5 MCA Letters to Prepare: Templates for Requests, Settlement and Account Records

The merchant cash advance borrower is under intense pressure to come up with the funds: to increase sales, to take out another loan or advance, or to refinance in order to make good on the original advance. It can be a scramble. Even so, there are five letters which can protect you if you find yourself or your business in this position:

• 1. A reconciliation request.
• 2. Request for production of records and calculation of payment.
• 3. Written confirmation of any settlement or payment-cut offer you accept.
• 4. Letter to your bank about stopping payments (which you should only write with advice of counsel).
• 5. Demand to terminate the UCC lien after payoff.

(You should keep dated copies of each letter. Further, not all protections will necessarily apply to you, and a mere phone call may not be enough.)

Writing a letter is a small step with huge benefits for merchant cash advance borrowers. To begin with, writing a letter forces you to take the necessary moment to figure out what it is you want from your funder and how you are going to go about achieving it. A letter can act as a guide to more efficient talks, and gives your counterpart something to refer to as a good measure of what you want and what you don’t want.

The reconciliation clause may compare your fixed daily or weekly withdrawals with the agreed percentage of actual receipts when sales drop. Read your merchant cash advance contract for the reconciliation provision, which may be called true-up, readjustment, or a look-back, and how it works.

Before writing a reconciliation letter, make sure you know how often you can reconcile, how far back it goes, the percentage and how receipts are defined. (Transfers, new financing and refunds are not sales.) Find the named notice address or portal. Reconciliation does not necessarily cut the total purchased amount you agreed to repay.

The first thing to do is say the full, legal name of the business, the date, or other reference number of the agreement, and specify the clause of the contract that lets you ask for reconciliation. Give the exact dates you are asking to be reviewed.

Show how you did the calculation; for example, if receipts for the period were $40,000 and the purchased percentage was 15%, then the percentage-based figure is 15% of that or $6,000. Also, if the lender withdrew $368 twenty times, that’s $7,360. This equals a difference of $1,360. But remember, this is just the calculation at face value; this doesn’t mean that you are actually owed that amount.

Attach the bank statements or sales reports required under the agreement. Send them the way the agreement says to - email or through the lender’s portal. Save proof that you sent them, so the lender can’t later claim you did not. Ask in your letter for a written answer that explains how the company made its calculation. This way, you’ll have a record if there’s a disagreement or you want to complain.

Template: “Dear [name of party], Attached are our [bank statements, reports of sales receipts] in accordance with the [contract's clause or section number and title], for the period [insert beginning and ending dates]. I calculate the amount I owe you for that period is [dollar figure]. Please confirm in writing whether this is correct or explain in writing how you calculated the amount and what it is. Very truly yours, [name] Encl. [bank statements]”

Another letter to send when you have a disagreement is a Request for Production of Records and Calculation of Payment, which asks your lender or funder to provide their calculation of payments and to give you supporting records like receipts. Ask for a list of every withdrawal from the date of the agreement to the present, as well as the calculation used for each withdrawal. If any calculations changed, you can demand to know the date that each change took effect. If you have several MCAs, you can also write a records letter for each agreement, to get a separate withdrawal log for each funder.

Template: “Dear Lender: Please send me a written statement with all my advance payments, including daily or weekly debits and withdrawals; the records and receipts showing the calculation of each payment; and a written calculation of my remaining balance. My account number is XXX. Thank you.”

It’s vital to keep a log of all withdrawals, including a complete list of amounts, from the first day of the advance, because if a funder wrongfully takes your money when you have paid back the advance, they may be cheating you. For example, in 2021 the FTC settled with Yellowstone Capital for $9,837,000 over claims it kept withdrawing payments after the balance was paid.

A Lower Withdrawal for a Limited Time

If a lender or funder offers a lower withdrawal for a limited time, make sure to get the offer in writing before accepting it. You should make sure you know if the offer covers past overcollection or only future withdrawals; any added fees; whether there are amounts deferred which you must pay back later; whether you give up claims or defenses if you agree; and start and end dates for the new withdrawal.

Template: “Dear Lender: I received your offer by phone/email to lower my payments for a time. I am interested in accepting it but I need to know: (1) Does this offer apply to past overcollection? (2) What are the start and end dates? (3) What fees will be applied? (4) Is any balance being cancelled? (5) Am I giving up any claims or defenses? Thank you.”

If the offer does cancel part of the balance, the lender may file a Form 1099-C for $600 or more. Forgiven debt counts as income even if you don’t get the form, unless an exclusion applies. You may be able to claim an insolvency exclusion on Form 982.

A reconciliation request won’t stop withdrawals, and it won’t change the agreement. Any time you stop a bank transfer or change the account, it’s vital to talk to your attorney beforehand. Use a written stop-payment order. The stop order lasts six months, and you can renew it by sending another order in writing. An oral stop order lapses after 14 days, unless it is confirmed in writing.

Template: “Dear Sir: This letter is to stop payment of withdrawals from my account numbered XXXXXXXXX of $<amount> by [company name]. Please confirm in writing that you received my order. Yours very truly, [name]”

Terminate Its UCC Filing

When you pay back a merchant cash advance, send your lender a signed demand to terminate its UCC filing. The company then has 20 days to send or file a termination statement. Once the termination is filed, the lien filing stops being effective.

Template: “Dear Lender: I have paid back my merchant cash advance, agreement number XXX, as of today’s date, [date]. This is a demand to file a Termination Statement for UCC-1 #XXXX on account of [name of borrower]. By law, you have 20 days to send or file a Termination Statement. Very truly yours, [Name]”

When you ask for records, the funder may refuse, delay or dispute. Keep dated copies of your request and records with every reply you get. Note what the funder says is missing. A lawyer may advise you of options. However, a refusal does not by itself cancel what you owe. If there’s a pending lawsuit, you may need to respond in court.