How to Avoid Default on a Merchant Cash Advance with a UCC Lien
Introduction
Merchant cash advances (MCAs) have become a popular financing option for small businesses; but they come with risks, like the potential for default and UCC liens. If you’re struggling to repay an MCA, don’t panic – there are steps you can take to avoid the nightmare of default.
Understanding Merchant Cash Advances
An MCA isn’t a loan, it’s a lump sum payment in exchange for a percentage of your future receivables. Sounds simple, right? Well, not quite. MCAs often come with confusing terms, sky-high interest rates, and aggressive collection tactics.
The Dangers of Default
If you miss too many payments, the funder can take serious action:
File a confession of judgment against you
Freeze your bank accounts and merchant accounts
Place UCC liens on your business assets
A UCC lien gives the funder a legal claim to your assets if you default. Yikes.
Steps to Avoid Defaulting
1. Understand Your Agreement
Read that MCA contract carefully. Know the terms, fees, and consequences of missed payments. If anything’s unclear, ask!
2. Renegotiate If Needed
If you’re struggling, talk to your funder ASAP. Some may agree to:
Temporarily reduce payments
Extend the repayment period
Settle for a lump sum
Being upfront shows you want to resolve it. That’s better than ghosting them.
3. Seek Professional Help
Consider hiring a lawyer who specializes in MCAs. They can review your contract, communicate with funders, and potentially renegotiate better terms.
4. Explore Alternative Financing
If you can’t renegotiate, look into other funding sources like:
Small business loans (lower interest rates)
Lines of credit
Invoice factoring
Using new capital to pay off the MCA could save you money long-term.
5. Prioritize Payments
While exploring options, stay current on MCA payments if possible. Missed payments make default more likely and could violate any renegotiated terms.
Avoiding Future MCA Pitfalls
The best way to avoid MCA default? Be cautious about taking one out:
Understand the true costs (APRs can exceed 100%!)
Have a solid repayment plan
Consider other funding first (small business loans, investors, etc.)
MCAs can provide fast cash, but that convenience comes at a steep price. Do your homework first.
The Bottom Line
Defaulting on an MCA is stressful, but not the end of the world if you act quickly. Renegotiate if possible, seek legal help, and explore alternative financing. And in the future? Approach MCAs with extreme caution – the risks of default are very real.