Defaulting on a merchant cash advance (MCA) generally triggers a sequence of escalating consequences, starting with collection calls and demand notices, and potentially moving toward legal action, including a lawsuit or an attempt to enforce a confession of judgment. What actually happens in your specific situation depends heavily on the terms of your MCA agreement, whether you signed a personal guarantee, and how quickly you address the default.
At Poltielov Law Firm P.C., we help Queens business owners understand exactly what they’re facing after an MCA default and what options remain available to them. If you’ve fallen behind on merchant cash advance payments, call our merchant cash advance defense attorneys today at (718) 520-0085 to speak with our team.
Falling behind on an MCA doesn’t automatically mean your business is in serious trouble, but understanding how these agreements work, and how default actually gets triggered, is an important first step in figuring out your options.
Merchant cash advance agreements often authorize daily or weekly ACH debits from a business bank account. Although an MCA is commonly described as a purchase of future receivables rather than a traditional loan, the scheduled debits may be fixed unless the agreement includes a reconciliation or adjustment provision.
Some MCA agreements include a reconciliation provision intended to adjust payments when business receipts decline. Whether that option exists, how it must be requested, and whether the funder followed the agreement are fact-specific questions.
Whether a missed payment constitutes a default depends on the MCA agreement. Depending on the contract, a claimed default may involve a failed ACH debit, insufficient funds, an alleged breach of a representation or covenant, interference with ACH access, a change in banking arrangements, or another listed event. Reviewing your specific agreement is the only way to know exactly what triggers default under your particular contract.
Once you’ve fallen behind, several things typically start happening in fairly short order.
Expect an increase in calls, emails, and formal demand notices from the MCA provider or a collection agency working on their behalf, generally seeking payment of the amount owed and outlining the provider’s position on your default.
Depending on your agreement and your account’s status, automatic withdrawal attempts may continue even as you fall behind, adding further pressure to an already strained cash-flow situation. This cycle of continued withdrawal attempts against a struggling account is often part of what makes an MCA default feel so overwhelming for business owners.
Depending on the agreement, an MCA funder may attempt to communicate with a bank, payment processor, or receivables source regarding ACH authorization, payment processing, or asserted contractual rights. Whether the funder can take a particular step depends on the agreement, applicable law, and whether a court order or judgment has been obtained.
Beyond collection calls, an MCA default can escalate into more formal legal action, and it’s worth understanding these risks clearly rather than being caught off guard by them.
Some MCA agreements include a confession of judgment. This is a document through which a debtor may authorize entry of a judgment under specified circumstances, subject to statutory requirements and potential legal challenges. It can allow a creditor to seek judgment without a conventional lawsuit and trial, but it is not automatically enforceable in every case.
New York law places important limits on confessions of judgment. For example, New York generally may not enter a confession of judgment against a debtor who was not a New York resident when the required affidavit was executed. The agreement, the parties’ circumstances, venue, and procedural history can all affect whether a confession of judgment may be enforced.
Beyond this specific provision, an MCA provider may also pursue a standard breach of contract lawsuit to recover the amount owed.
In the usual post-judgment process, an MCA funder must obtain a judgment before serving a restraining notice or pursuing a bank levy. A restraining notice can restrict access to funds in a business account, while a levy is a step toward collecting funds to satisfy a judgment.
In limited situations, a creditor may seek other court-ordered provisional remedies before judgment. The actual documents received and the procedural posture of the matter determine what action may be available.
Understanding where you actually stand in this process, meaning whether a judgment has been entered against you and what enforcement steps have or haven’t yet occurred, is important for knowing what’s realistically at risk at any given moment.
An MCA agreement may include a personal guarantee, a security agreement, or both. A personal guarantee may allow the funder to seek recovery from an owner or guarantor after an alleged default, subject to the terms of the guarantee and any available defenses.
Whether you signed a personal guarantee, and what it actually says, significantly affects whether the funder may seek recovery from personal assets separate from the business. This depends entirely on the specific language of your agreement and the circumstances of your default, so reviewing your actual contract is essential rather than assuming either way.
If your business is struggling to keep up with MCA payments, consider these steps:
Facing an MCA default can feel isolating, especially when collection calls are increasing and you’re not sure what legal exposure you’re actually facing. You don’t have to sort through confession of judgment provisions, personal guarantee language, or collection procedures on your own.
Our team helps business owners throughout Queens, as well as Brooklyn, the Bronx, and Nassau County, understand exactly what an MCA default means for their specific situation and what defenses or negotiation strategies may be available. If your situation also involves a loan modification or overlaps with broader real estate litigation, our team can help you understand the issues affecting your business and property interests.
Our attorneys can review your specific agreement and help you respond to a default before it escalates further. Contact Poltielov Law Firm P.C. at (718) 520-0085 today to discuss your situation.
