Merchant Cash Advances (MCAs) are governed by complex contracts, not standard banking laws. When a business is suffocated by daily withdrawals, the terminology matters. You aren't looking to merely manage the debt. You are likely looking for MCA debt settlement.
As an account manager, I often find that business owners confuse settlement with restructuring. They are not the same. MCA debt settlement is a negotiation process resulting in a legal agreement to satisfy your obligation for less than the total balance owed.
If your goal is to exit the debt obligation permanently without paying the full amount, understanding the mechanics of settlement is critical.
Defining MCA Debt Settlement
Legally speaking, an MCA settlement is a form of "accord and satisfaction." It is a transaction where the funder agrees to accept a lower amount than originally agreed upon with the intent to eliminate the debt entirely.
Unlike MCA restructuring, which usually prolongs the time for repayment while keeping the total balance, settlement attacks the principal balance directly.
The Core Objective
The goal is to reach a Stipulation of Settlement. This is a binding contract between your business and the funder that states:
- The Compromise: The funder accepts a reduced figure (e.g., 60% of the balance).
- The Release: Upon payment, the funder releases all claims, UCC liens, and security interests against your business.
The Settlement Process: How It Works
Because MCAs are commercial contracts, settlement is a negotiation of leverage. The process generally follows these stages:
1. Assessing Leverage and Liquidity
Before making an offer, we must analyze the specific contract you signed. Is there a Confession of Judgment (COJ)? Are there flaws in the contract? Identifying legal leverage is vital. Simultaneously, we assess your business’s liquidity. Do you have funds for a lump sum, or do you need a term settlement?
2. The Negotiation Phase
This is where the distinction between relief and settlement is clearest. In a settlement negotiation, we often argue that the funder is at risk of receiving nothing due to the business's potential insolvency or legal defenses. This motivates the funder to accept a reduced amount now rather than possibly losing everything.
3. Formalizing the Agreement
Once a number is agreed upon, a new contract must be written correctly. A verbal agreement with a collection agent is worthless. We draft or review a Stipulation of Settlement. This document outlines:
- The exact settlement amount.
- The payment schedule (lump sum or installments).
- The General Release (Preventing them from suing you later for the difference).
4. Execution and Satisfaction
The business makes the payments as agreed. Once the final dollar clears, the debt is legally dead. The funder must then file UCC-3 termination statements for each lien attached to your business assets.
Factors That Influence Settlement Outcomes
Not every MCA settles for the same percentage. The discount you can achieve depends on specific variables.
The Age of the Default
Funders are rarely willing to settle a funded account that is current and performing. Settlement discussions typically gain traction when the funder realizes that full collection is unlikely, often after payments have slowed or stopped due to cash flow constraints.
Lump Sum vs. Term Settlement
Cash is king in negotiations.
- Lump Sum Settlements: If you can offer a one-time payment immediately, funders are often willing to accept significantly less money to close the file instantly.
- Term Settlements: If you need to pay the settlement amount over weeks or months, the funder may demand a higher percentage of the total balance to offset the risk of waiting.
The Aggressiveness of the Funder
Not all MCA companies operate the same way. Some are soft funders who prefer to work out deals amicably. Others are aggressive, utilizing legal teams to freeze bank accounts or contact vendors immediately upon breach. Knowing who sits on the other side of the table is essential for strategy.
When Attorney Involvement Becomes Necessary
Attempting to settle an MCA on your own poses significant risks. Our professional negotiators can often handle the settlement process without getting attorneys directly involved. However, they work alongside a network of independent attorneys available through our legal plan, as needed, to help present your financials and propose restructuring terms designed to be workable for your providers—and sustainable for your business.
MCA contracts can contain aggressive clauses, such as personal guarantees and Confession of Judgment provisions. If you admit to the debt improperly during a phone call with a collector, you may inadvertently waive your legal defenses. A specialized attorney can potentially:
- Shield you from harassment.
- Ensure the settlement agreement doesn't contain hidden clauses that restart the statute of limitations or admit liability unnecessarily.
- Ensure the funder actually removes the UCC liens after you pay.
Disclaimer: Attorneys provide legal services directly to clients through the legal plan; Coastal Debt Resolve is not a law firm and does not provide legal advice.
Conclusion
MCA debt settlement is not about asking for a favor. It is a business transaction to purchase your freedom from a contract for the lowest possible price. It requires a strategic approach to liquidity and possibly, a strong legal defense.
If you are looking to close out your positions for less than the full balance, you need a strategy that prioritizes the finality of the debt.
Ready to Discuss Your Options?
If you need to determine if your business qualifies for a settlement, Coastal Debt Resolve is here to review your contracts.
Disclaimer
The information provided in these materials is for general informational purposes only and is not intended as legal or financial advice. While we strive to ensure that the content is accurate and up-to-date, it should not be relied upon as a substitute for legal advice. Performance information may have changed since the time of publication. Past performance is not indicative of future results.
Frequently asked questions
Yes, but professional negotiators often secure better settlement terms and faster resolutions.
Savings vary, but businesses often settle for a lower amount than what is owed.
MCAs do not typically report to credit bureaus, but defaulting on an MCA may trigger legal action, which could impact credit.
