Escape the MCA trap.

While we do not recommend stiffing anyone who has lent you money, you do have strategies available to escape the MCA trap. You either exit the MCA or workaround the MCA. But first, know what you are getting into.

Look for warning signs before you sign the MCA.

• Confessions of Judgment (COJ): Some contracts include a COJ. A COJ allows funders to seize your bank accounts or assets almost automatically if you miss payments.
• UCC Liens: Funders typically file a UCC-1 lien against your business (UCC is Universal Commercial Code; a collection of laws that regulate transactions across the United States). A UCC lien can prevent you from getting any other financing until the MCA is resolved.
• Revoking ACH Authorization: You can technically stop the automatic withdrawals through your bank. However, doing so without a legal strategy can trigger an immediate default and lawsuit.

Exit the MCA

To get out of an MCA typically involves negotiating a settlement, refinancing with cheaper debt, or using legal challenges to restructure the agreement. Because MCAs are technically “purchases of future sales” rather than traditional loans, you do not get the same protections that borrowers do. 

• Negotiate a Lump-Sum Settlement: This is often the fastest exit. MCA funders may accept 30% to 60% of the remaining balance as a one-time payment to close the account.
  • Funders often prefer a guaranteed smaller amount today over chasing a defaulting business through court.
  • Action: Always get settlement terms in writing before sending funds to prevent the funder from claiming the deal wasn’t authorized.
• Request Reconciliation: If your sales have dropped, most contracts have a “reconciliation” clause. You can legally request that the funder reduce daily withdrawals to accomodate actual current revenue.
  • Action: Submit bank statements showing the revenue decline to your funder in writing.
• Legal Challenges (Usury/Recharacterization): Many MCAs are structured like loans with enough similarity that they may violate state usury laws.
  • Attorneys can challenge these MCAs in court, especially if the contract lacks a mandatory reconciliation clause or includes illegal “Confession of Judgment” (COJ) terms.
• Bankruptcy: Chapter 11 or Subchapter V bankruptcy can stop all collection efforts immediately, allowing you time to restructure or discharge the debt. 

Work around the MCA

With daily automatic withdrawals, MCAs can cripple your cash flow. Business owners regularly miss payroll, cannot pay rent or suppliers, and miss other critical obligations because of large, daily autodebits that go to the MCA first thing every morning.

The MCA is not your only financial responsibility. You can take back some control over your revenue and cash flow.

• Buy and sell using cash whenever possible. Incentivize cash sales by offering discounts to customers who pay in cash, and pay bills to suppliers in cash. Sometimes, transacting outside your bank account is the only way to get the breathing room you need to dig out of a financial hole. Just don’t let your accounting get sloppy in the process. Keep receipts and keep your books up to date. 
• Re-negotiate the draws if it is one MCA. If you have stacked (two or more) MCAs, it may be necessary to negotiate them into a single, manageable plan where payments are made monthly or weekly. There are companies that specialize in renegotiating and restructuring MCAs.
• Pay bills out of another corporation or LLC until you have paid off or otherwise discharged the MCA. 
• Look for alternatives. If you can borrow to escape the MCA trap, use a comparison shopping platform. 

MCAs can be useful, and can provide a financial lifeline in an emergency. But they are not a suitable solution for many businesses. 

If you have credit issues but regular revenues and are in a position to pay back an advance quickly, an MCA could provide a financial bridge. It is a toll bridge, but if it can make future operations or expansion possible, you should consider it.

One Click Advisor offers many choices for small business funding, and those include MCAs. See what your options are today.

If you have questions or doubts about your financing options, just ask. Click here, set up a call, and we will answer your questions. 

Whether it is an MCA or any other financing, we encourage you to enter any transaction as knowledgeable as possible.

For additional information, please see Part 1 and Part 2 of our series, The lowdown on Merchant Cash Advances (MCAs).