What happens if you stoppaying a merchant cash advance?
The consequences come first on this page, in the order funders usually follow. It is not a how-to, and it is not a recommendation.
Key points
- Under many MCA contracts, a missed draft, a blocked ACH, or a changed bank account is a default.
- Default usually brings fees and acceleration, which can make the whole balance due at once.
- A judgment can lead to a restraining notice that freezes a business bank account without warning.
- Stopping payment does not cancel the debt, remove a UCC lien, or stop the other advances drafting.
- If you have been sued or are deciding whether to stop paying, speak with a licensed attorney first.
What typically follows, in order
Every contract is different, but the sequence funders follow is well documented. It usually runs in this order, and a step can be skipped or come faster:
- Default. A missed or returned draft, a blocked ACH, or a changed bank account is a default under many MCA agreements. Stopping the ACH does not cancel the debt.
- Fees and acceleration. Default fees are added and the contract often makes the whole remaining balance due at once.
- Collection calls and a default notice. The funder or a collector calls and sends a default notice or demand letter.
- Notices to your customers. A funder holding a UCC-1 may send UCC 9-406 letters telling your processor or customers to pay it instead.
- A lawsuit, or a judgment. The funder sues, often in the court its contract names, or uses a confession of judgment where one was signed and the law allows it.
- A frozen account. After a judgment, a restraining notice can freeze the business bank account without warning.
- The guarantor. If you signed a personal guarantee, the funder can pursue you personally as well.
What stopping payment does not do
It does not cancel the debt, remove a UCC lien, or stop a funder from suing. It does not pause the other advances in a stack, which keep drafting, and it can turn a business that was current on most positions into one in default on all of them if the contracts cross-reference each other.
It also changes what is possible afterward. A business that is current has more options than one already in collection, and a judgment narrows them further. A UCC lien or a judgment does not rule out MCA debt relief, but it changes the order of operations and who has to be involved.
When a licensed attorney comes first
If you have been served with a lawsuit, if a judgment has been entered, if your account is frozen, or if you are deciding whether to stop paying at all, speak with a licensed attorney in your state before you act. Deadlines to answer a lawsuit are short, and what you can do depends on your contract, your state, and where the funder filed.
Anchor Resolve is not a law firm and does not tell anyone to stop paying a funder. When an owner asks, we explain the consequences first, in this order, and we refer legal questions to a licensed attorney. The default timeline guide covers each stage in more depth.
Common questions
Does stopping my MCA payments cancel the contract?
No. Stopping payment, including blocking the ACH, does not cancel the debt. Under many MCA contracts it is itself a default, which can trigger default fees, acceleration of the full balance, and collection.
Can an MCA funder freeze my bank account if I stop paying?
After a judgment, a funder can serve a restraining notice that requires your bank to hold the money in the account, and the bank complies immediately. A judgment can come from a lawsuit or, where one was signed and the law allows it, a confession of judgment. Speak with a licensed attorney in your state.
Will Anchor Resolve tell me to stop paying my funders?
No. Anchor Resolve does not tell anyone to stop paying a funder. When an owner asks about it, we explain the consequences first and refer legal questions to a licensed attorney. Anchor Resolve does not negotiate with funders, does not hold client funds, and is not a law firm.
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Thinking about stopping a payment?
Hear the consequences for your own contracts first. We walk through them in order, and we tell you when a licensed attorney should be your first call.
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