When you default on a merchant cash advance (MCA), your business can be negatively affected. This is because many lenders have the right to pursue legal action. A successful lawsuit against you could include judgments that go beyond just your original business debt but could also impact your personal finances.
What happens if you don’t pay back a cash advance?
A merchant cash advance is a short-term loan that is secured by a business's credit card transactions and/or future receivables. However, what happens if your future receivables decline for reasons such as
Not getting paid by clients
An unexpected expense arises
The business is entering into a slow season
In the event that you do not make payments on your merchant cash advance, your merchant cash advance provider can legally pursue you. They can come after your business and personal assets.
Seize business assets
When you default on an MCA Loan, the lender can seize business assets due to the confession of judgment agreement (COJ). The confession of judgment is an agreement between the MCA lender and the borrower (business) that permits a lender to go after your resources if you fail to pay back the loan. This clause is in the interest of the lender. It allows them to get repaid quickly while avoiding lengthy court proceedings. The COJ clause may even be triggered by a late payment in more aggressive agreements.
Personal assets at risk
The biggest risk of an MCA is defaulting on a personal guarantee for the loan. A personal guarantee is a promise that an individual will repay the debts of a business if the company itself fails to do so. It is designed to protect creditors against the risk of default. If you do not pay on an MCA loan that has a personal guarantee it can impact:
Personal credit score
Ability to get a future loan due to high debt-to-income ratio
Interest rates on future loans
Your spouse if it goes into collections
If you default on an MCA loan, the business owner could lose their personal assets and even face personal bankruptcy.
YOUR BUSINESS MAY BE ABLE TO MODIFY THE REPAYMENT PLAN IF IT IS HAVING TROUBLES REPAYING THE CASH ADVANCE
How to avoid merchant cash advance lawsuit
There are many clauses that protect the best interest of the lender, which can be understandable since they take on the biggest risk by providing an unsecured loan. However, when a small business works with MCA debt specialists, like Callee Debt Solutions, the business owner's best interest is our main concern. Since we have relationships with 80 - 90% of lenders on the market we have more insight into what repayment options are possible and best for each client's unique circumstance. Our team of merchant cash advance attorneys helps businesses manage financial stress by negotiating on their behalf to get out of debt faster.
One of the main reasons why companies choose to work with a Merchant Cash Advance debt relief company is to protect their company. Defaulting on a MCA loan can result in the loss of business and reputation. Get in touch with us today to see if you qualify for our business MCA Debt relief program.
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