Merchant Cash Advance Relief: 5 Ways to Assess the Next Move

You Need Five Answers

There is no one move to fix daily payments that eat payroll or rent. The question is what to try next. To know that, you need five answers: Is the business viable without the debt? How many funders, and have they started collection? Is the contract what the sales pitch promised? Who signed a personal guarantee? What kind of settlement or bankruptcy will work?

Although one lender might make sense, sometimes things snowball. An MCA is sold as a purchase of future receivables, so when sales drop, the daily withdrawals often do not shrink. To plug the gap, you take a second MCA, then another, until you can not keep up with any of them.

First, ask whether the business would be viable if it had no more advances. A business that has both cash flow and contracts from its customers stands a good chance. One with irregular cash flow is harder to save. If the numbers are falling and evaporating, the MCA will have nothing to take. The point is to ask whether you can succeed without the payments, rather than only how to escape the contract.

A big mistake with MCAs is assuming they are the main problem when the real issue is a business model that can no longer succeed. If your revenue has fallen enough, getting a payment plan can extend the suffering rather than start a recovery. Try to understand the total picture. If the revenue is gone, it may be time to move on.

Second, count your funders. A settlement with one does not stop the others from calling on the personal guarantee, freezing your bank accounts or suing. Settling a debt with one funder is a decision; it is not a plan.

Then ask yourself how far collection has gone. By lawsuit? Through default judgment and a freeze on bank accounts or a hold on business assets? A bankruptcy filing can remove much of the hazard, with the automatic stay from § 362. You can get a reprieve on debts by filing bankruptcy, but it is just that: a reprieve. Funders have the right to ask a judge to end the automatic stay on their debt. The bankruptcy reprieve from debt collection does not erase a default judgment that was entered before a bankruptcy is filed. The consequences of a default judgment may need immediate work.

Third, are the papers what they seem to be? The legal status of an MCA is still a murky issue. New York courts usually weigh three things. Is there a reconciliation clause, limiting the collections to the amount it really earned? Does the contract have a set end date? If the merchant goes bankrupt, would the contract let the funder keep making demands anyway? An agreement for “daily payments” may or may not be a true loan. Different contracts and decisions make any answer unpredictable.

Fourth, do you have a personal guarantee that backs this debt? A personal guarantee makes you responsible for money owed by a different person. A filing for bankruptcy by the company usually does not wipe out a personal guarantee. The company and its owners are distinct. A business bankruptcy takes time and offers a shield while it goes on. The downside is that the shield may only protect the business and not its owner. The business’s bankruptcy does not automatically wipe out the funder’s lien on the business’s accounts. A bankruptcy filing lets you ask the funder to prove its lien. Sometimes the funder has not even filed the lien in the right state. If a prior lender has filed first, its lien may take what the funder hoped to get.

A Settlement or a Filing for Bankruptcy

Fifth, decide on the tool: a settlement or a filing for bankruptcy? A settlement lets you keep the business outside of court. You continue to own and to manage it. This has the drawback that it does not shelter you from other funders. Bankruptcy may shelter you and could help you to save the business. A settlement goes best when there is only one main funder and enough money to make a deal work. Keep in mind the points that you want to confirm. They include the amount, the dates, stopping the ACH debits, and releasing the UCC filing. You will also want the guarantors released from the debt, and a dismissal of any lawsuits. For multiple funders who have started lawsuits, default judgments or freezes on accounts, it may be better to put the whole debt structure in bankruptcy.

A company that wants to keep operating wants a reorganization, which is Chapter 11 or Subchapter V. A reorganization under Chapter 11 is tougher than a settlement. The debtor must put together a financial plan that the court approves, along with proof that the business can do what the plan says. The debtor has to keep the court updated. Subchapter V can be less cumbersome and less expensive. By contrast, an LLC that files a chapter 7 will generally get its assets liquidated, but ordinarily gets no discharge. The Subchapter V debt limit is $3,424,000 since April 1, 2025. Check whether your total debt is lower than that. Chapter 13 is not an option for companies; it is only for individuals.

If you settle, bear in mind that the IRS may tax a settled debt as income. A filing for bankruptcy or insolvency can cut down on that, through Form 982.

Deepen the Hole

Do not make the hole deeper. Hiding cash, hiding customers or wiping files can move the focus from the amount of your debt to the extent of your misbehavior. Using one funder to pay another can deepen the hole.

Get the paper. A lawyer needs to know who signed what, how much and when. Contracts, bank statements and UCC filing show who you owe. Acting in time matters, and time can go quickly. Your goal is to keep the business, if that is a wise choice, or to limit the total cost if it is not.