MCA Settlement Agreement Checklist: 12 Terms to Review and 5 Red Flags

An MCA settlement agreement is a written contract by which you and your merchant cash advance funder agree to resolve your dispute and release all claims. In exchange for a full or partial payment, the funder agrees to release you from further obligation on the MCA, terminate your automatic payments, and end all efforts to collect the debt, including any lawsuit. Not every settlement deal works out as intended. Review these 12 important provisions that affect your rights in an MCA settlement agreement, and learn about 5 red flags that should give you pause before signing.

Twelve items cover everything: who the parties are, how much is due, when and how payment is made, a cure period, general releases, forgiveness for your business and any guarantor, case dismissal, termination of UCC filings, a stop to automatic payments, no more contact, an end to fees, and a final release. Without that full dozen, your settlement deal may be missing something critical. There are five settlement agreement red flags to beware of: the payment is too expensive, there’s no cure period to resolve a missed payment, one missed payment revives the whole debt, you agree to a future judgment for the full debt, and important promises are not written down.

The Correct Amount You Owe

As part of any MCA settlement negotiation, you should have reviewed your payment history and the funder’s records to confirm the correct amount you owe. If you agree to pay too much, it defeats the purpose of settling for less. If the funder wants too much, you may have room to negotiate down. Ask for an accounting of the principal advanced, fees, penalties, late fees, and any costs. Have you made more payments than the funder admits? Does the settlement amount in the agreement include a payment you just made?

In the settlement agreement, are you required to make a lump sum payment, such as a one-time payment of all the remaining balance, or installments paid over several months? Even if the last payment is several months away, look at your budget to be sure you can afford that final payment on top of your other business expenses. If an unexpected downturn hits, will you still make your monthly payments? If you don’t have reliable cash flow, you may miss one of the scheduled payments. If so, the funder may demand the full remaining balance, sue you, and get a judgment against you. This would defeat the purpose of your settlement agreement. If you can’t pay now, you need a better payment schedule or a larger discount.

A cure period is the number of days you have to make up a missed settlement payment. Without one, if you miss even one payment, the funder may declare you are in default of the whole amount owed. With a cure period, a missed payment does not mean the whole debt is immediately revived. Instead, you have the cure period to make up the missed payment.

Is your settlement agreement with the business or personal guarantor, or both? If your personal guaranty is not addressed, it may not be part of the settlement. The funder may think they can still come after you personally for the debt. Sometimes a funder will release only the business but not its owners or guarantors from the MCA. The business may be closed, but you or any personal guarantor are still at risk of the funder filing a lawsuit. Without you or other personal guarantors fully released from the debt, your personal credit, assets, and income are still in danger. Your MCA settlement needs to release both the business and all personal guarantors.

Some funders may release their rights against the guarantor only after you make your last settlement payment. Here, your release from personal liability comes only at the very end of the process, not before. The guarantee is not rescinded but merely put on hold. So if you default on even one settlement payment, the funder may take the guarantor back into the deal and off to court.

No settlement is complete until the lawsuit ends. If the deal resolves only the debt but not the lawsuit, the funder may still have the ability to go to court and get a judgment against you. Make sure the funder notifies the court of your settlement agreement and requests a dismissal.

In a settlement agreement, the funder should agree to terminate their lien on your business assets. It should include the filing number, the date of termination, and whether that occurs after the first or final settlement payment. State law usually requires the funder to terminate a UCC form promptly, usually within 20 days of their receipt of a signed written demand from you that you have no balance due. Before settling, ask what action the funder will take to terminate the UCC filing.

Before you sign the settlement agreement, make sure it says that the funder will stop automatic payments on the MCA. To stay in business, make sure the funder can’t take money or other assets from your merchant processing or business accounts. And require the funder to stop all other collection activity, including emails, texts, voicemail messages, letters, and phone calls. Where a funder has already contacted processors, customers, or your banks, make sure the agreement requires them to withdraw or correct the information they provided.

As part of the settlement agreement, the funder should also agree not to charge additional collection fees or late charges. The final part of the settlement agreement is often the release. The funder agrees to release all existing claims it may have against you arising out of or relating to your merchant cash advance.

Red Flag

A settlement agreement can be a good deal, but don’t be in a rush to sign any agreement unless it resolves all your issues with the funder. If you can’t afford to pay the amount offered, don’t sign. If the settlement payment is too expensive, it doesn’t matter if the funder offers a low settlement number. It all depends on how much money you have available to put toward a settlement. Other concerns include your cash flow, your ongoing expenses, and future downturns. Analyze and test the offer before you agree to anything.

Without a cure period, one missed payment may revive the whole debt, even if you have already made most of the payments. When no cure period is offered, find out why.

Another red flag is a one-sided stipulated judgment or confession of judgment that lets the funder enter judgment against you if you miss a payment. In New York, since 2019, a creditor may not use a confession of judgment against out-of-state individuals and businesses without a place of business in New York. Texas, by House Bill 700, effective September 1, 2025, has barred their use in sales-based financing contracts.

The final red flag comes from any spoken promises that the funder won’t write into the agreement. When you negotiate a settlement, make sure every important promise is in the final written agreement, including any releases from liability. The simple term “paid” does not mean “fully released” or “forgiven”.

The IRS treats canceled debt as income. The canceled debt may show up as income on your return, even if you did not receive a Form 1099-C. The insolvency exclusion, Form 982, may limit this. Insolvency means your debts exceeded your assets.

You should also have the settlement agreement reviewed by a lawyer experienced in your state’s contract and litigation rules. Even if you decide to settle without the help of an attorney, at least make sure you understand what the agreement says. And don’t be afraid to push for terms that favor you.