Does an MCA Loan Require Repayment When a Business Closes or the Owner Dies Under North Carolina Law?

1. Detailed Answer

When a business takes out a merchant cash advance (MCA), it signs a contract promising to repay the advance through future sales receipts or by making scheduled payments. This contract governs what happens if the business shuts down or the owner dies. North Carolina law does not automatically erase these obligations. Instead, the borrower must look at three key sources:

• The MCA Contract: Most MCA agreements include a clause that spells out what triggers repayment. Common triggers include business closure, death of the owner, or dissolution of the legal entity. If the contract calls for immediate repayment upon any of these events, the lender can demand full repayment.
• Personal Guarantees: Many MCA providers require the business owner to sign a personal guarantee. This guarantee makes the owner personally liable even if the business entity shuts down. If the owner dies, the guaranty survives and the lender can file a claim against the owner’s estate.
• State Law on Debt and Estates: North Carolina treats debts as part of a decedent’s estate. Under N.C. Gen. Stat. § 28A-14-3, creditors can present claims against the estate for valid debts, including unsecured loans and guarantees. A dissolved corporation or LLC still faces winding-up proceedings, and creditors may file claims during that period under N.C. Gen. Stat. § 55-14-05.

In practice, if your MCA contract contains an acceleration clause tied to closure or death, you cannot avoid repayment simply by shutting down or passing away. The lender can accelerate the balance and demand payment from the business or estate. If the contract lacks such a clause, the lender must show default under the agreed payment schedule before accelerating the debt.

Default typically occurs when scheduled payments stop or bounce. Absent default, the lender cannot demand full repayment ahead of schedule. However, many MCA providers include broad default definitions—late payment, insolvency, or change in ownership—so it pays to review your contract carefully before closing the business or signing personal guarantees.

In summary, North Carolina law upholds valid contracts. Neither business closure nor death wipes away MCA debt. The contract’s language and any personal guarantees determine if and when repayment becomes due. State statutes then allow lenders to press claims against a dissolved entity during wind-up or against an estate after death.

2. Key Points to Consider

1. Review the MCA agreement for acceleration or default clauses tied to closure, death, or ownership change.
2. Check whether you signed a personal guarantee—this can expose your personal estate to lender claims.
3. Understand how North Carolina handles estate claims under N.C. Gen. Stat. § 28A-14-3: creditors may file against the estate for valid debts.
4. Recognize that dissolved entities still undergo winding-up under N.C. Gen. Stat. § 55-14-05, during which creditors can file claims.
5. Note that if no contract default occurs, the lender generally cannot accelerate payment merely because the business closed or the owner died.
6. Consult legal counsel before closing your business or signing documents that create personal liability.

Contact Pierce Law Group

If you face an MCA repayment issue after closing your business or dealing with the death of an owner, don’t navigate these complex rules alone. Pierce Law Group’s probate and business law attorneys guide you step by step. Reach out to us by emailing intake@piercelaw.com or calling (919) 341-7055. Let us protect your interests and help you chart the best path forward.