Can You Stop Daily MCA Payments? Options and Risks

If you are struggling with daily MCA payments, you need to understand your options. From stopping your payments to working out a new payment plan, you may have several different options available. Here, our lawyers explain what you need to know about stopping daily merchant cash advance payments.

The ability to secure fast and easy funding makes merchant cash advances (MCAs) appealing to many business owners. However, when an MCA goes bad, business owners can find themselves struggling to stay afloat. While many MCA lenders offer the option to remit payments daily (through automated clearing house (ACH) debits), business owners who accept this option will find that these payments add up quickly. Plus, once a business owner falls behind on an MCA, additional fees, penalties, and interest charges can start to add up quickly as well.

When a merchant cash advance becomes unaffordable, stopping daily payments is an option. In this scenario, a business owner’s first priority should be to assess the company’s cash flow and financial needs so that an informed decision can be made about the best path forward. While merchant cash advance payments are required under the terms of the funding agreement, it is also important to remember that these agreements are subject to numerous legal requirements and restrictions.

Options for Stopping Daily MCA Payments

So, you are facing financial challenges and you need to know how to stop your daily MCA payments. What are your options? In most cases, business owners have three options for stopping their daily MCA payments, with a fourth option potentially being available if the first three options aren’t viable. Here are the key considerations for making informed decisions about how to proceed:

1. Negotiate a Payment Reduction or Modification with Your MCA Lender

If your business is facing temporary cash flow issues and needs some relief, one option may be to negotiate a payment reduction or modification with your MCA lender. Many lenders are willing to work with their customers-at least to a certain extent. But, to protect themselves, they require these modifications to be documented.

As a result, if you need to modify your merchant cash advance agreement to reduce your daily payment, you need to make sure you do so the right way. If you don’t, the MCA lender may have the right to call your advance due in full and take legal action to recover what you owe.

Negotiating a payment reduction or modification with your MCA lender is most likely to be an option if your financial issues are temporary in nature. While this may also be a temporary solution, it can provide some relief to help you avoid default while your business regains its financial footing.

2. Negotiate a Settlement with Your MCA Lender

Another option is to negotiate a settlement with your MCA lender. When it is clear that you cannot pay what you owe, many lenders will be willing to work with you to avoid having to take legal action to collect. This is especially true if your MCA lender has previously sold your receivables to another party-meaning that the party you are currently dealing with paid significantly less than you received in your advance.

When negotiating a settlement, it is imperative to have a clear understanding of your company’s finances. How much can your company realistically afford to pay? Is it possible to make a lump-sum payment, or does your company need to settle for a structured payment plan? When working with an experienced attorney to negotiate a settlement, your attorney will need to have a clear understanding of these factors so that he or she can work toward an agreement that provides the financial relief you need.

3. Default and Fight Your MCA Lender in Court

In some cases, negotiating with your MCA lender may not be an option. For example, the MCA lender may have sold your debt to a collection company, or the lender may simply not be interested in negotiating a new deal. In this scenario, default may be your only option, in which case you will need to be prepared to fight your MCA lender in court.

We regularly defend business owners in MCA litigation. While some business owners will feel like they are in a weak position because they cannot afford to make their daily payments, there are several ways to fight against MCA lenders in court. As a result, this is an option worth considering, and our attorneys can explain everything you need to know to make an informed decision.

4. File for Bankruptcy

As we mentioned above, there is also a fourth option that may be available to business owners who cannot afford their daily MCA payments. Filing for bankruptcy can allow businesses to obtain protection from collection action (including legal action) while also eliminating, discharging, or restructuring their outstanding debts. We represent businesses in all types of bankruptcy matters as well, and our attorneys can help you make an informed decision about whether bankruptcy is an option for you.

Protecting Your Business and Yourself During an MCA Default

When facing an MCA default, it is important to be proactive about protecting your business and yourself. Along with choosing the best option for stopping your daily payments, this includes doing things like:

• Limiting Your Personal Liability - Many merchant cash advance agreements include personal guarantees. If your MCA includes a personal guarantee, you may be personally liable for your company’s debt.
• Responding to Your MCA Lender’s Lawsuit - If you stop your daily payments, your MCA lender may file a lawsuit to recover the full amount you owe. You must respond to this lawsuit, or the court may enter a default judgment against you.
• Continuing to Do Business with Your Customers - If you stop your daily payments, your MCA lender may also file UCC-1 financing statements with your company’s customers in an attempt to collect. To avoid issues with your customers, you may need to fight to protect your company’s right to receive its customers’ payments.