What is an MCA servicing company? Is it possible to negotiate with a MCA servicing company? If you took a merchant cash advance and your sales have dropped, those are probably the two questions keeping you up at night. In short, servicing of the advance is the process of collecting the repayments owed under the advance agreement. The servicing company is the funder that bought a share of your future receivables, and it usually collects through automatic debits from a merchant’s bank account (ACH payments). The MCA company is not your bank. It also has obligations of its own, and most owners never hear about them. An informed company owner should be asking more questions, and always question what you are being told.
An MCA Is Not a Loan to the Merchant
Start with how the deal is built. Since MCAs are purchases of future receivables, the merchant must earn the sale for the merchant to owe the MCA advance. An MCA is not a loan to the merchant. A loan is a debt obligation that a merchant agrees to pay, regardless of the business’s sales. An MCA is different, because under every MCA contract your duty to pay depends on your business earning receipts. So if the contract calls for the merchant’s duty to pay to be tied to the merchant’s receipts, and the merchant makes no receipts, the merchant is not obligated to pay. Plain and simple. Funders have a strong reason to respect that. If a court recharacterizes the transaction as a loan, the MCA is subject to all the usury rules, and in some states licensing requirements come into play as well. The problem is when funders keep taking payments once the debtor has stopped earning.
Some MCA contracts have a reconciliation clause. The standard clause reads something like this: If you have a low-sales period, you can request a lower payment daily, but only if you wait a certain number of days (such as 30 days) and then request the lower payment. Guess what nobody ever tells you? If your business is closed, the funder has no right to any payments whatsoever, despite the fact that that contract provides a 30-day waiting period, and it should not be labeling your missed payments as a default.
A Warning to All Funders
The risk for funders is not theoretical. In October 2016, Hurricane Matthew moved up Florida’s east coast. On October 5, Governor Rick Scott declared a state of emergency and issued evacuation orders, which included parts of Palm Beach County. The owner of a merchant in Palm Beach County had signed an MCA two weeks prior to the hurricane. Due to the evacuation order, the business was closed. The merchant called the number in his contract to notify the funder that he would no longer be receiving receipts. Despite the call, the funder allegedly continued to collect daily ACH payments. The business lost its perishable inventory and ultimately went out of business. The funder then sought a judgment by confession. The court found that the contract was a usurious loan.
The court wrote that if the funder had truly considered the risk of loss, it would have considered the effect of a hurricane and a declared state of emergency on its right to collect from the merchant. In the court’s view, because the funder thought it could count on repayment whatever happened, this was a loan. That case serves as a warning to all funders that view with dread a lost day’s collection.
The same lesson came back during the pandemic. Lawyers advising MCA funders instructed clients to stop ACH debits from merchants that no longer had revenue when COVID-19 forced non-essential businesses to close. They also told them to reduce payments to merchants that had dropped revenue even if their contracts didn’t explicitly call for it. If your sales have fallen, you should absolutely ask your funder for that reduction. After all, the funder’s lawyers thought it was a good idea.
The same guidance covered two other traps. First, while many MCA agreements prohibit the merchant from obtaining other loans or financing, if the government is providing emergency business loans, funders should not consider that to be an event of default. Second, government aid should not be included as income for a reconciliation or payment, even if the contract term might literally include it. The idea of an MCA is to purchase receivables, not government aid.
Regulators are paying attention as well. The FTC has been focused on the industry and released a Staff Perspective. The purpose of the Staff Perspective is to outline the FTC’s concerns about the Merchant Cash Advance (“MCA”) industry. Among these concerns is the perceived inadequacy of funders’ services related to MCAs. Put simply, careless servicing of MCA transactions could come back to bite a funder. Unscrupulous practices could draw scrutiny from the regulator and lead to lawsuits alleging unfair practices on the part of the funder.
Reduced Payment
So, can you negotiate with an MCA servicing company in 2026? Yes. Those examples came out of emergencies, but the rule underneath them is part of every MCA: payment depends on receipts. If your sales drop, you should be able to make a lower payment. It should be obvious that you are not negotiating a loan, since you didn’t take out a loan. The funder has a strong incentive to follow the same guidance, otherwise they risk having their contract declared a usurious loan by a court. While you are not legally obligated to renegotiate, knowing how your funder is positioned can make a significant difference in the negotiations.
Begin by documenting your current sales volume and comparing it to historical data. Quantify the decrease in sales and its impact on your cash flow. Review your contract and understand any clauses related to sales reductions and payment adjustments. Talk to your funder and ask them for a reduced payment due to the low-sales period. Be sure to document everything and ask for it in writing. If they offer a reduced payment, confirm that it is the correct amount. If the business is closed, say so plainly and ask that the withdrawals stop. Be persistent. Funders don’t always move immediately. Persistence pays.
None of this means you have to do it alone. Delancey Street is a business-debt settlement firm, not a law firm, and working out terms with MCA funders is what we do. If you need help navigating the negotiation process with your MCA funder, we’re here for you. We can help by handling the negotiation process on your behalf, saving you the hassle of communicating and writing emails for every update.
