What actually triggers default on an advance

Most owners assume default means missed payments. In a merchant cash advance agreement, missed payments are one entry on an enumerated list, and it is often not the entry that catches people. Businesses default while every debit is clearing.

The list, roughly grouped

Payment and account conduct
- A failed or returned debit, sometimes on the first occurrence, sometimes after a stated number.
- Placing a stop payment, revoking the ACH authorisation, or blocking the funder.
- Closing the designated account, or changing banks without prior written consent.
- Insufficient funds maintained in the account to cover the remittance.

Cash flow direction
- Diverting receipts to another account, or instructing customers to pay elsewhere.
- Changing or terminating the card processor, or altering split funding instructions.
- Failing to deposit receipts into the designated account.

Additional obligations
- Taking another advance or financing repaid from the same receivables, whether or not you are current.
- Granting a lien or security interest over the receivables or, in blanket versions, any assets.

Business changes
- Ceasing operations, even temporarily in some drafting.
- Closing a location, materially reducing hours, or a defined material adverse change.
- Selling or transferring the business, a substantial part of its assets, or a controlling ownership interest.
- Filing for bankruptcy protection, or having an involuntary petition filed against you.

Information
- Any material misrepresentation in the application, statements or ongoing reporting.
- Failing to provide statements or information the agreement requires on request.

Legal and third-party events
- A judgment, tax lien or levy against the business over a stated threshold.
- A landlord dispute, an eviction, or loss of a licence needed to operate.
- Default under any other agreement with the same funder or an affiliate — a cross-default.

Read your own list. The categories are consistent across the market; the thresholds and the presence of consent qualifiers are not.

The three that catch ordinary businesses

None of those involves missing a dollar.

What default sets off

Default clauses in these agreements are cumulative, not alternative, and they operate immediately in most drafting because cure periods are rare.

1. Acceleration. The entire unpaid purchased amount becomes due at once. Not the remaining scheduled remittances — the whole balance.
2. Default fees. A flat charge or a percentage of the outstanding amount.
3. Costs of enforcement. Collection costs and attorney fees, which are open-ended and are usually where the number grows fastest.
4. The personal guarantee. Most of the events above are also covenants in the performance guarantee, so a corporate default becomes a personal claim.
5. Security interest enforcement. Notification to your customers to pay the funder directly, and enforcement against the collateral described in the UCC filing.
6. Confession of judgment. Where the agreement includes one and it can be entered in the relevant court, judgment and account restraints can arrive before you have had any hearing.
7. Cross-default. Any other position with the same funder or affiliate goes with it.

What to do in the first 48 hours

What acceleration looks like in dollars

Default is declared. The outstanding $57,000 becomes due immediately — not the remaining scheduled debits, the whole figure. A default fee of 10% of the outstanding adds $5,700. The demand is $62,700 before any enforcement costs, and the attorney fee clause has no ceiling in it.

Paid in full, the total delivered is $93,700 on $65,000 received. The cost of the transaction moves from $23,000 to $28,700, and it moves from spread across months to due this week.

That arithmetic is why the consent request below is worth writing. The difference between asking and not asking is not a fee. It is the whole remaining balance, now.

What a consent request should say

Keep it short and make it easy to approve. Four points:

1. What you intend to do, specifically — the new bank and account, the new processor, the equipment lease, the location change.
2. When you intend to do it.
3. Why, in one line, and why it does not weaken the funder's position.
4. A request for written consent before you proceed, with a date by which you need it.

Send it to servicing, by the method the notice clause specifies, and keep the reply. A consent granted in an email and never referred to again costs nothing. The same change made without one is on the list you have just read.

The preventive habit

Once a quarter, reread the default list with your current situation next to it. Anything you are planning in the next ninety days that appears on that list is a consent request, not a decision. Sending that request costs an email. Not sending it can cost the balance of the deal in one afternoon.