How to Prioritize Debt Payments With an MCA: 6 Matters to Review

First and foremost, you have to meet your operating expenses, so pay rent, utilities, and payroll. After that, the small difference that’s left over should go to debt repayment. When dealing with debts, it’s important to know which one will move first to take their pound of flesh in the event of a default. In this instance, the merchant cash advance is most likely to be the fastest, with the ability to freeze your bank account within a matter of days from a missed payment. The other options, like credit cards and unsecured loans, tend to be more sluggish; they may agree to defer a payment for a few weeks or renegotiate the repayment schedule.

So you might think because the MCA funder is fastest to close it should come first, but that ignores the truth of the situation: if the doors close, then even the MCA funder stops getting paid. The idea is to sit down with a piece of paper, be honest with yourself about which items are essential to keeping the doors open, and protect those items from any and all threats.

Payroll, one of those essential items, consists of many things, including taxes. If trust fund taxes are not remitted to the IRS, the agency may assess a penalty equal to the full amount of the unpaid taxes against a responsible person who willfully fails to pay the taxes. Paying other creditors instead of the IRS is a sign of willfulness. Other unpaid tax carries a failure-to-pay penalty that’s worth 0.5% of the unpaid tax per month, capped at 25%. The rate rises to 1% a month if 10 days pass after the IRS issues a notice of intent to levy.

As for the merchant cash advance, why it ranks so high comes down to the technicality that it’s not a loan. It’s a purchase of future receivables, so the funding company will take payments whether or not you are profitable. And the MCA usually has a personal guarantee, along with the confession of judgment to quickly get a court judgment without first suing. A very important wrinkle in the options is that many (credit cards, most vendors, most lenders) must file a lawsuit, win a judgment, then get a separate enforcement order before touching your accounts. That’s a process that can take many months. You should know your major players and which ones can take money without going through that trouble.

Secured debts tied to collateral, like equipment financing or a vehicle loan, also sit near the top. Unsecured debts like credit cards and most credit lines can usually wait a few weeks. Treat this ranking as a starting point, not a final answer. The real timeline can vary significantly depending on the creditor, the terms of the contract, the laws of the state and whether your MCA payments will actually adjust with your revenue.

Reconciliation Provision

Before cutting other bills, you can try to shrink your daily payment itself. Many (but not all) merchant cash advance contracts contain a reconciliation provision that can be used to request lower daily or weekly payments when revenue drops. If this is written into the contract, you’ve got a right to ask, even if the lender would rather sweep this under the rug. It’s frustrating when the funding company resists, so be insistent and clear that your revenue has fallen sharply. Include proof, such as bank statements or even the merchant service statements.

Before you negotiate, get your ducks in a row. Gather three months of business bank statements, a profit and loss statement showing the drop, and card processing reports. Send a formal request for a payment reduction and include the backup documents. Get the response in writing and send your package by certified mail. A backup by email is also a good idea.

If the cash advance funder refused reconciliation, that denial becomes important. Even if a reconciliation clause is in the contract, it has to be real. New York courts have said that if it’s their only in name, this can support treating the deal as a usurious loan, which can invalidate the whole thing. Courts applying New York law weigh three main factors: the existence of a reconciliation clause, a finite term, and recourse if the business goes bankrupt. New York treats interest charges of over 25% a year as criminally usurious. In January 2025, Yellowstone Capital settled allegations by the New York Attorney General’s Office. The company canceled a half-billion dollars ($534,552,724) that merchants owed it on merchant cash advances, after the state alleged it took fixed payments regardless of revenue.

After the nonnegotiables, buy some breathing room from slower-to-react creditors. Call to discuss your hard times and ask them to reduce or defer your payments temporarily to keep the relationship alive. Whatever promises you get, get them in writing. A verbal promise doesn’t hold up very long.

At all costs, avoid stacking. Taking a second cash advance against a business to pay off the first can lead to cash-advance hell. One confession of judgment is bad. Two compound the trouble. One daily payment is bad. Two mean the funding companies are hitting twice every day.

Because of that personal guarantee, your personal assets can be at risk. Never comingle business and personal accounts. If one gets frozen, the other one still works.

What happens if you simply stop paying the merchant cash advance? A lot. The cash advance company can declare a default, often freeze your bank account, file UCC liens on business assets, sue you and any guarantors, and report the default to other lenders.

If the MCA gobbles up so much cash that none of this works, there’s still hope. MCA funders, especially in the face of legal leverage, often settle for significantly less than the balance. Other solutions involve restructuring to lower the daily withdrawals over a longer period. An attorney who knows merchant cash advances can spot weaknesses like illusory reconciliation clauses or defective confessions of judgment. Funders are likely to settle when facing a credible challenge.

Confessions of judgment filed against businesses outside New York have been unenforceable since 2019. Even in-state ones can be vacated if the funder misses the strict CPLR 3218 requirements.

Nothing throws cold water on creditors like a bankruptcy petition. Along with it comes an automatic stay that stops most collection efforts, lawsuits and lien enforcement. Very much a last resort.

Deal with your cash crunch when there are still resources left. Choices are easier before the tsunami hits. When cash dries up, reality sets in. But that’s when your options shrink. A receivables account seizure gets ugly and dramatically increases the cost of getting help, especially if the bank account has been drained.