Getting out of a merchant cash advance

If the daily debits are taking more than your business brings in, work through the options below in order. The first one is free and takes a phone call.

Refinancing, renegotiating, stopping payments or filing for bankruptcy each carry legal and financial consequences, including possible default, lawsuits and personal guarantee liability. This page is general information, not advice. Talk to an attorney before you stop payments or sign a settlement.

Check your reconciliation right first

Some merchant cash advance agreements include a reconciliation clause: the right to have your remittance recalculated against your actual receipts, usually monthly, so it does not stay fixed at the original estimate. If your revenue has dropped, this is the quickest fix and it costs nothing to request. Read your agreement for the word “reconciliation”, or call the funder and ask whether it applies to your contract. An example: a $359 daily debit that was set when you deposited $3,600 a day is a 10 percent holdback. If deposits fall to $2,400 a day, reconciliation should bring the debit down to about $240.

If there is no reconciliation clause, or the funder will not honor it, each option below costs more than the one before.

Do not stack a second advance to cover the first

The usual way a manageable advance turns into a crisis is a second advance taken to cover the debits on the first, then a third to cover the second. Each new advance adds its own daily debit on top of the ones already running. Two advances at $359 a day each take $718 from your account every business day, about $15,500 a month. If you are thinking about a new advance to make payments on an old one, call a nonprofit small business credit counselor or an attorney first. In New York City the offer of a “second advance” can show up within days of the first funding, sometimes from the same broker who arranged it.