What happens if I default on a merchant cash advance?
Defaulting on a merchant cash advance means the business has stopped meeting the terms of its funding agreement, most often because remittances have stopped or fallen into arrears. What follows is set out in each funder's own agreement, not in a single industry rule, and it commonly involves the funder seeking the balance from the business and, where one was signed, calling on the director's personal guarantee.
This is general information, not advice. For a business already struggling, the two most useful steps are to read the agreement it signed and to speak to the funder early. Free, independent help is available from Business Debtline.
What does "default" mean in a merchant cash advance?
A merchant cash advance is repaid as a percentage of the business's card takings, so in normal trading there is no fixed monthly instalment to miss. 365 Finance, for example, states that repayments fall when sales fall and that there is no fixed term. Default therefore looks different from a missed loan payment. It commonly arises in three situations.
- Remittances stop because card sales stop: the business closes, changes how it takes payment, or trading dries up, so nothing flows to the funder.
- Arrears build where the agreement includes a minimum or fixed remittance and the business cannot meet it.
- The business breaches a condition of the agreement, for example by acting in a way the contract prohibits while the advance is outstanding.
Who decides what counts as default?
The funder's written agreement. Each provider defines its own events of default, notice periods and remedies, and those terms are not standardised across the UK market. Most funders do not publish their full financing contracts, so the only reliable description of what happens on default is the document the business signed.
For that reason this page does not describe any individual funder's default clause. The relevant wording commonly sits under headings such as "events of default", "termination" or "acceleration"; the personal guarantee is normally a separate document.
What does a personal guarantee mean if the business defaults?
A personal guarantee is the director's promise to cover the debt personally if the company cannot. iwoca describes it as the director taking personal responsibility for the loan if the business is unable to repay it. On an advance to a limited company or LLP, the guarantee is the route by which a business debt can become the director's own liability.
Whether a guarantee was signed, what it covers and whether it is capped are answered by the paperwork. Capify, for example, does not publish whether it requires one. The page on personal guarantees explains how they are typically structured.
What can a funder recover on arrears?
Generally, the outstanding balance under the agreement, and potentially the costs of recovering it. A recent review of YouLend's terms notes that collection costs can be recoverable where an advance falls into arrears. Other funders' positions vary and are set by their own contracts.
Because a merchant cash advance is structured as a purchase of future card receipts rather than a consumer loan, consumer credit protections do not apply in the same way. The page on whether an MCA is regulated sets out the position.
What do businesses commonly do when they cannot keep up?
The pattern that tends to produce the least damage is early contact with the funder. Funders generally have more options while remittances are merely falling than after they have stopped altogether, and an agreed variation is usually cheaper for everyone than enforcement.
- Talk to the funder early. Explain what has changed in trading and ask what arrangements are available under the agreement.
- Read the agreement and any personal guarantee before the conversation, so the business knows what the funder is entitled to ask for.
- Get free, independent help. Business Debtline (businessdebtline.org) is a charity offering free debt advice to self-employed people and small businesses.
- Avoid taking a second advance to keep the first afloat. Stacking advances on the same card takings commonly deepens the problem.
When is a merchant cash advance not the right product?
A merchant cash advance suits businesses with steady card takings and a short-term need. It is a poor fit where takings stop seasonally, where other short-term debt is already being serviced, or where the problem is a structural shortfall rather than a timing gap. The page on cash-flow problems covers what businesses commonly look at first.
Frequently asked questions
Is defaulting on a merchant cash advance a criminal matter?
Not for the debt itself. A merchant cash advance is a commercial debt and default is a civil matter between the business, any guarantor and the funder. The consequences are financial and contractual: the funder pursuing the balance, calling on a personal guarantee or taking court action. Directors' conduct in an insolvency is a separate matter for an insolvency practitioner or solicitor.
Will defaulting on an MCA affect my personal credit file?
It can, where a personal guarantee has been called on and the debt becomes the director's own. A county court judgment against an individual can appear on their credit record for six years. Where there is no personal guarantee, the default sits with the company, though funders commonly search both the business and the directors when assessing future applications.
What if my card sales have simply dropped rather than stopped?
On most advances the remittance falls with sales because it is a percentage of takings. 365 Finance states there are no additional charges if an advance takes longer to repay. Other agreements may include minimum remittances or review points, so the agreement is the place to check. Telling the funder about a sustained drop in trading is generally better than waiting for them to notice.
Where can I get free help with business debt?
Business Debtline, at businessdebtline.org, is a charity offering free, confidential debt advice to small businesses and the self-employed. CapExpand is a finance introducer and does not give debt advice; a debt charity or a licensed insolvency practitioner is the right place for a business in difficulty.
Funding options for a limited company
CapExpand introduces UK limited companies and LLPs to lenders and funders. We do not provide debt advice; for a business already in difficulty, Business Debtline is free and independent.
Sources
Checked August 2026. No individual funder's default clause is reproduced here; each funder's written agreement sets its own terms.
- iwoca support: how iwoca loans work and who is eligible (personal guarantee definition)
- 365 Finance FAQs (no fixed term, repayments fall with sales, no additional charges)
- Business Expert: YouLend review (collection costs recoverable on arrears)
- Business Expert: Capify merchant cash advance review (personal guarantee requirement unpublished)
- Funding Options: business finance with a CCJ (CCJ on record for six years)
- Business Debtline: free debt advice for small businesses
Important information
CapExpand Ltd is not authorised by the Financial Conduct Authority and can only complete non-regulated introductions. We work with UK limited companies and LLPs only, for business and commercial purposes. We are not a lender and we do not provide financial, tax or legal advice. We work with a panel of lenders whose particulars are available on request, and we receive commission from the lender if a deal completes, at no cost to you. All lending is subject to status, valuation where applicable and the lender's own checks.
Registered office: Pure Offices, Lake View Drive, Annesley, Nottingham, NG15 0DT. Company No. 14433858.
CapExpand Ltd (Company No. 14433858) is a commercial finance introducer, not a lender. We are not currently authorised or regulated by the Financial Conduct Authority and do not provide financial advice. All information on this page is for educational purposes only. Funding is subject to status and lender criteria. CapExpand will receive a commission from providers at no extra cost to you.