Consequences of Defaulting on a Merchant Cash Advance

The consequences of defaulting on your merchant cash advance agreement can be severe. Small business lenders typically include a provision known as a Confession of Judgment in these agreements and may also require you to sign a personal guarantee. This means that both your business and personal assets will be in jeopardy. The best way to protect yourself if you are at risk of defaulting on a cash advance is to consult Reconcile My MCA.

Our attorneys work with businesses throughout the nation that are struggling under the weight of an MCA. Our objective is to help your business avoid defaulting and restructure your merchant cash advance payments. When you enlist the services of Reconcile My MCA, our legal team will work strategically to protect your business and personal assets.

Merchant Cash Advance Defaults

The consequences of defaulting on an MCA depends on factors such as the terms of the agreement and the amount of money that is outstanding. Because MCAs are not considered loans, they are not governed by usury or other laws that apply to other types of business loans.

An MCA is a purchase contract between a seller (your business) and a buyer (the MCA provider), for a portion of future revenue.

If your business is having difficulty repaying the cash advance, it may be possible to modify the repayment plan, provided that the MCA includes a reconciliation clause. If your business defaults on the MCA, this might constitute a breach of contract, in which case the MCA company could file a lawsuit against you. Moreover, the MCA company will likely have included a clause in the agreement called a Confession of Judgment.

What is a Confession of Judgment?

A confession of judgment (COJ) is an agreement between the MCA company and the borrower whereby the borrower accepts liability for the merchant cash advance and waives all legal defenses if conditions of the agreement trigger a default. A COJ clause basically allows the funder to avoid a lengthy legal proceeding and quickly move to recoup funds by filing a judgment with the court and seizing the business assets.

Because the borrower has waived their legal rights, the MCA company can obtain a judgment without presenting evidence to the court. Therefore, the borrower has no recourse to defend itself or object to the judgment. After the COJ is filed with the court, the court will notify the borrower that a judgment has been entered and the MCA provider can begin levying business accounts and seizing business assets.

In short, using a confession of judgment allows an MCA provider to reduce its risk and increase the likelihood of being paid back by the borrower. If the borrower is aware that they are at risk of forfeiting their business assets, then they are much more likely to ensure that the lender is repaid without triggering a default and an eventual judgment. A confession of judgment can also prevent a borrower from obtaining additional cash advances that could further jeopardize future sales and revenue, placing the borrower at an even greater risk of default. Ultimately, if your company fails to meet its obligations under an MCA, having a levy placed against the business assets may force you to close the business.

Merchant Cash Advances and Personal Guarantees

In addition to confessions of judgment, it has become increasingly common for MCA companies to require borrowers to sign personal guarantees. This means that your home and other personal assets (savings, investment accounts, other personal property) will also be at risk if you default on the cash advance repayments.

Why Call Reconcile My MCA?

Our attorneys have extensive experience providing cash advance relief services to a wide variety of businesses nationwide. When you consult us, we will take the time to review your merchant cash advance agreement, analyze your financial situation, and work with you to keep your business up and running while also protecting your personal assets. We have a proven track record of using reconciliation clauses found in most MCAs to work out repayment plans and of helping our clients avoid defaulting on an MCA. Knowing that time is of the essence, the sooner you contact us, the sooner we can begin protecting you, your business, and your family. Please complete the convenient intake form on the homepage or feel free to give us a call — the team at Reconcile My MCA is available 24/7.