Update on Merchant Cash Advances: Quick Money Paybacks Are Still Hell
March 17, 2025
We wrote a blog post a few years ago on the punishing payback terms of Merchant Cash Advances (MCAs). Little has changed since then. In the past few years, we have helped many businesses struggling to stay afloat because of MCA debt reorganizing under Subchapter V. Although each case is different, and we can’t guarantee the outcome, often many companies pay back a fraction of what is owed to their MCA companies.
In a recently, rather large Subchapter V, our client owed approximately $2,245,000 in MCAs. The repayment on the MCAs was driving the company out of business. After the hefty payments to the MCAs, the company had trouble meeting payroll and other necessary business expenses. After we assisted the company in reorganizing, the payback under the plan was $2,245, which is less than 1%.
Of course, results can vary, and other businesses we have represented have paid larger percentages to MCAs. Subchapter V is complicated, and results depend on many factors such as your businesses’ assets and disposable income. This is one reason we take a close look at your circumstances to determine whether a Subchapter V bankruptcy is the best option for your business.
MCAs Are Not Loans
MCAs are an alternate form of financing for businesses. They provide a lump sum of cash in exchange for future sales, accounts receivables, or fixed withdrawals from a business’s bank accounts, plus additional fees.
Despite often being referred to as loans, MCAs are not loans. They are considered commercial transactions and are not regulated under stricter federal laws such as the Truth in Lending Act. This lack of regulation allows MCA companies to charge astronomical rates and impose strict repayment terms that can devastate a business’s cash flow. Many businesses sign on for MCAs without understanding how harsh the payback terms can be.
Bankruptcy Could Save Your Business
At BransonLaw, we have seen firsthand how MCAs can damage small businesses. When cash flow is tight, it’s tempting for business owners to turn to an MCA for quick funding, believing their business will turn around. These financial products are marketed as a fast, easy solution. But in reality, they function like payday loans for businesses—offering short-term relief at the cost of long-term financial hardship.
If your business struggles with overwhelming MCA debt, bankruptcy may be the best option to protect your assets, restructure your obligations, and regain financial stability.
The True Cost of An MCA: Predatory Interest Rates and Hidden Fees
MCAs are among the most expensive financing options available. Many small business owners are unaware that:
APRs for MCAs can range from 70% to 400%, significantly higher than conventional loans.
Unlike traditional loans, MCAs use a factor rate (typically 1.1 to 1.5) instead of an interest rate. So, if you have a $100,000 MCA, the repayment amount ($100,000 multiplied by 1.1 – 1.5) could range from $110,000 to $150,000, depending on the terms of your contract with the MCA company.
The total repayment amount is fixed, which means early debt repayment does not reduce costs.
Additional administrative, underwriting, and processing fees can add to the debt burden.
The Debt Trap: How MCA Repayments Strangle Your Business
MCA repayment terms are often structured in ways that create a vicious cycle of debt. Depending on your contract, repayments may be:
Percentage-based: The MCA company automatically deducts a percentage of your daily credit card sales.
Fixed withdrawals: The MCA company takes a predetermined amount from your business bank account daily, weekly, or monthly, regardless of sales volume.
These repayment methods can devastate cash flow, making it difficult to cover payroll, rent, and other essential expenses. Many businesses take out additional MCAs to cover previous MCA debts, falling into a cycle of borrowing that can spiral into financial collapse.
The Legal Risks Of MCA Defaults
Failing to make MCA payments can trigger severe consequences, including:
Forced repayment: Some MCA contracts allow lenders to obtain consent judgments and seize funds by garnishment directly from your business bank account.
Restraint letters to customers: MCA companies can send restraint notices to your customers directing them to pay account receivables to the MCA company instead of you. This can severely damage your business overnight and could affect your relationship with customers.
Personal liability: If your MCA agreement includes a personal guarantee, the lender may go after your personal assets. Many assets are exempt from collection. We can help you determine what you are facing if MCAs try to collect from you personally.
Act Now if You Are at Risk of Defaulting on MCA Debt
If your business is drowning in MCA debt, bankruptcy can provide a lifeline. It’s essential to act before your business gets into a situation where you cannot pay employees or ongoing business expenses. The earlier you seek help; the more options you have to protect your business and personal assets.
BransonLaw Can Help
At BransonLaw, we specialize in helping businesses restructure their debts through Chapter 11 Subchapter V bankruptcy. Chapter 11 bankruptcy can often provide relief through:
Debt Reduction: MCA debt can often be restructured in a Chapter 11 plan or reduced significantly, more often than not, to a fraction of what is owed, depending on your circumstances.
Protection from Lawsuits: Filing for bankruptcy triggers an automatic stay, preventing MCA companies from suing you or seizing assets, and most often requiring them to release garnishments on bank accounts.
Asset Protection: Business assets can be shielded from aggressive MCA collection tactics. Restraint notices must be lifted after bankruptcy.
Call Us Today if You Are Considering Bankruptcy
Our team of experienced bankruptcy attorneys has assisted many businesses that found themselves upside down due to Merchant Cash Advances. We have assisted businesses in discharging millions of dollars in Chapter 11, Subchapter V. We can help you break free from the MCA debt trap.
BransonLaw is here to guide you through the bankruptcy process to help you protect your financial future and get your business back on its feet. By taking proactive steps now, you can ensure you have access to the debt relief you need. Don’t wait until it’s too late—start the process today to secure a more stable financial situation tomorrow.
We are located in Orlando, Florida, and handle bankruptcy cases throughout Florida. Call us today if you live, own property, or operate a business in Florida and cannot manage your debt. Our goal is to help you understand your options. Call BransonLaw and ask to speak with Jeff Ainsworth and his team. Their goal is to help you, so you can sleep at night.