If you stop paying a merchant cash advance funded by daily ACH debits, the first place you may see a problem is your bank account; if it is funded from your merchant processor, your daily card deposits; and if it was based on your receivables, the funder may collect directly from your customers. If you have enough to cover your payroll taxes and you warn your most important customers, your business may continue to operate.
We cover the day-by-day sequence in What Happens If I Stop Paying My Merchant Cash Advance? This article sets out the steps that keep your business operating.
What happens to a business if you stop paying an MCA, and which part gets hit first?
The first place you may see a problem depends on the method of funding, and your agreement decides what the funder can do in default. A typical agreement filed with the Securities and Exchange Commission ("SEC") gives the funder these rights upon default:
| Method of Funding of MCA | Impact on Business | Legal Basis in the MCA Agreement |
|---|
| Daily or Weekly ACH Debits from your business bank account | Your bank account, as the funder keeps attempting ACH debits that collide with payroll and rent. Your bank may assess "returned item" fees. | Your ACH authorization, then a judgment and restraint if it sues |
| Funding through your merchant processor (Split Funding or Lockbox) | Your daily deposits from card transactions. | Notices to your processor under UCC 9-607(a)(1) to divert funds, plus your processor agreement. |
| Funding from Receivables from your business's customers | Payments from your customers. | Notices to your customers under UCC 9-406 to pay the funder directly. |
In 2025, a number of MCA agreements filed with the SEC state that if another funder's ACH debit is returned, you are in default under that agreement too, a cross-default that matters if you have stacked advances.
Can a UCC lien freeze my business bank account?
No. Under UCC 9-341, a bank's rights and duties with respect to your deposit account are "not terminated, suspended, or modified by" the funder's security interest or by "the bank's receipt of instructions from the secured party," unless the bank "otherwise agrees in an authenticated record." Unless the MCA funder has "control" over your account under UCC 9-607, they cannot use your funds directly. They must utilize "legal process": a judgment, a confessed judgment, or a judge's order to "attach" your account before judgment.
In New York, a judgment can freeze (restrain) twice the amount of the judgment for a period of up to one year through a notice issued by the clerk or the creditor's attorney. See New York CPLR 5222. No judge is needed. And unlike notices against individuals, no exemptions unfreeze an account that belongs to a business entity.
Can the MCA funder impact my merchant processor and my business's customers?
Yes. Once you default on your MCA, the MCA funder, as a "secured party," can notify anyone who owes your business money to divert those funds to it. Your merchant processor has its own rights to hold and set off funds. For example, Stripe's agreement allows it to "deduct, recoup or setoff" amounts that you owe them from any reserve you have with Stripe or any bank account you have given them the right to utilize. See Stripe's Services Agreement.
If your business is a contractor, a distributor, or any other business that deals with other businesses ("B2B"), your customers may get a notice requiring them to pay the funder directly for invoices they owe you. In April of 2026, a lender-side writer observed that most customers who get these notices pay neither the funder nor you, leaving you short of cash. The notice must be signed by the MCA funder and must reasonably identify the receivables assigned to them. See UCC 9-406. A clause in your customer contract barring assignment is ineffective.
What should I pay first when cash runs short?
If you can't pay both the MCA and your withheld taxes, the withheld taxes must be paid or you can be held personally liable for them under 26 U.S.C. 6672. The IRS says that using available funds to pay other creditors when you are unable to pay withheld taxes is an indication of willfulness.
After that, generally you should pay your employees, critical vendors, and rent ahead of the MCA. Notify key vendors before a payment to them bounces, and tell them you intend to pay them ahead of other creditors.
How do I keep the business running while I deal with the MCA?
Read the MCA contract.:
- When did you default?
- Did you default when you changed banks or processors?
- Is there a Confession of Judgment?
- What kind of Guaranty did you sign?
Ask for a Reconciliation of your Account in writing. Attach your Bank Statements. See our article on the 5 Letters you should send before you stop paying your MCA.
Notify your key customers that if they receive a 9-406 letter they can ask for proof of the assignment. Handle chargebacks and processing correctly, and cut off the debits correctly when you stop paying. See our article on how to revoke your ACH Authorization in writing. State law matters. In Texas they cannot debit your deposit account unless they have a perfected first priority security interest in the account. In New York, Confessions of Judgment can only be effectively enforced against New York residents under CPLR 3218. In Pennsylvania they can still get a Commercial Confession of Judgment.
Frequently Asked Questions
Can I open a new bank account or change processors?
Generally, yes, but review your MCA Agreement first. Many forbid changing your Processor or Bank Account without the MCA company's written consent, so the switch may itself be a default that triggers the Personal Guaranty. Under UCC 9-315, the lien may also follow identifiable proceeds.
Do my customers have to pay the MCA company if they get a letter from them?
Generally, no, unless the letter is signed and reasonably identifies the rights assigned to the MCA Company. Even then, the Customer can request reasonable proof of the assignment and keep paying you until it arrives. Different rules apply for receivables from health care insurance and if your customer is the federal government.
If I close my business do I still have to pay the MCA?
Yes. Many MCA Agreements make closing or suspending your business an event of default, letting the funder declare the entire amount due and enforce the Personal Guaranty, and a business entity gets no discharge in Chapter 7.
Is there anything that will stop all collection and enforcement efforts?
Yes, filing a bankruptcy will trigger an automatic stay under Section 362 of the Bankruptcy Code. Businesses with no more than $3,424,000 in debt can file under Subchapter V of the Bankruptcy Code.