Defaulting on a merchant cash advance: What you need to know

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Home » Business Finance » Defaulting on a merchant cash advance: What you need to know

A merchant cash advance is an important source of quick income for a large number of UK industries. The process frees up available capital that companies can invest immediately and pay back through percentages of their credit card transactions on a weekly or monthly basis.

This loan system works best for companies that receive  consistent cash flow through their card transactions; bars and restaurants are a prime example of the type of company that benefits the most from merchant cash advances.

Every business, even the most successful, will see sales fluctuate throughout the year through no fault of their own. These fluctuations can simply be seasonal and can be predicted, some can be more spontaneous and difficult to plan for, like the COVID-19 lockdown response, for example.

Merchant cash advances are easy to obtain compared to other more traditional loans. If you default on any repayments, however, it can adversely affect your business.

Personal Guarantee

By defaulting you may be sued by your lender. Part of the agreement for your merchant cash advance includes a personal guarantee; this means if you fail to pay back your loan the lender has full authority to take your finances.

Bankruptcy and Debt Collectors

The steps that occur if you fail to repay your loan are clear; your credit score will go down, making it harder to source funds in the future and could make it difficult to deal with your bank. Business will also feel as though they have to file for bankruptcy. From there lenders will send debt collectors to your business to collect your outstanding debts through your equipment and other resources.

This is why it is vitally important for businesses to assess in advance how they are going to make their repayments to ensure they don’t get into financial difficulty.

With Quote Goat you can compare merchant cash advances to ensure that your business qualifies under the right criteria.