Merchant Cash Advance Forgiveness: 5 Claims to Examine Before Relying on Relief

MCA Forgiveness

There is no forgiveness program for merchant cash advances. There is, however, a great deal of noise on the internet about MCA forgiveness, with firms large and small promising to grant forgiveness or ‘relief’ to struggling business borrowers, at a price. Anyone making claims about a forgiveness program should be met with skepticism. Real relief from merchant cash advance debt is achievable. That relief is not flashy and it is not simple. It usually involves one of four elements:

• restructuring the debt by agreement,
• negotiating a settlement,
• defending against a lawsuit,
• or filing for bankruptcy.

The debt is structured very differently from a business loan you may have taken from a bank. Generally, an MCA is documented not as a loan but as the sale of future receivables at a discount. Instead of a maturity date and stated interest rate, MCAs typically have a ‘repayment’ schedule with daily or weekly repayments taken by ACH that are a set percentage of sales. The lender files a UCC-1 on the receivables and often over all the business assets. Nearly all MCAs include a personal guarantee from the business owner.

Claim one is “your balance can be forgiven.” This happened in the January 22, 2025 New York Attorney General settlement with Yellowstone Capital that wiped out $534,552,724 in MCA balances for more than 18,000 small businesses. Look, though, at how the settlement arose. It was not an application process. It was an enforcement action by a government agency that sued. Businesses with a Yellowstone judgment or lien against them got mailed instructions on how to ask for it to be vacated. The borrower needed to send the request within six months. In other words, the relief is not something you can apply for; rather it arises from a regulator acting against your MCA funder.

The second claim is that your MCA is actually a loan. Your claim is that, as a loan, it can’t charge higher interest than the law allows. The legal dispute over whether a true purchase and sale of receivables is a loan in disguise comes down to three factors. Courts ask whether it has a reconciliation clause, whether it has a fixed end date, and whether the funder can still collect if the business goes bankrupt. The law considers these three elements because they show whether the funder can get its money back “absolutely.” A true loan is “repayable absolutely”, whereas a sale of receivables is not.

If the advance was a loan, the crime of criminal usury may come into play. In New York, criminal usury is a class E felony. The state says that knowingly collecting more than 25 percent a year is criminal. The Attorney General said that Yellowstone Capital’s rates reached up to 820 percent a year. As a practical matter, though, defending against a merchant cash advance in court and winning is not automatic. Not every cash advance is a loan in disguise. Sometimes they are successful defenses, but if you are betting everything on the outcome of a lawsuit that can be a dangerous gamble.

The third claim is that a disclosure violation cancels your contract. Generally, it does not. In California, the regulator will bring the enforcement action. In general, though, a technical violation of a disclosure law does not void the entire agreement or create a damages claim by itself. But, you should still report a violation. On April 14, 2025 the DFPI called on harmed businesses to file complaints. The rules have been in effect since October 1, 2023.

There is a fourth big claim that a company will make the problem go away. Some companies tell clients to stop the ACH, close the bank account, move deposits and ignore court papers. This type of advice is dangerous because, although it might sound harmless, it is both detrimental and risky. In a typical case, that can mean you get sued quickly. You might find you are personally liable for the debt. You might get called to answer for a fraudulent transfer that occurred when you moved your money.

The Telemarketing Sales Rule, a federal consumer protection law, generally bans debt relief companies from charging fees until the company has settled at least one debt and the customer has made at least one payment under it. But, when you call for help with MCA debt, you might not get this same protection. Most business-to-business calls are exempt from these protections.

Negotiated Settlement

The most common resolution is a negotiated settlement. Funders write off portfolios routinely. A going-concern business is worth more than an abandoned one. The question is whether you have leverage. Did the funder reconcile properly? Was the UCC-1 on file correctly? Can they prove the assignment chain? Is there a confession of judgment or some other unenforceable term? In the end, most settlements take the form of a lump sum payment at a steep discount or a longer payment schedule at a smaller one.

Claim five is that a settlement wipes the slate clean. The Internal Revenue Service generally takes a different view. It says the canceled amount is taxable. If the debt is a business debt, it is reportable on a schedule of business income and expenses, says the IRS. A bankruptcy or insolvency (insolvency only up to the amount of it) can be an exclusion, but you have to file for the exclusion and declare the right type of exclusion. To get the exclusion, attach Form 982 to your return.

There is one more thing about bankruptcy. It also is not a clean slate. The bankruptcy for small businesses (Subchapter V) has a debt ceiling. For a business to qualify, total debts must be $3,424,000 or less. The filing does place an automatic stay that stops an ACH debit, lawsuit or levy, but if you made a personal guarantee you will not get off the hook simply because the business has sought protection. A perfected UCC-1 makes the funder a secured creditor, so the business’s reorganization plan must address that.

Request a Reconciliation of the Account

Start by reading the agreement carefully. Most have a reconciliation clause. If you are current and in good standing with the funder, request a reconciliation of the account. Do this in writing to the address given for ‘notices’. In the letter, include the bank statements, the merchant account reports, or the most recent P&L to prove the numbers. Oral requests are easy to ignore. An ignored written request can be good evidence later if the case goes to court.

If you are sued in California, you generally have thirty days from service to respond. Miss that date and the funder can request a default judgment, which can be harder to vacate later. What separates the owners who resolve this from the ones who fail is not the size of the balance. Instead, it is how quickly they get accurate information about the option or remedy that applies to them.