What Is Merchant Cash Advance Debt?
May 22, 2025
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Understanding Merchant Cash Advances
A merchant cash advance is not a traditional business loan. Instead of lending money with fixed interest and terms, MCA providers offer a lump sum of cash in exchange for a percentage of your future daily or weekly sales—typically taken automatically from your bank account. Here’s how it works:
- You receive a cash advance (say $50,000)
- You agree to repay $65,000, deducted as a percentage of daily credit card or total revenue
- The funder takes payments daily or weekly, regardless of your profit margin
What Is Merchant Cash Advance Debt?
Merchant cash advance debt refers to the remaining repayment obligation you owe to the MCA provider after taking the advance. Because these agreements often include high factor rates (multipliers like 1.3 or 1.5), your total repayment can be significantly higher than the original advance.
For example:
- Advance amount: $50,000
- Factor rate: 1.35
- Total repayment: $67,500
- Daily debit: $450/day (based on revenue projections)
Key Terms to Understand 
How MCA Debt Becomes a Problem
While MCAs may seem like a quick fix, many business owners underestimate how fast the repayment schedule can strain cash flow.
Common Issues:
- Daily withdrawals hurt liquidity
- Sales volatility doesn't reduce payments
- Multiple advances (stacking) spiral out of control
- Legal enforcement through confession of judgment
- No breathing room to catch up on payroll or taxes
Is Merchant Cash Advance Debt Legal?
Yes—but it’s also a gray area. Because MCAs are technically not loans, they avoid many of the consumer protections, interest caps, and disclosure requirements that apply to lenders. This gives MCA funders more freedom—but also creates risk for borrowers.
In recent years, some states like California and New York have passed laws to increase transparency and limit the use of confessions of judgment, but enforcement varies.
Can MCA Debt Be Discharged in Bankruptcy?
In some cases, yes. MCA debt may be discharged under Chapter 7 bankruptcy or reorganized under Chapter 11 or Chapter 13, especially if:
- There’s no personal guarantee
- The MCA is classified as an unsecured debt
- The contract is deemed unconscionable or deceptive
Legal Issues with Merchant Cash Advance Debt
MCA providers are known for aggressive tactics, including:
- Filing confessions of judgment to freeze your accounts
- Calling customers or vendors to pressure repayment
- Flooding small claims courts to obtain fast judgments
- Imposing high default penalties and legal fees
What to Do If You're Struggling With MCA Debt
1. Review Your Contracts Carefully
Look for clauses like:- Personal guarantees
- Confession of judgment
- Default interest rates
- Jurisdiction for lawsuits
2. Talk to an MCA Defense Attorney
An attorney can help:- Negotiate reduced payoff amounts
- Challenge unfair contract terms
- File motions to vacate judgments
- Explore debt settlement or bankruptcy options
3. Avoid Taking Out Additional Advances
Stacking new MCAs to pay off old ones will only make the situation worse.4. Explore Legitimate Business Financing Options
You may qualify for:- SBA loans
- Business lines of credit
- Equipment financing
- Invoice factoring
Final Thoughts
Merchant cash advance debt is easy to take on and hard to escape. While MCAs can offer short-term liquidity, the long-term consequences often outweigh the benefits. With high repayment costs, daily withdrawals, and limited regulation, MCA debt has become a major burden for small businesses across New York and the U.S.
If you’re already in trouble, don’t wait for your accounts to be frozen or your business to collapse. Contact an attorney who understands MCA litigation and negotiation. You may have more options than you think.
Frequently Asked Questions (FAQ)
1. What is merchant cash advance debt?
It’s the repayment obligation that arises after a business receives an advance from an MCA provider. The debt is repaid through a percentage of daily sales until the full amount (plus fees) is paid back.
2. Is a merchant cash advance considered a loan?
No. It’s considered a sale of future receivables, which means it’s not subject to the same lending laws. However, courts sometimes reclassify MCAs as loans based on their terms.
3. Why is MCA debt dangerous?
Because repayments are automatic, frequent, and inflexible, MCA debt can quickly consume your business’s working capital—especially if revenue declines.
4. Can I negotiate merchant cash advance debt?
Yes. Many MCA companies are willing to negotiate reduced payoffs, especially if you’re working with legal counsel or a settlement firm.
5. Can merchant cash advance debt be included in bankruptcy?
Sometimes. Depending on how the MCA is structured and whether you signed a personal guarantee, the debt may be discharged or restructured through bankruptcy.
Need help with MCA debt?
At J. Singer Law Group, we help small business owners fight back against predatory funding practices. Contact us today to schedule a confidential consultation.
Learn how Chapter 13 bankruptcy works, how repayment plans are structured, and when Chapter 13 is better than Chapter 7. Discover how homeowners and wage earners can stop foreclosure and reorganize debt.
Filing Chapter 7 bankruptcy in New York can erase qualifying debts and stop collections fast. Learn eligibility rules, the NY filing process, exemptions, and what to expect after discharge.
To negotiate a merchant cash advance settlement, you must first stop automatic withdrawals, understand your contract terms, assess legal risks, and communicate through a structured settlement proposal. Working with an MCA defense attorney can improve leverage and reduce personal exposure.
To find a law firm specializing in MCA defense, look for attorneys who focus on merchant cash advance litigation, regularly challenge MCA contracts, understand New York enforcement tactics, and have experience vacating judgments, stopping bank restraints, and negotiating favorable resolutions.
Chapter 7 bankruptcy income limits are based on the means test, which compares your household income to your state’s median income. If your income is below the median, you typically qualify. If it is above, additional expense calculations may still allow eligibility.
The cost of Chapter 7 bankruptcy generally includes a court filing fee, required education courses, and attorney fees that vary based on case complexity. Total costs depend on income level, assets, and whether issues arise during the case.
Chapter 7 bankruptcy can stop merchant cash advance lawsuits immediately through the automatic stay and may discharge personal liability for MCA debt, depending on the contract and business structure.
To qualify for Chapter 7 bankruptcy, you must pass the means test, demonstrate limited disposable income, complete credit counseling, and meet timing rules related to prior bankruptcy filings. Your assets must also fall within exemption limits.
To find a reputable Chapter 7 bankruptcy attorney, look for a lawyer who focuses primarily on bankruptcy law, has experience handling Chapter 7 cases in your state, offers transparent pricing, and provides clear explanations without pressure or unrealistic promises.
Chapter 7 bankruptcy typically discharges unsecured debts such as credit card balances, medical bills, personal loans, utility arrears, payday loans, and certain judgment debts. It does not usually eliminate child support, alimony, most student loans, or recent tax obligations.