What counts as a default
Most merchant cash advance agreements define default broadly. Missing or reversing the daily ACH draw is the obvious one, but revoking the ACH authorization, closing or switching the deposited bank account, taking on another advance ("stacking") without consent, or simply letting receivables fall below a threshold can all trip a default clause too. Read your agreement: the contract — not a general rule — decides what triggers default and what the funder can do next. Knowing the exact triggers lets you avoid accidentally defaulting while you are still trying to negotiate.
What the funder can actually do
Once in default, a funder has several tools, and the harsh ones depend on what you signed and your state. It can sue for breach of contract to recover the unpaid balance. If it wins (or already holds a judgment), it may try to freeze or levy the business bank account or garnish receivables. Where you signed a personal guarantee — common with MCAs — it can pursue your personal assets, not just the business. And historically some contracts used a confession of judgment, which let a funder obtain a judgment without a normal lawsuit; New York and other states have since restricted COJs against out-of-state borrowers, and the FTC has brought enforcement actions against MCA funders for deceptive terms and abusive collection. The point is not that every default ends in disaster, but that the downside can reach you personally — so it is worth getting ahead of.
What a funder can't do
The threats often outrun the rights. A funder generally cannot have you arrested — unpaid business debt is not a crime. It cannot seize assets a court has not authorized it to take, and any account freeze or levy normally requires a judgment and proper process. Abusive, threatening, or deceptive collection can itself violate the law and has drawn FTC action. If a funder or its collectors are threatening jail, claiming they can take property without any court order, or using harassment, document everything and treat those claims skeptically — they may be unenforceable bluffs, and the conduct itself may be a violation you can report to the FTC or your state attorney general.
How to get ahead of a default
The leverage you have shrinks the moment you default, so the best move is to act before then. If the daily holdback is unsustainable, contact the funder and ask to reduce or pause it — many will, because a restructured paying account beats a collapsed one. If the debt is genuinely unpayable, look at settlement, ideally with help that resolves the business obligation and your personal guarantee together. Whatever you do, do not stack another advance to cover the payments — it deepens the hole and can itself be a default. If you are already in default and being sued or levied, talk to a small-business attorney quickly; the earlier you engage, the more options you keep. Our page on how to stop MCA daily payments walks the moves in order.