After an MCA Settlement Payment: 5 Records That Confirm Completion

Paying off a merchant cash advance can feel great, until collectors start calling. Payment alone doesn’t prove it’s over. You need five records: a signed settlement agreement releasing both your business and any guarantors; a written paid-in-full confirmation letter from the funder; bank statements showing they stopped taking payment; a UCC-3 lien termination statement for any previous claim filed against the business; and a court clerk’s record of dismissal or satisfaction of judgment for any earlier court action.

Signed Settlement Agreement

If you own the company, be aware that a release of the business is not enough. The contract has to explicitly say both your company and you as a guarantor have no further liability to the funder. When disputes arise, courts resolve them based on documents.

Make sure the agreement lays out the exact dollar figure you’re paying and when it’s due. Check if the payments have to be made on specific dates, and by a certain method. Verify that it says “paid in full” or “settled in full,” and doesn’t leave open the possibility of owing more later. Some arrangements allow the original full amount owed to be restored if a single scheduled payment isn’t made. Understand any grace period for missing payments, and how you’ll be notified about missed payments and other potential issues.

A funder’s word on a phone call or an email may be meaningless. Get a signed settlement agreement before sending any money. After paying it all, get written confirmation from the funder that the payment was received and the balance is satisfied. Don’t assume anything has ended until you have signed written proof. Keep digital copies of any record of payment you give each and every funder you do business with. Keep these records and know where to find them at all times. Be aware that when you settled an earlier advance, that did not affect anyone else.

For the bank records, a full account statement, showing both your deposits and withdrawals, will document the payments stopped. You can keep digital copies of bank statements with transaction details easily in case of future trouble. Your settlement should confirm all ACH debits and levies will stop. It should also confirm if the funder was ever in contact with your customers or card processor, that communication will end. If the funder reports to business credit bureaus, the agreement should state how the account will be reported to those bureaus once it is settled.

A merchant cash advance business called Yellowstone Capital settled an FTC lawsuit alleging they continued withdrawing money for days after balances were repaid. The Yellowstone Capital company and its owners gave up $9,837,000 for refunds. So check all your bank statements even after a final payment.

UCC-3 Termination

A UCC-3 statement means the previous claim was removed. It doesn’t come automatically with payment. Settlement agreements should include a commitment by the funder to file a termination within set days of final payment. If the contract doesn’t say that, send a signed written demand for this document. Then the funder has to either file it or send it to you within 20 days. Once the UCC-3 termination is filed, the funder’s financing statement stops being effective, so there’s no more public notice of debt against the company’s assets. If the funder fails to file or send the business the termination, a business can recover $500 plus actual damages.

If the funder has also sued your company, the settlement agreement should say that lawsuit will be dismissed. If judgment was entered, then the funder should file a satisfaction of judgment with the court clerk. In New York, the court rule CPLR 5020 says if you paid the creditor in full, they have to file a satisfaction-piece with the court clerk within 20 days. If the creditor doesn’t file the satisfaction in time and the judgment was $5,000 or more, then they owe you $500.

Taxable Income

If you settled a debt, the forgiven amount is generally taxable income for the year the amount was canceled, unless you claim an exclusion such as insolvency on IRS Form 982. Merchant cash advances can be structured as purchases of receivables, which can change how it’s treated. Any lender in the lending business has to file Form 1099-C if they canceled $600 or more. If the 1099-C form they send you has a code F in Box 6, that means they settled for less than the debt. Get advice from a tax professional before year-end.

Also keep in mind that a personal guarantee often triggers when a business closes. If you foresee that happening, deal with the guarantee during settlement talks, not after.

Take the end of a debt seriously. Be ready to prove if asked how much you paid, what was said, where you paid it, when, and who you talked to. Save all these together and make digital copies as backup.