couple receiving merchant cash advance

How to Reconcile a Merchant Cash Advance

A merchant cash advance (MCA) provides a business with working capital that can be used in a variety of ways. Defaulting on the repayment puts both your business and personal assets at risk, however, and may force you to file for bankruptcy. Let’s take a look at how you can reconcile a merchant cash advance.

What happens if I default on a merchant cash advance?

Defaulting on an advance can have lasting repercussions. MCA agreements typically require you to sign a Confession of Judgment whereby you accept liability for the advance and waive any defenses if you default. In this situation, the MCA provider can quickly file a judgment with the court and begin seizing your business assets. 

In addition, most funders will require you to sign a personal guarantee, which means your personal assets — home, car, bank accounts – can also be seized. Ultimately, defaulting on a merchant cash advance could result in both a business and personal bankruptcy, and the business you’ve worked so hard to create will close. 

There Are Ways to Avoid Defaulting on a Merchant Cash Advance

The best way to avoid defaulting on a merchant cash advance is to ensure the repayment plan is aligned with the revenue cycle of your business. Because the funder will take a percentage of your credit or debit sales as repayment, it is crucial to make this percentage manageable. 

If you miss payments, you will be charged fees which will be added to the total amount of the advance.  in the long run. Also, if the percentage is too high, you will not be able to cover your other business expenses. 

It is also important to remember that a merchant cash advance is based on a factor rate, usually in the range of 1.2 to 1.5. This is not the same as an interest rate or an annual percentage rate (APR). Converting a factor rate into an APR can lead to a figure in the triple digits, which is an exorbitant cost of funding that can make it difficult to repay the advance.

How can I reconcile a merchant cash advance?

A properly structured MCA agreement will include a reconciliation clause that requires the funder to restructure the repayment plan if you experience a revenue shortfall. However, you must notify the MCA provider of any receivables shortfall, request a new repayment plan, and show how your business will return to profitability. 

The best way to reconcile your merchant cash advance is to contact and work with an experienced debt relief specialist who can negotiate with the MCA provider on your behalf, help you avoid defaulting, and prevent your business from being liquidated.