MCA Debt Resolution: 6 Signs the Account Is Actually Closed

When you agree a settlement for a merchant cash advance, you might think it’s resolved, but you’re still in the hot seat until the final paperwork comes through. You may be lulled by phone calls, by a funder telling you the deal is done, by payment being taken. Don’t let that happen. A good rule of thumb for an MCA: the deal’s not done until the paperwork says it is. Once you see a signed release, the final payment has cleared, and the withdrawals stop, then you can start to relax. Other signs of closure are the funder sending you written notice, termination of any UCC lien, and resolution of any lawsuit or judgment.

Before you figure out the rest, check whether it’s technically a restructuring or a settlement. A restructuring generally means agreeing on a different amount, different times or a different length for repayment. It may ease the pressure, but there’s that cash advance still waiting in the wings. A settlement agreement goes a little further and actually clears the obligation, so long as the merchant makes the agreed upon payments.

Signed Piece of Paper

A telephone call does not close a deal. A payment or payments also do not close a deal. Agreements in a phone call are not the same as a signed piece of paper saying that the debt is paid off. An MCA settlement document must be specific. It must say that the funder releases the remaining balance once you meet its conditions. If you are personally liable on the debt, then the document should say that the funder releases you personally as well. If there is a lawsuit, a guaranty, or a judgment, then the document should address each of these directly. It may be appropriate to take the document to a lawyer for review before you sign it.

Once you have this signed piece of paper in hand, you should confirm that the final payment for the settlement has actually cleared. Just because payment has been taken, it doesn’t mean the deal is done. Banks take time to transfer and process funds. Funds could bounce back because you didn’t have enough to cover them. When clearing an MCA with installments, keep on your toes until the whole obligation is gone. The last payment has to clear and every condition of your deal must be met before you’re in the clear. Keep your bank records and any payment confirmation letters.

After your payment has cleared, another thing to watch for is that withdrawals from your business bank account stop. Perhaps you breathe a sigh of relief when your final payment clears, but a few days later you start seeing the familiar withdrawals, starting to draw your bank balance down again. If that happens, you are not in the clear. Yellowstone Capital has faced allegations of this type. The FTC has alleged that it collected hundreds and sometimes thousands from businesses after they had repaid in full. Yellowstone is also said to have sometimes refunded the money to businesses only after they complained. That is why you need to stay alert and keep an eye on your bank statements after a final payment.

In addition to having a signed settlement agreement, you should receive notice in writing that the account has closed. When you pay in full, a good funder should send you a letter stating that they have received your payment and confirming your account is closed. If the funder does not send you that confirmation, you should ask for it. It is far easier to resolve any issues while everything is fresh.

UCC Lien

After you fully pay an MCA, make sure the funder terminates its UCC lien on your business. If the original agreement was secured by a UCC lien, then the account will not be closed until that lien is terminated. A funder that has been paid off may leave a UCC-1 on file until you write and ask. Send the funder your demand in writing, signed. Within 20 days of receiving your letter, it must either file a UCC-3 termination or send one to you for your filing, unless you owe anything under your contract or the funder has made a commitment to lend you more. If the lender fails to do its job on time, you are not stuck: you can file the termination yourself so long as it includes your authorization to do so. And you can also go after the lender for damages of $500 plus any amount you can prove. Once the UCC-3 termination is on file, the financing statement generally stops taking effect. You should never assume a financing statement has actually been terminated just because someone tells you so. You should confirm that the lender has filed the UCC-3 termination.

If you have an ongoing lawsuit or a judgment on your account, then the deal is not closed until the litigation or judgment has been resolved. You need to make sure any such lawsuit is dismissed, or if a judgment has been entered against you, that judgment is satisfied. The court has to be told by a formal court filing that the case has been concluded. In New York a creditor that has been paid in full has to file something called a satisfaction piece for a judgment, including one from a confession of judgment. This must be filed within 20 days, and a copy sent to the debtor within 10 days of filing. For amounts of $5,000 and up, the penalty for missing the deadline is a flat $500. That penalty belongs to you.

There is also one other check you should make after closing your file. Find out if the funder filed Form 1099-C. This is required of any lending business that cancels debts of $600 or more. With some business structures, forgiven business debt can lead to tax issues, so don’t forget to talk with a qualified professional before you file.

Preserve a Signed Copy of the Closing Document

When your settlement is finalized, preserve a signed copy of the closing document, your bank records, your payment receipt, termination letters or email confirming the closure, and any UCC-1 terminations you can get. You also need to keep signed and filed satisfaction of judgment papers. You may need to return to these documents in case any problems arise.