A Merchant Cash Advance has less of an impact on your personal credit. But the UCC will stay on your business for at least 5 years, your default will be listed in a database seen by other funders, refinancing the MCA into an SBA loan is limited, the judgment may be enforced for decades, and a forgiven balance may become a tax liability.
For the path from a missed debit to a lawsuit, see what happens if you default on a merchant cash advance. For a ranked list, see what an MCA company can actually do to you if you don't pay.
Will not paying an MCA hurt my personal credit score?
It likely will not have a direct impact, because MCA funders do not report the MCA as a tradeline on your credit. Because the MCA is in the name of a business entity, the Fair Credit Reporting Act does not apply to reports on the business. The old advice that a judgment stays on your report for seven years is stale: beginning July 1, 2017, in a settlement with more than 30 state attorneys general, Equifax, Experian, and TransUnion removed civil judgments from personal credit reports, according to a February 2018 CFPB report. Falling behind on your own cards or loans to pay the MCA usually does more damage.
Lenders still see judgments in lien and litigation searches. If a collection account is put on your credit report for your personal guaranty, 15 U.S.C. 1681c provides it can be reported for 7 years, and a bankruptcy for 10 years, limits that do not apply to credit of $150,000 or more.
Will other MCA companies know if I didn't pay?
Yes. First, the UCC-1 Financing Statement is effective for 5 years under UCC 9-515, and a continuation filed in the 6 months before lapse adds 5 more. Funders see it in UCC searches before making you an offer.
Second, funders share a database called DataMerch. Its 300+ member funders share whether you are in "Default," a "Slow Pay," your "Stacking History," or had a default you paid off or settled ("Default Satisfied"). Paying or settling later may change your status, but the entry remains.
Can I get an SBA loan if I defaulted on my MCA?
An active Merchant Cash Advance cannot be refinanced with an SBA 7(a) loan. For applications on or after October 1, 2026, the MCA must first have been converted to a term loan, has amortized for 24 months, with no new advances since. See SBA Standard Operating Procedure 50 10 8.1. Refinanced debt must have been current for 12 months, and the lender's credit memo must address all judgments, liens, and pending litigation.
How long will my MCA judgment stay on my record?
In New York, where most MCAs are litigated, a money judgment will be presumed satisfied after 20 years under CPLR 211(b). A payment or written acknowledgment restarts the 20 years. New York judgments also accrue post-judgment interest at 9% per year under CPLR 5004. The 2% rate is for consumers, not businesses. On a hypothetical $150,000 judgment, that is $13,500 a year, or $217,500 owed after 5 years.
A New York judgment can also be filed with the clerk of the court of common pleas in any Pennsylvania county as a local judgment under 42 Pa.C.S. 4306, becoming a lien on your real estate from filing. For threats collectors cannot follow through on, see 6 threats MCA collectors can't back up.
Do you owe taxes if an MCA company forgives part of the balance?
You may. Settling for less than the balance can be taxable, because cancellations of indebtedness are gross income under 26 USC Section 61(a)(11). As explained in IRS Publication 4681, you have to report forgiven indebtedness even if you don't get a Form 1099-C. Hypothetically, a solvent sole proprietor in the 24% bracket who settles a $120,000 balance for $70,000 may owe $12,000 in federal tax on the $50,000 difference. Insolvent by $30,000 right before settlement, the same owner may exclude $30,000 under Section 108 and only owe $4,800.
Partnerships test insolvency partner by partner; S-Corporations test the corporation. The exclusion also reduces tax attributes such as loss carryforwards, so it may only defer your taxes. Because funders call an MCA a purchase of receivables, whether they cancel an "indebtedness" is unsettled. Ask a CPA how it was booked.
How long do the consequences of not repaying an MCA last?
| Type of Damage | Length of Damage |
|---|
| UCC-1 filing | 5 years, plus 5 if continued, plus at least 1 year on record after lapse |
| DataMerch entry | Retention not disclosed; can be marked Default Satisfied |
| Judgment (New York) | Presumed paid after 20 years; real estate lien 10 years, renewable for 10 |
| Judgment lien (Pennsylvania) | Revive within 5 years; personal property execution within 20 |
| Collection account on consumer report | Up to 7 years |
| Bankruptcy on consumer report | Up to 10 years |
| Time before you can refinance with the SBA | 24 months of amortization after conversion to a term loan |
Frequently Asked Questions
If my business closes, do I still owe the MCA?
If you signed a Personal Guarantee, then closing your company, or filing for Chapter 7, will not end your personal liability to the MCA company. Making you responsible if the business fails is the point of a guarantee. Also, many Personal Guarantees contain carve-outs that will make you fully liable if you attempt to divert your receivables elsewhere.
How do I get an MCA UCC lien removed?
Once your obligation is satisfied, you can demand in writing that the MCA company file a UCC-3 termination statement. The time limit is in Section 9-513 of the UCC, as enacted in your state. In most states, they have 20 days to either file the UCC-3 or send it to you. If they fail to do so, they may be liable to you for $500 under 9-625(e)(4) of the UCC plus actual damages you can prove.
Is it better for my file if I settle, or if I just default on the MCA?
It is generally better to settle your MCA, as it will allow you to show future lenders a cleaner file. DataMerch has a category for "Default Satisfied," so a resolved default can be marked that way, although the entry will not be removed. A zero-balance letter also looks better to a lender than an open UCC-1 or a Judgment.
Can I get a tax bill many years from now if the MCA company just stops trying to collect from me?
Yes, you may. The IRS instructions for Form 1099-C list a creditor's decision or defined policy to discontinue collection and cancel the debt as an identifiable event that can trigger a 1099-C. The code for this event is "G."