Gas Station and Convenience Store Owners: 6 Questions About Supplier Debt and MCA Claims

Pay Your Fuel Supplier First

Any convenience store or gas station must have a fuel supplier. Fuel is the lifeblood of any store. So it makes sense, even common sense, that you pay your fuel supplier first. But the facts of life are not that straightforward. Be warned: an MCA will just keep taking their debit from your account each day, no matter what. But a lot of these balances get settled for less than full payment. If cash is tight, you’ll need to protect the fuel supply and the payroll taxes before you even think of that next loan.

Federal law says your fuel supplier can generally end your franchise relationship if you don’t pay, after sending you at least a 90-day notice. If your only route is to sell branded fuel, then losing your franchise could put you out of business. The law doesn’t just let your fuel supplier end your relationship. For one thing, it has to send you a written notice - by certified mail, or handed to you personally - and that notice has to have the date when your franchise ends, and it has to tell you why. And suppliers must have learned of the problem no more than 120 days before they give the notice.

The thing that makes the MCA’s daily debit so tough is that the average convenience store or gas station only keeps one to three percent of the money from fuel sales. You might sell $18,000 of fuel in a day and keep about $300. The card networks and the distributor take their cut of every transaction. The real business that you’re in is usually making money on your merchandise. The debit has no idea that gas across the street is six cents lower or your card processor has kept a chunk of your revenue, as a reserve. Those funds still get deducted each morning. To keep things running, owners often get a second MCA to cover the first. Once two MCAs pull from the same debit account, they tend to bring others along, and the pool can have three or four funders trying to share the cash flow. The money comes from different businesses, and as far as anyone can tell, there is no clear sign that any of them knows about the others. Watch for a frozen account - which is a real risk for tobacco and lottery licensees.

A merchant cash advance contract is usually filed with a UCC-1 lien. Funders file notices of all kinds of claims, especially against equipment, inventory, and the proceeds from credit card sales. And the lien can cover the fuel too, and sometimes the tanks and dispensers. The worst thing is this: each funder may file its own lien. The first UCC-1 filing takes priority over later funders. You have to be careful to read the small print. Some contracts say that if you miss a payment to one funder, any of your advance contracts can go into default. A credit card lockbox can get you committed to a processor who just won’t let go. Beware the confession of judgment. New York requires a judgment filed in the county where you lived when you signed it or live now, and within three years. In Texas, a law called HB 700 voids any MCA contract that has one.

Is the MCA really a loan or an agreement to purchase future credit card revenue? The contract will say it is a purchase of your future receivables - not a loan. Courts in New York look at whether there’s a reconciliation clause in your MCA. Even if the contract has a reconciliation clause, the judge has to ask whether it is a real one. If the terms allow some kind of reconciliation down the road, if it doesn’t have a fixed term of payment, and if it’s not really recourse against you after bankruptcy, it looks less like a loan. In January 2025, the New York Attorney General won a judgment of over $1 billion against Yellowstone Capital, which allegedly charged rates as high as 820% to more than 18,000 businesses.

When cash is tight, a lot of small companies keep making payroll but miss the payment to the IRS. The IRS can charge each responsible owner the full amount of the unpaid withheld tax, personally. This is what the IRS calls the Trust Fund Recovery Penalty. And while people often pay other creditors instead, that can be used against you by the IRS. That means it’s a no-brainer to pay the tax authority before the MCA. When the IRS sends a letter proposing this penalty, you have 60 days to appeal. So talk to your accountant before you decide whether to skip payroll tax so you can catch up on another obligation.

Merchant cash advances can seem to never end, but they can come to a quiet end. The only option you might think of is to refinance with a new funder. It’s hard to imagine how getting another debt could help you escape the first one, especially when you’re already having cash troubles. A lot of funders would rather take a smaller piece of a continuing customer than zero if the business goes under. A lump-sum settlement will stop the debits cold. If you have the money, that could be the best way to keep going. Some funders will agree to a structured plan to pay down your balance over months. Some reverse consolidation deals can make a new daily debit on top of all the other ones. Regardless of the kind of deal you work out with your funders, make sure you get the UCC lien release in writing.

If a settlement isn’t on the horizon, a small-company Chapter 11 in Subchapter V may work. It may fit if the total debt is under $3,424,000. It will matter what the working margin of the business is in fact each day, not what it was when it received its most recent round of funding. Before you make any other move, get a copy of each filing on record. And there might be UCC-1 liens you didn’t know about.

The facts in each case are different, and not all creditors will react the same way. An early conversation with an attorney is a good idea, before the debt becomes impossible. And the sooner you talk about the numbers with people, the more options you’ll have.