You’ve missed a payment on your merchant cash advance. First, don’t panic. It happens. You aren’t the first, and you won’t be the last. Look, missing one payment doesn’t mean you’re doomed. The key is speed. At Delancey Street we talk with owners in exactly this spot, and how you respond in the next few days will determine whether you can fix this early, or whether it gets worse. The worst thing you could do is nothing. Inaction leads to panic, and that leads to bad decisions.
What You Signed
Before you can fix it, it helps to understand what you signed. A merchant cash advance is a cash advance. The advance, plus the fee, is repaid with a percentage of future debit and credit card sales. Rather than lending you money, the funder buys a portion of your future sales for a period of time: the merchant surrenders the right to a percentage of his or her future credit and debit sales in exchange for the lump sum of money. The holdback is the percentage of every debit and credit card sale that the business hands over to the merchant cash advance provider. The holdback pays back the advance, plus the fee, over time. The fee itself is usually expressed as a factor rate. They’re used by early start-ups and small businesses that can’t qualify elsewhere, sometimes because of a bad credit score or unstable revenue. It’s often been a step they had to take when there was very little other choice.
Imagine you run A+ Construction Co. You’re six weeks into an eight-week project. Five weeks into the job, your crew strikes a gas line. After a costly repair, you’re now $8,000 over budget and struggling to make payroll. You don’t qualify for a traditional business loan. So you turn to a merchant cash advance. You agree to a $10,000 advance with a 20% holdback. For the next eight weeks, your funder collects 20% of every card sale. With a factor rate of 1.35, you’ll end up paying back roughly $13,500.
That’s the catch. MCAs can be very, very expensive. The fees and repayment structure can translate to rates as high as 350%. The deal is that there’s no regular interest rate, so the implicit rate is very high. What’s meant to be a short-term fix can quickly become a long-term financial problem, and owners often end up stuck in a cycle of debt with no way out. Many people and regulators agree that MCAs should be banned. The counter argument is that they allow struggling companies who wouldn’t pass underwriting at a bank to get the funding they need to stay alive.
Funders call this an advance, not a loan. They’ll say they’re “purchasing future sales.” It’s wordplay, but it lets MCA providers skirt the licensing rules lenders have to follow. That matters when you fall behind. And because most MCAs aren’t treated like consumer debt - unlike credit cards or personal loans - federal consumer protections usually don’t apply. The result? Collection tactics can be more aggressive than they would be for personal debt.
The Consequences Can Be Serious
This isn’t meant to scare you. There’s no harm in learning what to expect, though. Understanding the repercussions can help you see what you’re up against and equip yourself with the right knowledge to deal with it. If you can’t keep up with your payments, the consequences can be serious: penalties and fees from the provider, legal action, asset seizures, damage to your credit score, and more. None of this makes catching up any easier. Don’t abandon your business, don’t run away, don’t go into hiding.
Most Fixes Come Down to Three Moves
So what do you actually do? What’s important is that you start fixing things now. Get on the phone with your provider and tell them what happened. Be honest. Don’t let the chain of events snowball. From there, most fixes come down to three moves. First, try to secure conventional financing to replace the advance or cover the missing payment. The second is to modify the terms with the provider so the payments can be adjusted and repaid in a way that won’t choke off future cash flows. The third is to rework the business plan so that you can still pay back on time. Get a good grip on your budget. Are there any unnecessary expenses you can cut back on? How can you restructure your strategy for the coming days, weeks and months, so you can continue to operate and still pay down the outstanding balance? And through all of it: Keep selling. Keep working.
If you’ve tried all of that and still can’t get current, or can’t stay current, get advice as soon as possible so you can assess your risk. Remember, urgency beats guessing. One missed payment may feel like a slight hiccup, but it would be wise to schedule a consultation right away. The main goal here should be to avoid a minor crisis escalating to a major one.
At Delancey Street, we are a business debt settlement company. We’re not a law firm. We help business owners settle debt with merchant cash advance funders and other creditors. We negotiate for less than the total balance due, and we won’t try to sell you another loan. If the best path forward is a lawsuit or bankruptcy, we’ll refer you to an independent attorney. Our first consultation is free and confidential. Call while it’s just one missed payment.
