As we all know, you need some consistent cash flow to run your business. The problem is that you can never have enough. When starting your business, you will need sufficient funding to get off the ground. Whether you are the best planner, there will always be fluctuations and seasonal changes that will push to seek a merchant cash advance.

The reason why most people are choosing this type of loan is that it’s easier to obtain as compared to other lending institutions, which have a long and tedious process. However, defaulting on a merchant cash advance can affect you severely. It can expose your businesses to a lot of fines. That’s why it’s important that you know what will happen to you default on a merchant cash advance.

Below is what will happen when you default on a merchant cash advance:

1. It Accelerates Your Clause and Personal Guarantee

The worst thing to ever do is to default your merchant cash advance. Your lender has the right to sue you. One of the agreements in merchant cash advance is a personal guarantee. So, when you fail to pay back your loan, the lender has the full authority to take your finances.

Besides, the acceleration clause, you will incur another lump sum that will be due if you default in your payment. In such a case, you need an attorney to represent you in court.

2. Confession of Judgment

It’s no secret. Lenders will lose their patience with you if you become too difficult to pay your merchant cash advance loan. Usually, you will need to sign a confession of judgment. Confession of agreement means that you allow another person to enter a judgment against you. The problem with such agreements is that they are usually controversial and have a higher chance of being invalidated by the courts.

3. Debt Collectors at Your Doorstep

As said earlier, it’s easier to borrow money to finance your business, but the problem is failing to pay off your loan. If it’s not penalties, it’s miscellaneous fees. To add salt to your injury, your credit score goes down. You feel like the next thing you should do is to file bankruptcy.

Most lenders have debt collectors that will come to collect outstanding debts. The truth is that debt collectors are ruthless, and they won’t listen to your plea.

4. Is There a Second Option?

You may still be asking the question of whether or not you may be granted a second chance by merchant cash advance loan. The truth is that you can secure a second chance, but the probability is low. So, instead of a default in payment, why not just complete your payments in time?

The problem with a second chance is that the lender will have to consider your financial status, determine the risk before taking action.

Bottom Line

Defaulting in paying your loans is dangerous to your business. Don’t borrow when you are not sure you will pay.

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