MCA Debt Relief Options in Tennessee: 6 Routes to Evaluate

If your Tennessee business has debt to a merchant cash advance company, you’ve got six options: negotiate a settlement, refinance with an SBA loan, challenge the contract as a disguised loan, use Tennessee’s confession of judgment law, file under Subchapter V, or file a traditional Chapter 11. The one that fits depends on how much total debt you have, what the contract says, and your current cash flow.

A merchant cash advance payment does not bend when sales drop. The charge is fixed daily or weekly, so it depletes cash reserves at the worst possible moment. You probably signed a personal guaranty, so the debt stays with you after the business fails. And the FDCPA protects consumers, not commercial borrowers. Picture a coffee shop that took an advance to restock beans and replace broken equipment. Before long, they’re paying thousands of dollars every week to the MCA company.

Negotiating directly with a merchant cash advance provider is possible, but challenging. If you default on an MCA loan, you can expect aggressive collection. And now you face a second problem: a bank with a security interest in your bank accounts may refuse to let you repay a merchant cash advance. It is still worth trying.

If a settlement closes your account, the merchant cash advance provider can write off the remaining balance. The IRS sees that as taxable income, unless you were insolvent just before the funder gave up. If you were, be ready to use Form 982 to claim the tax exemption. The IRS lays out the rules in Publication 4681.

Another route is an SBA 7(a) loan, which can be used to refinance existing business debt. Because these loans carry relatively long maturities, they can help struggling businesses ease cash flow. The SBA 7(a) has a maximum term of 10 years, except if it finances real estate or equipment with a longer useful life.

When states impose usury limits, merchant cash advance providers design their agreements to be considered purchases of future revenues. And some courts agree. But if a contract looks like a loan and acts like a loan, it may be a loan -- at least in the eyes of a judge. Even though most contracts say they are not loans, courts look at how the deal worked. Do the payments drop when sales do? How does the agreement set up future reconciliations? Are the terms and guarantees similar to those on a loan? In a 2019 case, the Minnesota Court of Appeals held that the contract met the definition of a loan: the funder bore no risk, at an effective interest rate of nearly 84%. Some courts have upheld merchant cash advances where reconciliation put the funder at real risk.

Regulators are starting to turn their attention to the industry. In January 2025, Yellowstone Capital settled with the New York Attorney General and agreed to be banned from merchant cash advance lending and to cancel $534 million in debts owed to merchants. The AG had alleged the MCA provider lent money at illegally high interest, disguised as merchant cash advances. In the 2024 case FTC v. RCG Advances, the court permanently barred the merchant cash advance company from the MCA business.

Tennessee Voids Confessions of Judgment

A confession of judgment is a device that can allow a creditor to file your acknowledgment of an outstanding debt as a judgment in court. Unlike a judgment that comes at the end of a lawsuit, a confession of judgment allows the creditor to skip the lawsuit. While some states allow confessions of judgment to be signed at the time a deal is struck, Tennessee voids confessions of judgment signed before a suit has begun (25-2-101(a)). That voids any judgment on that confession. Merchant cash advance providers used to file these confessions in New York, but since August 2019 that state has banned them from doing that to debtors who live outside New York. Still, a New York judgment based on one can be transferred into Tennessee through the Uniform Enforcement of Foreign Judgments Act. The state court may look at whether you had a fair chance to plead your case in New York.

Subchapter V Bankruptcy

Under Subchapter V, you must have $3,424,000 or less in total debt on the filing date. At least half of that must come from your commercial activity. A Subchapter V bankruptcy filing is typically cheaper and simpler than a full Chapter 11. The debt limit is for all debt, not just the debt on the merchant cash advance. The temporary $7.5 million debt limit on Subchapter V bankruptcy that ended in June 2024 has not been restored by Congress. As a result, even a small business can have a debt load that is too high for the streamlined procedures of Subchapter V. That is especially true if your business has multiple merchant cash advances.

Calculating the debt load means you have to tally all debts that are owed, fixed, and certain on the filing date. That list includes merchant cash advance balances, taxes, trade payables, landlord claims, and secured equipment financing balances. You need to look at that early.

In March 2026, the Senate introduced a bill to reinstate the $7.5 million debt limit that expired in June 2024 (S. 3977). In March 2026, the House introduced a nearly identical bill (H.R. 7730). Neither has passed. Plan around the current $3.4 million limit on debt if you want to file under Subchapter V.

Traditional Chapter 11 is still available if your business has too much debt for Subchapter V or if it lacks the majority commercial debt requirement. But beware: the process is usually more expensive and complex, and creditors have more sway. An MCA funder may still count as a creditor with a claim even if the contract says the deal is not a loan.

The treatment of MCA funds inside a bankruptcy case is a legal question of its own. You can see it come up in fights over cash collateral, claims, preference actions, lender priority and even Subchapter V eligibility. The courts look at the transaction to see if the MCA is a true sale, a secured loan or an executory contract.

List out all your debt: MCAs, trade payables, payroll taxes, equipment financing and landlord rent. The list may be longer than you thought. Pull your MCA contracts and read how their payments and reconciliation work. Find and read any confessions of judgment. Then you can pick a route that fits your whole financial picture.