If a merchant cash advance has gone from lifeline to millstone, the question on your mind is probably not about fees or paperwork. What you need is information - clear, honest, and straightforward. You want to know if you can run your business and still get out of debt. You want to know what you can actually expect. In short, you can absolutely continue running your business while enrolled in an MCA debt relief program. You will be responsible for running all aspects of your business once enrolled in an MCA debt relief program. This includes managing your daily operations, finances, and hiring employees. That doesn’t mean that it’s a picture perfect situation. To see why, it helps to look at how so many owners ended up here.
A Boom in Borrowing
The pandemic and its financial fallout hit every business, big or small, and created a crunch everywhere. With the labor shortage caused by illness and lockdowns, smaller owners who didn’t have much capital sitting around found themselves scrambling to keep their bills paid and their employees on the payroll. There’s been a boom in borrowing, with credit lines stretched to keep doors open and people on the books. Not all creditors are created equal. For small businesses who had no access to any other type of financing, the MCA could seem like the only real choice. A merchant cash advance may give you the cash you need, but it also opens you up to financial ruin.
The basic problem is that you’re borrowing against revenue you hope to get in the future, which is always a little precarious. Future sales are never guaranteed. There is no obligation on your customers to pay you. To make matters worse, when the pandemic hit, many businesses simply weren’t generating enough revenue to make those payments, and it became a disaster. Many couldn’t repay what they’d borrowed, leading to a rise in defaults.
MCA Agreements
Then there are the terms. MCA agreements don’t have a very forgiving repayment structure and aren’t designed to allow a small business to miss a single payment. In many contracts, missing even one payment can put you in default, which means you aren’t in compliance with the terms of the agreement. A late payment can do the same thing. And when a merchant cash advance goes bad, the consequences can be immediate and severe. If you default, the company can sue you for more money than you owe. In turn, they can eventually seize your company’s assets if they so choose.
That, more than any relief program, is the real threat to your ability to keep operating. Owing debt might mean that certain business decisions need to be tabled until you can afford to pursue them. It could also mean that some aspects of your company’s operations might be put on hold until you get the cash flow situation straightened out. But if you’re currently behind on payments, waiting to see what happens isn’t a good idea. And you should never ignore anything in the way of a letter from a creditor. Take it seriously.
Cut Your Costs, Try to Negotiate with Other Creditors
When a business starts to lose money, the easiest thing to do is cut payroll or trim other costs. Many owners held off layoffs in the midst of the pandemic, trying to keep struggling parents and providers employed. But as the financial pinch has grown, more businesses are forced to make the call. With fewer resources to fall back on than in earlier stages of the pandemic, many are doing this with a heavier heart. If your business isn’t performing well, it’s important to measure the impact. Another option might be to shop around for better prices on your supplies. Look into new suppliers and ask existing ones for discounts if you can. Just remember: if you decide to make any changes to your team, try to explain what’s going on and be upfront about your financial situation. There’s no need to share precise figures, but just a heads up about how things are going will help your people understand.
Not all of the owners caught in the MCA crossfire were careless. Some were approached for an advance without knowing the risks. Some knew the risks but didn’t truly understand them. And others understood the risks but were in such dire financial straits they had no other options. Undoubtedly, some owners would have made different choices if they knew exactly what to expect. Whatever your situation, there are ways to cope with the aftermath of default.
One way to manage your outstanding debts is to negotiate with creditors. If your company has a merchant cash advance, chances are high that the lender will not negotiate. However, other creditors that your business works with may be. No one wants to jeopardize ongoing business relationships. If you can open up cash flow there, you will have room in your monthly budget to continue payments on the advance, which would be the goal. A lawyer can help explain your negotiation options.
Bankruptcy is still often viewed as an absolute last resort. However, a bankruptcy attorney can help you evaluate how bankruptcy may help you secure a fresh start. Chapter 11, in particular, may be appropriate for small businesses facing more debt than they can reasonably overcome. A positive outcome depends on getting advice from an experienced bankruptcy attorney.
In an ideal world, every business owner who took out a merchant cash advance (or MCA) would get their business back on track and have nothing but growth on the horizon. That is not where everyone finds themselves in 2026. But dealing with MCA debt does not mean shutting down. In fact the whole point is that you can keep running your business, keeping your doors open and your employees on payroll. Where the business gets into trouble is when you let a default happen and do nothing. Do something early, cut your costs, try to negotiate with other creditors, and talk to an attorney about a Chapter 11.
