Merchant Cash Advance Frequently Asked Questions

If your business can no longer comfortably make its merchant cash advance (MCA) payments, the first step is to understand exactly what you agreed to and what options the agreement — and your circumstances — may allow. Depending on the situation, potential options may include:

• Reconciliation
• Payment modification
• Forbearance
• Negotiated settlement
• Litigation defense

The right strategy depends on your MCA agreement, your business’s financial condition, the MCA provider, whether you have multiple advances, and whether collection activity or litigation has already begun.

Possibly. Whether you can reduce your payments depends heavily on the language of your MCA agreement and your circumstances. Some agreements include a reconciliation provision that adjusts payments based on changes in the business’s actual receivables. In other situations, it may be possible to negotiate a temporary payment modification, restructuring, forbearance, settlement, or other resolution.

There is no standard reduction. The outcome depends on the agreement, the MCA provider, your business finances, your legal circumstances, and the type of resolution you pursue. No one should promise a specific reduction without reviewing your individual matter.

Potentially. A business does not necessarily have to wait until a lawsuit is filed to explore its options. Whether a provider is willing — or required — to modify payments depends on the agreement and your circumstances.

It depends on your agreement, your cash flow, and where you are in the process. Continuing payments, stopping payments, and adjusting payments can each carry different consequences, including reconciliation rights, default provisions, negotiating leverage, and potential legal exposure. This is a decision worth making with an attorney rather than on your own, since the wrong approach can sometimes limit your options later.

Merchant cash advances are typically structured as a purchase of a percentage of a business’s future receivables, rather than repayment of a fixed loan. Many MCA agreements include a reconciliation provision that allows payments to be adjusted based on the business’s actual receivables. For example, if revenue declines substantially while a fixed daily or weekly withdrawal stays the same, the merchant may be able to request an adjustment. Reconciliation provisions can also matter legally — courts sometimes examine how (and whether) reconciliation worked in practice when analyzing the nature and enforceability of an MCA transaction.

Merchant cash advances are generally structured as a purchase of future receivables rather than a conventional loan, although how a particular transaction is legally characterized depends on the agreement, applicable law, and the facts involved. If your business’s actual receivables have declined materially, review your agreement for reconciliation or adjustment provisions, and consider having an attorney review whether the agreement — and the provider’s conduct — is consistent with how it was structured.

An MCA settlement is a negotiated resolution of a merchant cash advance obligation. Depending on the circumstances, a provider may agree to resolve the obligation on terms different from the amount or payment schedule it originally claimed. Settlement possibilities can depend on factors including:

• The MCA provider
• The claimed outstanding balance
• Business finances
• Payment history
• Whether the account is already in default
• Whether litigation has begun
• Whether a judgment has already been entered
• Potential legal claims or defenses

Every situation is different, and past settlements do not guarantee future results.

In some circumstances, yes — but there is no guaranteed settlement percentage. The MCA provider, business finances, claimed balance, litigation status, available funds, and other factors can all influence negotiations.

Yes. An attorney can review your MCA agreement, identify relevant contractual and legal issues, communicate with the MCA company or its counsel, and negotiate toward a resolution when appropriate.

You may communicate with opposing counsel yourself, but once litigation has begun, it is worth getting legal advice before making admissions, signing documents, agreeing to payment terms, or entering a settlement. The attorney representing the MCA company represents the MCA company — not you or your business. Your own attorney can evaluate the lawsuit and agreement, advise you on potential exposure, communicate with opposing counsel, and negotiate on your behalf when appropriate.

Multiple merchant cash advances can make a difficult situation significantly more complicated. A business may have several MCA providers withdrawing money daily or weekly from the same operating revenue — a situation commonly called MCA stacking. Rather than evaluating each obligation in isolation, it is often important to look at the business’s entire MCA exposure, including:

• Number of MCA agreements
• Current balances
• Daily or weekly withdrawal amounts
• Personal guarantees
• UCC filings
• Default provisions
• Reconciliation provisions
• Pending lawsuits
• Existing Judgments

A coordinated strategy can then address these obligations. Not every matter follows the same sequence, and settlement or another resolution may occur at different stages. If you have already received a lawsuit, judgment, bank restraint, or other legal document, the situation may call for prompt attention.

Yes. An MCA company may file a lawsuit if it believes the business or a guarantor breached the MCA agreement. Whether its claims are enforceable — and what defenses or other legal issues may exist — depends on the agreement itself, applicable law, and the facts surrounding the transaction and the alleged default. Receiving a lawsuit does not mean the outcome is already decided, but lawsuits generally come with response deadlines.

Not necessarily. If MCA payments are already threatening your business’s financial stability, addressing the situation before litigation begins may give you more time and options.

It depends on where the lawsuit was filed and how you were served — response deadlines vary by state and by the type of legal document involved (for example, a summons and complaint versus a motion for summary judgment in lieu of complaint). Missing a deadline can result in a default judgment against your business or a guarantor, so identify the applicable deadline as soon as you are served.

A default judgment can be entered when a defendant does not respond to, or otherwise participate in, a lawsuit as required. Once a judgment exists, the creditor may have additional enforcement remedies under applicable law—which is why ignoring an MCA lawsuit can create significantly bigger problems later.

Some MCA agreements include a confession of judgment (sometimes called a “COJ”) or similar provision, in which the merchant or guarantor agrees in advance to let the provider enter a judgment against them without a traditional lawsuit if a default occurs. Whether such a provision is enforceable depends on the agreement’s language, the jurisdiction, and applicable law—some states restrict or prohibit confessions of judgment, particularly against out-of-state businesses.

