I Have Multiple MCA Payments and Can’t Make Payroll. What Should I Do?
For many business owners, the moment of truth comes when there simply isn't enough money in the account for everything.
Payroll is due Friday. Vendors need to be paid. Rent, taxes, insurance, and other operating expenses aren't going away. Meanwhile, one or more merchant cash advance (MCA) companies are withdrawing hundreds or thousands of dollars from the business account every day or week.
If that's where you are, the problem is no longer simply that your business has debt. Your debt obligations are beginning to interfere with your ability to operate the business.
That's a situation that deserves immediate attention.
Start With the Business, Not the Debt
When business owners get into financial trouble, it's natural to focus on the creditor making the most noise. But the first question should be more fundamental:
Is the underlying business viable if the current MCA payment burden is reduced?
A restaurant that generates enough revenue to pay its employees, food suppliers, rent, utilities, taxes, and other normal expenses may have a very different problem from a restaurant that is losing money before its MCA payments are even considered.
If the business works without the extraordinary debt burden, there may be something worth protecting.
That distinction matters.
Don't Solve an MCA Problem With Another MCA
One of the most dangerous responses to a cash-flow shortage is also one of the easiest: taking another advance.
A new MCA may put enough money in the account to make this week's payroll and catch up a few bills. But now another daily or weekly payment has been added to the business.
Soon, a portion of the new advance is effectively being used to make payments on the old advances.
This is commonly called stacking, and it can turn a manageable financial problem into a crisis very quickly.
If you're borrowing money primarily to service existing short-term debt, it's time to evaluate the structure rather than add another layer to it.
Understand Exactly Where Your Money Is Going
Before making major decisions, create a simple snapshot of your obligations.
For each MCA, identify:
The funder
The original advance amount
The approximate current balance
The daily or weekly payment
The bank account being drafted
Whether you signed a personal guarantee
Whether a UCC financing statement was filed
Then determine how much your business is paying toward MCAs each week and each month.
Owners are sometimes surprised when they see the total.
A company generating substantial revenue can still be starved of working capital when several high-frequency payments are being deducted before the owner has an opportunity to pay ordinary operating expenses.
Don't Ignore Payroll, Taxes, and Essential Operations
When there isn't enough money to pay everyone, the consequences of different obligations aren't necessarily equal.
Missing an MCA payment, failing to fund payroll, failing to remit certain taxes, and losing an essential supplier can create very different problems.
This is one reason financial distress should be approached as a business-wide problem, rather than by simply paying whichever creditor calls most aggressively.
The objective is to understand your obligations, preserve essential operations, and develop a strategy for addressing the debt.
What About the Personal Guarantees?
A personal guarantee is important, but it doesn't necessarily mean that closing the company, filing bankruptcy, or continuing impossible payments are your only choices.
The language of the guarantee, the underlying MCA agreement, the circumstances surrounding a default, and applicable law can all matter.
Before making decisions based solely on fear of a personal guarantee, have the agreements reviewed and understand what the documents actually provide.
When Should You Ask for Help?
Ideally, before the business misses payroll or exhausts its remaining cash.
There is usually more flexibility when a business still has revenue, employees, customers, and an operating enterprise worth preserving.
Waiting until every account is empty and multiple creditors have begun collection activity can reduce the available options.
At Davenport Law, we work with business owners facing precisely these circumstances. We review the MCA obligations alongside the realities of the underlying business and help develop a strategy for dealing with funders while preserving the company's ability to operate.
The Bottom Line
If MCA payments are forcing you to choose between your funders and the expenses necessary to keep your business running, something has to change.
That doesn't automatically mean closing your doors. It doesn't automatically mean bankruptcy. And it certainly doesn't mean taking another advance simply to buy another few weeks.
It means it's time to understand the numbers, understand your agreements, and determine whether the debt can be addressed in a way that gives the underlying business room to survive.
Your business may have a debt problem—not a business problem.
If MCA payments are threatening payroll or normal operations, contact Davenport Law at (214) 382-0105 or use our contact form to talk with our team about your situation.
This article provides general information and is not intended as legal advice. The rights and obligations involved in any MCA transaction depend on the applicable agreements, facts, and law.
