MCA Restructure Agreement: 5 Terms to Examine Before Signing

The lower payment in the workout agreement will feel good in your wallet. But agreements drafted by funder’s counsel can hide:

• (1) a general release of all claims,
• (2) reaffirmed personal guarantees from company and principals,
• (3) new confession of judgment,
• (4) acceleration based on a single missed payment, and
• (5) a ”true sale” acknowledgment.

The word “workout” provides little info on the content of the agreement. You will know a lot more once you see the actual agreements your finance provider wants you to sign. The workout changes payments going forward. But it doesn’t terminate the financing or credit relationship. A “settlement” pays off the account and terminates it. A forbearance temporarily pauses collection enforcement on the account. A funder may use more than one of these in an agreement. The ultimate result comes from the actual clauses and not the label on the document.

The range of the release should alarm you. It can wipe out all the claims and defenses you had before signing. You can end up giving away rights to items not even known to exist at the time of the agreement, and certainly ones with unknown value. If you have lost money on reconciliation or suspect a payment shortfall over time, research the matter thoroughly before signing away the past. But, a carve-out can be added: “except the following”.

Note the reaffirmation. If your guarantee was weak, shaky, or vulnerable to legal challenge, the workout reaffirmation can strengthen it and lessen your odds of later backing away. It is a separate function from agreeing to modify the payment. Best practice is to read that section over, on its own, to create a separate impression in your mind. That helps overcome the relief at the lower payments while aiding identification of details.

Look for a new confession of judgment. It is the very clause that lets the funder get a judgment without a lawsuit. The funder may have had a confession of judgment in the original deal, but decided to also include one in the new agreement. Could be that an original one wasn’t enforceable. You should understand the impact of a new confession of judgment.

States vary on use of confessions of judgment. New York lets the funder file only in the county where the debtor lives; if out of state, no New York filing. Texas bans them as of Sept 1, 2025 in business sales-based financing.

One significant new provision can be acceleration rights. If missed payments trigger a default, the funder can accelerate to all sums due. Some will give you a “cure period” to catch up. But, others will let the funder call the entire balance due on the first missed payment. When does the funder have the ability to declare a “default”? Another perspective is: how can you cause a default? Could be even a late payment. Still, keep an eye out for a “grace period” in the agreement. Such grace periods reduce the severity on language about you being in default upon the first missed payment. Think of the acceleration clause as a tripwire. In contrast, the payment plan in the workout is a path. You do better when the path is wide, vs narrow.

With a true sale, the MCA treats the payment as an upfront bulk purchase of receivables. Whether the agreement is a true sale is a central question in MCA cases. In New York, appellate courts have asked three questions: is there a reconciliation provision, a finite term, and does the provider have recourse if you file bankruptcy? An acknowledgement that it is a “sale” concedes that question. On your own or with counsel, evaluate the addition carefully.

But why would this matter? New York’s top court ruled (2021) that a company that borrowed under $2.5 million could argue its loan broke the 25 percent criminal usury cap. If proven, that would void the whole loan.

A business in Texas or Florida can still have an MCA contract governed by New York law. A choice-of-law clause says which state’s law governs the contract. And a forum-selection clause says where a lawsuit can be filed. Not the same. So, if you get sued, don’t ignore a New York lawsuit because your business isn’t in New York.

Don’t accept the first draft your funder presents as final. Ask for carve-outs from the general release; no acknowledgment of a true sale; no new confession of judgment; a written promise to terminate the UCC filing (UCC-3) once paid; and notice, plus time, to cure before the funder can accelerate. The goal is not just a lower daily payment or longer term. You should preserve defenses and not concede the nature of the transaction for the right to pay less. If you have multiple funders, settling with each separately can move your shortage to the one still on the hook.

Time crunches should trigger suspicion. In the heat of signing, you can overlook these terms, especially a general release and a reaffirmation. Speed is the enemy of wise action. Resist the pressure to act right away and ask for additional time to make a decision.

Even with the discount, the payment could be hurting your business. If so, you would be continuing on a faulty financial path, with no future improvement. Also, if the debt is large or has several funders, several accounts restrained, or judgments entered, it may be worth looking at bankruptcy as part of your analysis. A business can file under Chapter 11, which is a reorganization. Subchapter V creates a more streamlined filing for small businesses. The automatic stay stops collection. Signing the agreement and the bankruptcy option are not mutually exclusive. But, the review of the workout agreement should include an eye on what it would change if you later file for bankruptcy. Does it change rights, change claims or change defenses?

Ask how much the discount is and what the balance on your written agreement is; when it’s forgiven, IRS generally considers it income in that year. However, exceptions exist for situations like bankruptcy or insolvency. The IRS mandates lenders file Form 1099-C when they cancel $600 or more if their main business is lending. This includes deals to settle a debt for less.

Know what you are being asked to sign away before you provide a signature.