Potentially. Once a judgment exists — whether by confession of judgment, default, or after litigation — an MCA provider may be able to take steps to restrain or levy a business bank account to satisfy the judgment, depending on applicable law. A bank restraint can be a serious operational emergency. If your account has been frozen or restrained, an attorney should review the underlying judgment and the restraint itself as soon as possible, since options to challenge or address a restraint are often time-sensitive.

Potentially. Many MCA agreements include a personal guarantee signed by the business owner or another individual. Whether — and to what extent — a guarantor may be personally liable depends on the language and enforceability of the guarantee, applicable law, and the circumstances of the dispute. An attorney should review the actual agreement before you try to gauge your personal exposure.

Yes, and the distinction can matter a great deal. Some MCA agreements include a broad, unconditional personal guarantee, under which the guarantor may be liable simply because the business did not pay. Others include a more limited “guaranty of performance” (sometimes called a “good guy guaranty”), which is generally intended to make the guarantor personally liable only if specific triggering conduct occurs — for example, closing the business, misrepresenting receivables, or violating certain covenants in the agreement — rather than for nonpayment alone. Which type of guarantee applies, and whether any triggering conduct occurred, depends entirely on the specific agreement and the facts, and an attorney should review it.

Potentially, depending on the facts and applicable law. An attorney reviewing a guarantee may look at issues such as:

• Contract language
• Scope of the guarantee
• Execution of the agreement
• The underlying obligation
• The alleged breach
• Representations made by the parties
• Applicable law and jurisdiction
• Defenses raised in litigation
• Other contractual or procedural issues

The existence of one of these issues does not automatically make a guarantee unenforceable — the actual documents and facts need to be reviewed.

Yes, and it is an important issue to address when negotiating a settlement. If both the business and a guarantor face potential liability, the settlement documentation should clearly address what happens to each. Depending on the negotiated agreement, settlement documentation may address:

• Business obligations
• Guarantor obligations
• Release of claims
• Dismissal of litigation
• Satisfaction of judgments
• UCC termination
• Payment obligations
• Default provisions
• Other continuing rights or obligations

Do not assume that settling with the business automatically releases an individual guarantor — that result has to be provided for in the settlement documents.

In some receivable disputes, a creditor may send notices directly to businesses or individuals who owe money to the merchant, directing them to redirect payment. If your customers receive demands to pay an MCA company instead of your business, this can create immediate operational and reputational concerns. Do not assume the notice is automatically valid — or automatically invalid. An attorney should review it, and you should keep copies of anything your customers receive.

Potentially, depending on why the filing exists and the circumstances. A UCC financing statement may eventually be terminated once the underlying secured obligation has been satisfied, or when termination is otherwise required under applicable law. Disputes can also arise over filings a business believes are unauthorized, inaccurate, outdated, or should already have been terminated. A qualified attorney may identify legal basis to request or require termination, amendment, or other action.

This is an important issue to address in your settlement documentation. If an MCA obligation is being resolved, the settlement agreement should clearly state what happens to:

• UCC termination
• Release of security interests
• Release of claims
• Satisfaction of judgments
• Dismissal of litigation
• Personal guarantees
• Third-party notices
• Other collection activity

Do not assume that making a final settlement payment automatically causes every filing or public record to disappear right away — the settlement documents should spell that out.

Closing the business does not necessarily eliminate obligations under an MCA agreement or a personal guarantee. An attorney may need to evaluate:

• Why the business closed
• What happened to its receivables
• What happened to its assets
• Whether the business still exists legally
• Whether a lawsuit has been filed
• Whether the guarantor has been sued
• Whether a judgment exists
• What the MCA agreement provides
• Whether settlement may be possible

Do not assume that dissolving or closing the business automatically ends the MCA obligation or the guarantee.

It depends on the business’s overall financial picture, the type of bankruptcy involved, and how the MCA transaction is treated under bankruptcy law — including whether it is characterized as a sale of receivables or a loan. Bankruptcy can, in some circumstances, address MCA obligations and related judgments, liens, or bank restraints, but it is a significant step with consequences well beyond the MCA itself. Whether it makes sense for a particular business is a decision to make with both a bankruptcy attorney and a clear understanding of the alternatives, such as negotiation or settlement.

MCA companies generally structure their transactions as a purchase of future receivables rather than a traditional loan. But courts may look past the label and examine the agreement’s substance when deciding how to characterize it legally. Depending on the jurisdiction, courts evaluating MCA transactions may consider provisions and circumstances such as reconciliation rights, the agreement’s duration, the provider’s recourse if the business fails, and how the transaction operated in practice.

It can, depending on the circumstances. Default, collection activity, a UCC filing, a lawsuit, or a judgment may be reported or become part of the public record in ways that affect the business’s ability to obtain future financing, and — where a personal guarantee is involved — may potentially affect the guarantor as well. The specific impact depends on the MCA provider’s reporting practices, the type of collection or legal activity involved, and applicable law.

Having the right documents on hand can make an initial consultation much more productive. Useful items often include:

• The complete MCA agreement(s), including any addenda or amendments
• Any personal guarantee or guaranty of performance
• Recent account or payment statements
• Any correspondence with the MCA provider or its counsel
• Any lawsuit, judgment, UCC filing, or bank restraint documents you have received
• Basic business financial information, such as bank statements and revenue figures
• A list of any other MCA providers or lenders, if multiple advances are involved

Not every document will be available or apply to every situation — an attorney can help identify what is still needed.