How Long Will a Defaulted Merchant Cash Advance Haunt My Credit?
If you own a small business and have taken out a merchant cash advance (MCA) to help with operating expenses, you may be wondering what happens if you default on the payments. Unfortunately, defaulting can negatively impact your business and personal credit for years.
What is a Merchant Cash Advance?
A merchant cash advance provides a business with a lump sum of capital in exchange for a percentage of future credit card sales. It functions similarly to a business loan but does not require a personal guarantee.MCAs carry high interest rates and aggressive collection tactics, so they should be used cautiously. If your business struggles and you cannot make the daily payments, the MCA company can place you in default and damage your credit.
How Defaulting Impacts Your Credit
When you take out an MCA, the provider reports it to the business credit bureaus. Defaulting triggers negative reporting that drags down your business credit score.Personal credit damage depends on whether you signed a personal guarantee. If you did, the collections process kicks off against both your company and you as an individual. Expect defaults and collections to show on personal credit reports.
How Long Do MCA Defaults Stay on Your Reports?
For personal credit, MCA defaults typically remain for 7 years from the date you first missed payments. That‘s the maximum time allowed by the Fair Credit Reporting Act (FCRA).On the business side, credit bureaus can legally report defaults for longer. Expect at least 7 years but possibly 10 or more, depending on the bureau.
Strategies for Recovering from an MCA Default
If you defaulted, act quickly to mitigate the damage:
- Negotiate a settlement – Offer the MCA company a lump sum that’s smaller than the full balance owed. This closes the default, stops interest accrual, and limits further credit damage.
- Explore legal options – Consult an attorney about potential defenses, like usury law violations or improper collections practices. You may be able to force the MCA company to settle.
- Rebuild credit – Once accounts are settled, work on repairing your credit by making on-time payments, limiting new credit applications, and not missing any existing payments. Rebuilding takes time but disciplined effort does pay off.
An MCA default can wreak havoc for years if left unchecked. Take control by moving decisively to contain the fallout. The sooner you act, the more potential options you’ll have.If you need personalized legal advice about an MCA default, the attorneys at Delancey Street may be able to help. Reach out at 212-210-1851 for a free consultation. We assist many small business owners struggling with collections and credit damage from defaults. Our dedicated experts can review your situation and explain all available remedies.
