What Constitutes Default
Default on a merchant cash advance typically occurs when the daily ACH withdrawal fails due to insufficient funds. But most contracts define default broadly. Beyond missed payments, default can be triggered by closing or changing your bank account without consent, failing to maintain a minimum balance, filing for bankruptcy, experiencing a material change in business operations, breaching any other contract provision, or defaulting on a different MCA through a cross-default clause.
The Default Timeline
- Day 1-3: ACH fails. The funder retries and calls demanding payment.
- Day 3-7: Formal notice of default demanding the entire remaining balance.
- Day 7-14: If a COJ exists, the funder files it. Otherwise, lawsuit preparation begins.
- Day 14-30: Legal action starts. Lawsuits filed, bank restraining notices issued.
- Day 30-60: Default judgments entered. Bank accounts frozen. Funder may contact your customers.
Immediate Consequences
The full remaining balance becomes due immediately. Default interest and fees kick in. Your personal guarantee becomes immediately enforceable. UCC liens are enforced, blocking access to business assets. Your ability to obtain any financing is effectively frozen.
What to Do If You Have Already Defaulted
- Do not panic, but act immediately. Every day of delay reduces your options.
- Contact an MCA attorney today. The enforcement timeline moves in days, not months.
- Gather all documents. MCA agreement, communications, bank statements showing every payment made, and evidence of any promises made by the funder or broker.
- Do not make promises to the funder you cannot keep. Partial payments without legal counsel can waive defenses.
- Do not transfer assets. Moving money to avoid the funder can be treated as fraudulent conveyance.
Default Is Not the End
Most MCA defaults are resolved through settlement, often for significantly less than the full balance. The funder knows that pursuing and enforcing a judgment is expensive and uncertain. They would rather negotiate. But that negotiation only works with legal representation and a strategy.