MCA Hardship Letter: 5 Parts of a Request the Funder Can Evaluate

A hardship letter to an MCA has five parts:

• (1) name the agreement it’s about;
• (2) in one sentence, describe what happened to income;
• (3) refer to the attached financial records;
• (4) if you can afford some payment based on actual income, suggest a figure to begin with;
• (5) give the owner’s phone number.

The letter should also say whether the request is for reconciliation under the agreement or for an amended contract.

There are three distinct ways for a merchant to try to lower payments to an MCA. One is asking for “reconciliation” to actual revenue (asking the agreement itself to do what it’s written to do), one is asking for forbearance, and the third is asking for a new payment arrangement altogether. Those don’t work in the same way. So if you want reconciliation under the agreement, name it. Read the reconciliation provision first to find out the rules, documents and timing it requires. Make sure you follow them all.

You have to know where you stand to know what to say. A drop in revenue isn’t the same thing as a failed withdrawal. A lender’s notice of default isn’t the same thing as a lawsuit. There’s no universal grace period to save you. To know how much time you have to do something, check the agreement. A default notice doesn’t prove every fee or amount demanded is correct. If you get one, keep it.

Also check the disclosure. In the New York disclosure for sales-based financing with a preset payment and a revenue true-up, the disclosure must briefly explain how the preset payments were calculated, and that repayments are reconciled back to revenue, and point to the contract section if available.

Whether a New York court treats a contract as a loan can turn on whether the merchant can call for reconciling the payments to sales receipts, but it also considers whether there is a fixed term and whether the contract lets the funding firm collect regardless if the business goes bankrupt. Be careful with reconciliation clauses that stop working if the merchant is in default, even if that’s after a single missed payment. Courts in AFK v. Haven Transportation and In re IVF Orlando both read those contracts as more like loans. The bankruptcy court in In re J.P.R. Mechanical said in 2025 that a reconciliation clause that doesn’t give back payments exceeding the agreed percentage of revenue, if they happen, suggests the agreement should be treated more like a loan. A missing reconciliation provision or a disputed reconciliation may raise legal issues, but it does not by itself settle whether an agreement is enforceable.

Evidence That Can Be Checked

Your request has to include evidence that can be checked. That means up-to-date bank statements, credit card processor reports, the business’ month-end profit-and-loss records, and other sales records. Compare withdrawals shown on bank statements with the dates and amounts shown in the agreements. Note duplicate debits, returned debits, or adjustments requests and the dates they were made.

Use the numbers. Build a current forecast of receipts, essential expenses and financing payments; show when the shortfall hits and whether it’s a short interruption, a seasonal dip or a continuing loss of revenue. Base any payment proposal on receipts, not hoped-for sales or unapproved financing. Spell out where income data in the forecast came from. If your accounting system backs it up, you can use those reports.

Whether it’s two MCAs or five, write them down in a list: name of lender, the payment amount and how often it’s taken, and the balance the funder says is still owed. Lots of MCA payments leaving not enough for ordinary expenses is a warning sign. So is relying on a new advance to cover existing withdrawals.

In the letter, the first sentence has the agreement name or number, usually. Usually, a list of any bank reports, credit card processor documents or business financial records attached. If you propose a payment that’s based on actual revenues, then the letter has to show where the payment comes from. Last, your name, email and phone. Make every statement accurate.

Writing to an MCA doesn’t automatically make them lower the payments or waive an alleged default. So hang on to copies of your request, the records you provide and the funder’s reply. The funder might offer a short-term deal. If they do, get that in writing, so everyone has the same idea of what the new terms are: how much gets paid monthly and how long that lasts, how missed payments from before get handled, and what happens at the end.

Once you’ve asked for relief, it’s better to leave things how they were while that’s pending: the same bank account, the same credit card processor. Switching any of those can raise a problem under the agreement or under the law. It’s usually best to ask a legal expert if you plan to make changes. A second account or second processor does not necessarily avoid the issues with payment. An unauthorized or incorrect withdrawal should be spelled out in writing to the business’ bank (or other financial firm) right away, using the transfer records. Banks have specific procedures and deadlines for dealing with unauthorized payments.

A Settlement, a Restructuring, or Refinancing

If the MCA letter doesn’t get you where you need to be, the next move depends on what you can do. A settlement, a restructuring, or refinancing sound similar, but they aren’t the same. A restructuring changes an existing payment arrangement. A settlement ends specific obligations, and should name the obligations, the payment conditions, any guarantees, and releases. Refinancing or consolidation would be a new financing deal, and you should compare the total cost of the old ones with the new deal, find out what new guarantees have to be given, and whether each MCA actually gets paid off. A reverse consolidation may leave the original payments in place.

Once you get sued, the court rules come first. Get legal help right away if you’ve already been sued or had a judgment against you. Payment talks do not buy you any more time. Get advice before you sign anything. Don’t sign a new deal or a payment plan without it first, and don’t let a deadline pressure you.