MCA Settlement by Funder Type: 5 Differences That Affect Negotiations

Defaulting on a merchant cash advance puts you in a very bad place. The good news is that there’s a solution. Yes, funders settle their debts every day, for anywhere from 25% to 80% of the balance. The discount depends partly on which type of funder you’re up against. If you owe a debt buyer, they probably got your business for pennies on the dollar, and will accept a smaller percentage of the face value of your account. There are really five major differences between the types of funders out there.

Negotiating with Different Funders

Often the first difference between negotiating successfully or falling flat is knowing who you’re up against. If your original funder sold the debt, and you now have to deal with a new company, they probably paid between ten and twenty cents on the dollar for the balance. They will usually settle for about 25% to 45% of face value. If they paid $10,000 for a $50,000 balance, then an offer of $17,500 is 35% for you, and a 75% return for them. They have no emotional attachment to the number, and will probably take it. This can be great for you if you know what to say. One big hint for when a debt gets sold is when the company calling you changes.

The size of the company you owe is another key variable in negotiating. Large funders that have their own legal teams can afford to spend months suing you. They still want to close files. In fact they are usually willing to settle. The critical point is how much it will take to get the deal done. A huge company often wants 60% to 80% of the remaining balance, even though that still means a substantial discount for you. A lawsuit can take 6 to 18 months to finish, so settlements are always a faster option. A settlement closes the file out in one step.

Dealing with mid-size lenders is the most common type of negotiation. Settlements tend to range from 50% to 70% of the balance. The real key is timing. If you negotiate within 30 days of default, the percentage is usually closer to 70%, but if you let things go past 90 days, the number drops. Their collections team and managers spend time on calling and writing you, when it might be a smaller loss for them to take a check for less money now.

The third difference in negotiating with different funders is their cost of capital. Companies under $5 million a month often syndicate their contracts among investors, and settle for a lower percentage, around 40% to 60%. That’s because investors want monthly returns, and writing off what they are owed is not the fastest route to getting that. Small funding companies take on capital partners to write contracts, and that can give you leverage. When your default is dragging on beyond the terms of the agreement, investors ask uncomfortable questions. The funder wants to avoid those calls.

The fourth difference in getting a good settlement is the level of legal tools your funder has. If they are holding a confession of judgment, that’s serious. They settle for anywhere from 55% to 75% of the outstanding balance. A judgment is not cash. It’s just a piece of paper with a dollar figure. The hard part for funders is turning a paper judgment into money in their bank account. They may have to deal with levies and asset searches, which burn both time and money.

The place where you operate makes a big difference in how much you can expect to pay in the end. Since August 30, 2019, New York law bars the use of confessions of judgment against out of state companies. In Texas, HB 700 forbids cash advance providers using confessions of judgment at all, against any borrowers.

If a company has already filed suit, they usually settle in the same general ballpark, around 50% to 70% of the remaining balance. Bringing suit costs them time and money, too. Even if you miss the deadline to respond, get into the courtroom and make your position known. That buys you time. You can often get their plaintiff’s lawyer to come off a hard settlement number just by making an appearance.

The final difference in negotiating with cash advance providers is how much legal exposure they have. Banks and credit unions are not subject to the same rules as non-bank funders. Since August 2023, non-bank MCA lenders have to give standardized cost disclosures in New York. A 2020 New York appeals case between LG Funding and United Senior Properties put the spotlight on three important factors that help determine whether a financing contract is a true MCA, or a loan. The first question involves whether the contract has a reconciliation provision. If not, then the agreement looks more like a loan. If the term of the repayment has a definitive ending point, then it is more likely to be defined as a loan. The third point brought up in the court hearings was what happens if the merchant files for bankruptcy protection? In January 2025, the New York Attorney General won a $1.065 billion judgment against Yellowstone Capital. The AG’s case centered around Yellowstone taking merchant cash in fixed amounts each day, regardless of how much the business took in. The settlement wiped out over $534 million in debt.

If this applies to you, you will need an attorney to argue that the cash advance is actually a loan. Settlements for this problem often run 30% to 50% of the balance.

More than One Cash Advance

When you have more than one cash advance in your name at the same time, they’re called stacked. The ones in second and third position know they’re last in line, and that gives them an incentive to cut you a deal. A second funder is often easier to settle at a big discount, around 35% to 55%. Focus on dealing with your most aggressive funder first. Starting with it means the others are easier to settle in the end.

Favorable Settlement

There are three main ways to get a fast, favorable settlement on an MCA. An attorney can often get 15% to 25% lower than an individual borrower talking to a company directly. A lump sum settlement also beats getting a payment plan. Merchant cash advance companies hate the risk that you will fall down and pay late, or stop sending checks altogether. If you can, always offer the cash up front. Older debts usually get larger discounts.

Most reports about settlement averages and percentages are misleading. Each merchant owes a different amount to a different provider and has a different contract. This all ends up making a big difference in what you pay to close out a file. The name of the game in dealing with default is negotiating. The closing numbers you reach depend largely on you.