Business Debt Relief Companies: 5 Ways to Compare What They Actually Do

Most debt relief companies work the same way. You stop making payments to the MCA provider, pay them a reduced monthly payment instead that they hold in an account, and then they negotiate with the MCA company once the money builds up. But it comes with real risks that can leave you in a worse spot than when you started.

If you’re at the point where you’re searching for these companies, chances are you’ve already got multiple MCAs. The way they attract business is by advertising to owners with heavy MCA debt and offering a way out: they consolidate or renegotiate, promising that they’ll reduce the payments. The useful question is not who sounds friendliest, it’s what they’ll actually do for you.

Debt Negotiators Vary

One way to compare them is to look at what they ask you to do. They all say they’ll save you money, but it usually comes down to you not paying the MCA provider. Then you pay the debt negotiator directly instead. There’s a real risk to this - you’re breaking the contract with your MCA provider. So you still owe them a daily or weekly payment, but you’re paying someone else instead. You’re counting on them to work something out in the meantime.

The second way debt negotiators vary is where your payments go and when they get paid. There are rules from the Federal Trade Commission that say covered companies cannot charge fees until they settle or reduce at least one of your debts. It’s a way of saying you pay for results, not promises. There’s no fee until you accept the deal and make one payment under it. And money you put in the savings account is yours. You can get it back at any time if you decide the plan isn’t working. The company will return it, minus fees already earned, within seven business days.

A third thing to ask yourself is: what if the MCA provider says no? If they will take less, maybe it works out. Say it sticks to your original deal because you’re breaking it. You’ve paid the negotiator, but now the MCA provider is suing for everything. If you’re still short on cash when the MCA provider sues, you could end up paying all future receivables to the MCA, plus all the money you spent on the debt relief company. Then you’ve paid twice, with no money to show for it.

The fourth thing to ask about debt relief companies is who defends you in court if the MCA provider sues. Some hire outside attorneys to take over the case. This raises two questions. Does the outside lawyer know what it’s doing? And what happens if you lose? Legal defenses can be hard to win. Some attorneys prepare cookie-cutter pleadings without even considering the specifics of your case. If you lose, you could owe the full amount due under the contract, plus attorney fees and a host of default and insufficient funds fees.

A fifth thing is what the debt negotiator tells you about the program. Covered debt relief companies are supposed to follow the FTC rule on telemarketing sales. That means they need to tell you up front what it will cost, how long it will take, and how much you need to save up before they even make an offer to your MCA provider. They also have to warn you of risks, including that you could be sued. Since a March 2024 rule change, companies that cold call your business can’t lie either.

Other Routes Out of Debt

Also, don’t just pick from two similar debt relief providers. Compare them against other routes out of debt, too. In some situations, you can refinance debt through an SBA 7(a) loan. Subchapter V bankruptcy, a small-business version of Chapter 11, is open to companies with debts no more than $3,424,000. If filing for bankruptcy counts as a default under the terms of the agreement, there’s at least a chance it can’t be enforced against you.

Read Your MCA Agreement Closely

Before you sign up with any debt relief company, it pays to read your MCA agreement closely. And if you’re not sure what it means, ask a lawyer with experience working on MCA and debt relief cases. Talk to them about the risks and options - and the different ways it can play out. Then you can make an informed decision about whether a debt relief company is really the best way out of your MCA.