6 Ways Transportation Businesses Get Out From Under Stacked Advances

Getting behind on a merchant cash advance (MCA) puts companies in a tough position. The "stacked advances" problem is an entirely different animal.

Taking one advance to pay another - then doing it again - is the common factor for many companies that fail under MCA debt. At some point, no more money is coming in, but the debits keep coming out. What's the exit?

No one "gets" how hard it is to run a trucking business better than you. A real commercial insurance bill - minimum $10,000, likely far more. Department of Transportation requirements. Four or five-figure repairs at the worst time. Broker games with payment terms. Permits, fuel, fixed costs that don't quit. Now a third party is taking cash from your bank account every day. There's a point at which making the next delivery just doesn't make sense.

This happens because owners are working, not calculating. When volume is there and the business is cash-generative, advances feel workable: easy to qualify, quick to receive, pay back fast and get on with life. Here's how they stack:

1. Advance A takes daily/weekly ACHs. Company uses the funding for costs and does business as usual.
2. Payments grow tight - brokers or clients slow-pay, costs rise.
3. Advance B, often for a higher amount on a compressed timetable (payable in 90 days rather than 180), goes to pay off Advance A.
4. Business conditions deteriorate and, perhaps, a tax bill has become overdue. Advance C goes to settle A and B and address whatever extra financial fire has sprung up.

Do this once or twice and "clear the deck" - fine. When it becomes the recurring approach to company financing, and especially when the velocity increases to near-simultaneous advances with multiple MCA providers, a new kind of debt is created. A debt for which first position on company assets can be contested. One which cannot be fully paid, because each provider is operating with an interest different than the rest. When a single advance is being paid, everyone's incentives are more closely aligned.

MCA providers see stacking as evidence of mismanagement - they can point to lack of equity injection or a CFO to offset risk - which sometimes impacts their aggressiveness when pursuing default.

The Position on Company Receivables - Advanced by Multiple Parties

To do a deal with an MCA provider, executives sign off on many items, including blanket liens filed on public records, effectively placing the merchant's receivables into the exclusive control of the provider.

But filing is not itself possession. When multiple advances have been taken, the company has conflicting advances against the same asset. Even as funds flow through the merchant's bank account, each party may consider them proceeds belonging to its respective obligation. No one owns the account. It's a race to who has the best title - who can move fastest, and whether an interested party can bring a UCC claim to recover accounts that would otherwise go into working capital.

Stacked MCAs cannot simply be refinanced, though that's a common hope for businesses struggling under a mountain of advances. Secured and unsecured financing can be obtained - pending eligibility requirements (significant secured debt, such as a real property mortgage, can bar otherwise qualified businesses) - and applied to repay all advances in full. Refinancing into term loans on regular amortization is most viable when the underlying business is sound, margins are positive, and there's a team in place to run operations. That is not always the case when advances are stacked and layered auto-withdrawals put daily operations at risk of interruption or seizure by default.

Best Possibilities for Trucking Companies

Trucking companies in the post-covid market have struggled greatly to maintain profitability. We talked to many businesses that were profitable and relatively debt-free through 2019, even into 2020. By mid-2022, and certainly throughout 2023, costs overtook revenue. Without substantial investment and a built-out team, it's an "MCAs are here to stay" situation. Trucking requires quick decisions, on-demand cash, and daily expenses that balloon when trucks get hit, run off the road, or need repairs on a thin-margin load - no surprise operators turn to high-velocity capital. Per-mile broker rates fell substantially between 2020 and 2023. Even major players left the market at an unprecedented rate. Road freight is, even now, a tough business.

So - best way out? Trucking operators have historically been best positioned for fixed payment plan models, i.e., structured settlements. They run into trouble paying daily and owing monthly, so conversion to a flat, single obligation works for many who come to our firm.

Settlement - in terms of percentage write-down - often relies on the profile of your business. Specific cash flow can matter less than your willingness to be fully in default. When you are not paying your advances at all, you can exert true negotiation pressure, because there is a benefit in writing down the debt before going into state court. Once that happens, collection can still occur in court - an inability to satisfy what is often a confession of judgment (COJ), based on your advance paperwork, could make operations hard going forward.

Your Obligations and the After-Effects of Stacked MCA Debt

As a party to the advance(s), you'll face potential civil exposure from two directions, so long as your paperwork contains personal guarantee language. Defaulting parties are often surprised when the collection suit names them and not the company they incorporated. Many merchants believe a corporate filing is all it takes to avoid direct liability. It is not.

In a lawsuit on a cash advance - or, more likely, many lawsuits on many advances - the issue becomes: how does one divide a fixed monthly amount of money against many MCAs and effect a full compromise?

MCA debt gets categorized for what it really is: ordinary debt subject to discharge, given court review, assuming a bankruptcy judge agrees. The crucial point for merchants is whether a bankruptcy makes sense versus a compromise. Once you file, most MCA accounts become court-barred from collections against you, and many of the "charges" for recovery will effectively freeze.

Remember: MCAs operate at high velocity. Their primary advantage, aside from accessibility, is speed. When your bankruptcy case has been sitting open for months, the returns on their time and litigation spend - for smaller obligations, often sub-$100k or even sub-$50k - just don't compute. Creditors don't want to chase collections on insolvent debtors. For larger debts, MCAs tend to collect in full even under a plan.

Which is a segue to your real exposure when many advances have been taken at once. Multiple exposures for smaller amounts - though we're seeing much higher figures today, closer to $150,000, $175,000 and beyond, which does make a difference in settlement and bankruptcy cases - have proven vulnerable to negotiation and structured payment plans running several months to several years.

If your trucking business carries higher-dollar obligations, structured workout is generally more viable for businesses that do more revenue. That's true of transportation just as with any commercial enterprise: more working capital, more incoming money, greater overall stability.

Another factor: if you're in court, how well has your past court performance been? The specifics, not the generalizations, dictate what the MCAs may do - collecting on assets, foreclosing, or continuing with service on the named debtor. Everything gets harder if litigation is happening but only against you. Multiple plaintiffs suing one defendant, and eventually one of them will ask who wins the "big push" case against you.

Is It Better to Settle or Bankrupt a Trucking Business With Stacked MCAs?

Generally, we say settle - because you still want to make money. If your intent is to close the business, we do not always see settlement. Once business ends, even at a gross loss, the argument for payment from you to the MCA creditors is not strong.

Creditors don't want you insolvent and trading in that condition indefinitely. They will do a write-down, at a number lower than would be seen when collection began.