and disrupt relationships with your vendors, payroll company, and more.

Legal Action

The provider may take legal action against the business owner to recover the outstanding balance. This can include seeking a court judgment or filing a lawsuit. If successful, they can then take more aggressive actions to reclaim the money owed, such as seizing your assets.

MCA Lawsuit

When an MCA company decides to sue a customer, they must first send a court summons and complaint notice. This will explain why you’re being sued and include the deadline for responding with a formal legal pleading. The exact timeline for responding depends on where you’re located.

Confession of Judgment

Unfortunately, some MCA contracts contain a “confession of judgment” clause (also known as an “agreed judgment”). This allows the MCA company to avoid going through the normal lawsuit process. They can obtain a judgment against you without notifying you or allowing you to defend yourself in court. They can then move quickly to seize business assets, freeze accounts, etc., in days.

What if Your Business Closes?

If your business cash flow is too strained to survive and you must close up shop, in most cases, the MCA funder will have no means of collecting on you. They purchased your ongoing receivables, but since you went out of business and have no further cash flow, that’s the end of your payment obligation. They cannot report this to a credit reporting agency (since they are technically not a lender) and they have no collateral to pursue.

However, beware that you can get into trouble if you do the following before closing your doors: switch bank accounts, interfere with the MCA’s ability to take ACH payments, change merchant services processing companies, or take cash or other types of payments to reduce revenue to your bank account.


Defaulting on an MCA can have serious consequences for a business owner. It’s crucial to understand these potential outcomes and seek professional advice if you find yourself in this situation. Remember that prevention is always better than cure. Always consider all options and their implications before deciding on any form of financing for your business.