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The Ultimate Guide to MCA Debt Relief

loan default form introducing the topic of mca debt relief

For business owners, maintaining a healthy cash flow is vital to the success and longevity of their enterprise. One financing option that has become increasingly popular in recent years is the Merchant Cash Advance (MCA). While it can offer a quick source of capital for businesses, an MCA comes with disadvantages that business owners need to weigh carefully.

Here’s what you need to know about MCA debt relief and how Rise Alliance can help.

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What is a Merchant Cash Advance?

A Merchant Cash Advance is a financing option in which a business receives a lump sum of cash upfront in exchange for a percentage of its daily credit card sales. An MCA is not a loan, so you don’t need collateral like real estate or other substantial assets to get access to funds. This type of financing is different from a traditional loan in complex ways that are often not explicitly stated and can cause confusion when attempting to compare apples to apples.

For one thing, the repayment amount on an MCA is calculated using a factor rate that generally ranges from 1.1 to 1.5. Factor fees are calculated only once using the original loan amount. The lender calculates all interest due and divides it evenly among your scheduled payments.

Traditional loan interest is calculated with APR and uses amortization, meaning the interest payment decreases in relation to the decreasing principal over time. As you will see shortly, the different formula used for MCAs results in much higher payback amounts than most business owners realize because the math is – perhaps intentionally – ambiguous.

Another major difference is the fact that traditional loans are usually paid back monthly over a term of three to five years. Merchant Cash Advances, on the other hand, are paid back either daily or weekly – via automatic withdrawals from your merchant processor – over much shorter payback periods. Most standard MCA contracts range from 90- to 180-day payback terms.

On the positive side, MCAs are known for their quick approval process and the ease with which most business owners can attain one. Let’s take a look.

The Pros of Merchant Cash Advances

While strong personal and business credit scores are necessary for traditional loans, qualifying for an MCA has more to do with revenue generation and how long you have been in business. Furthermore, Merchant Cash Advances don’t require collateral, so businesses that don’t qualify for other funding sources – such as a term loan or a business line of credit – can still get a cash injection.

The application process for an MCA is easy: Apply online by uploading the required documents, such as bank statements and tax returns, and usually, within 24-48 hours, you’ll receive a lump sum payment.

The Cons of Merchant Cash Advances

Interestingly, we can start analyzing the cons by revisiting the pros we discussed above. Many businesses seeking MCAs can’t qualify for other types of loans; often, this is because they are already overleveraged. Entering into a lending relationship with a business that is barely keeping its head above water might be considered predatory.

Consider also the relief many business owners feel that they don’t have to leverage assets in order to get the advance. Most don’t realize, due to the complexity of the contract, that the advance is personally guaranteed for a flat amount daily/weekly, irrespective of the agreed-upon percentage of daily/weekly sales. This means a certain amount will be withdrawn every day, even if the business barely manages to cover that amount in sales.

As discussed above, MCAs are also far more expensive than most business owners realize because they are used to thinking in terms of APR. It’s not uncommon to look at the payback amount calculated at a 1.4-factor rate and assume it’s equivalent to a 40% APR. In reality, it is much higher. To make matters worse, because their products are not considered loans, MCA companies are unregulated and are, therefore, unlikely to amend their policies anytime soon.

Finally, if a business is unable to meet its contractual obligations with the MCA lender, it may seek additional advances to cover the original debt. Merchant Cash Advance companies seemingly never say no, so many businesses find themselves “stacking” multiple MCA positions to try and get back on their feet. Others seek MCA consolidation options, but these are only marginally better than stacking.

What Happens When You Default on a Merchant Cash Advance

Of all the undesirable attributes of an MCA, the collection tactics used if an owner defaults are by far the worst. We have heard innumerable stories of MCA funders becoming aggressive and litigious, putting many merchants at risk of closing their doors.

Their methods include calls to the owner that border on threatening, as well as sending 406 Lien Notices that enable them to:

  • Freeze the business owner’s bank accounts (both business and personal)
  • Freeze the business owner’s credit card processors (ie: Stripe/Square/Shopify etc.)
  • Directly contact customers and demand payment of funds due to the business

Obviously, these actions can bring a business to its knees and permanently damage the trust between the owner and his or her clientele.

Where Other Debt Resolution Companies Fail

The majority of the debt settlement industry follows the model that worked 10 years ago prior to the emergence of the current MCA industry. The model consists of building up cash reserves in an escrow account with the intention of presenting the creditor companies with lump sum offers to secure discounts on the principal. This model is effective with unsecured debt, such as credit cards, vendor debt and equipment leases. But it doesn’t work for businesses in need of MCA debt relief.


Remember those aggressive collection tactics? They’re highly effective at making MCA debt a priority over other unsecured debt in terms of repayment. Taking the time to build up a reserve of cash leaves owners vulnerable to MCA creditor attacks, and the damage they can do in that time can be a business’ undoing.

The RISE Program: MCA Debt Relief with Everyone’s Best Interest in Mind

At Rise Alliance, we don’t believe in simply stalling creditors while you save for a settlement. We take immediate, proactive steps to work directly with your creditors to fully resolve your business debt and personal guaranties. By engaging with creditors, rather than actively working against them, we protect your business and its cash flow, paving the way for a brighter financial future.

No matter the makeup of the debt schedule, Rise Alliance can help with your MCA debt relief. Our proprietary RISE Program involves Restructuring, which preserves business value – as opposed to taking on more debt, filing bankruptcy or closing your company doors. We also proactively Insulate your cash flow, operating accounts, receivables and customers from creditor interference. Then, together, we Strategize to create the clearest path for you to Emerge from distress by settling the majority of your debt and resolving your personal guaranties.

The RISE Program offers an ethical alternative to bankruptcy. Because when your business succeeds, everybody wins.

If you are a business owner in need of MCA debt relief, schedule a complimentary consultation with one of our advisors today.

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