At Delancey Street, we’ve met many business owners in Chicago who took a Merchant Cash Advance (MCA) because they were hoping to grow; or perhaps they needed a life line. Either they were looking to expand, or they were behind on bills and needed fast capital. Over time, daily or weekly debits from their bank accounts became impossible to keep up with. Before long, that MCA they relied on eventually led to a chronic pattern of late payments – or notices of default from their lenders, and the need for the ability to fend off potential lawsuits. If you’re in that situation, you need to understand Chicago MCA Defense strategies—immediately.
Is Your MCA Really a Loan?
Often, MCAs are marketed as “sales of future receivables.” In reality, some contracts operate like high-interest loans, because the MCA provider wants fixed payments that are toxic, and it’s impossible to keep up. Illinois has strict usury laws under 815 ILCS 205/4; if the effective APR is akin to credit cards with high balances often having interest rates of 20% or higher, you might have grounds to argue the MCA is a disguised, illegal loan. This approach can reduce your overall debt if a court agrees the MCA is subject to state rate limitations. But it’s not a quick fix—you’ll need legal counsel with immense knowledge of the law, and the ability to show why the MCA is functionally a loan.
Why a Confession of Judgment (COJ) Could Result in Huge Financial Issues for You
We’ve seen many MCA contracts include a COJ. That means if you default, the MCA provider can get a judgment without a standard court trial. In Chicago, a COJ might still be enforced if the lender follows the right steps, but if they skip key legal formalities, you can sometimes show the COJ was never properly executed, or that the MCA agreement itself was unconscionable. This is a strategic conversation, which requires you to have the best possible team on your side, because you might only learn there’s a judgment once your accounts are frozen, or once a sheriff’s officer shows up. If you aren’t represented by an attorney, you are in serious trouble potentially.
Strategies to Avoid Going Out of Business
Dealing with MCA debt isn’t just about contesting the contract. In some cases, you might need to restructure your entire debt load to protect your daily cash flow. Here are a few tactics:
- Negotiating a Lump Sum Settlement:
Many MCA providers want some repayment rather than none. If you can gather a lump sum, you can often reduce the total owed. But be ready for potential tax consequences if part of your debt is forgiven. - Extended Payment Plans:
Sometimes, MCA companies are open to stretching out your repayment schedule. This gives you more breathing room but could lead to paying more interest overall. - Business Debt Consolidation:
A new loan could pay off multiple MCA obligations. You end up with one monthly payment, potentially at a lower rate. - Bankruptcy (Chapter 7, 11, or Subchapter V):
If debt negotiation fails, bankruptcy can provide relief. Chapter 7 may wipe out unsecured debt but might mean closing the business. Chapter 11 or Subchapter V lets you reorganize instead.
Watch Out for Tax Consequences
Many of them are making false claims with business debt settlement, like the possibility of a 1099-C. If you settle for a smaller amount than you owe, the forgiven portion is often treated as taxable income. This is especially tough if you barely have the cash to keep operations going. Our suggestion is to keep your accountant in the loop so you don’t realize you’re in distress because you failed to make your minimum payments. The ultimate goal of a business debt settlement company is to reduce your overall total amount of debt, not exchange one headache for another.
Self-Negotiation or Professional Help?
Negotiating directly with MCA providers can save on third-party fees. But if you’re inexperienced, or your lender may refuse to settle, it’s impossible to keep up. Sometimes, a partial agreement can trigger new default fees or higher rates on the remainder of your balance. That’s why we recommend an organized approach—review your contracts, gather your bank statements, create a realistic cash flow projection, and then decide if you want to negotiate or bring in professional counsel.
At Delancey Street, our team prides itself on having a sister law firm that can help if it comes down to litigation. We know that no lender wants you to file bankruptcy, but if it’s the only way forward, we can outline what that looks like. We have also seen scenarios where doing nothing leads to swift judgments and crippling bank levies. Bottom line: be proactive.
Real-Life Scenarios We’ve Encountered
We’ve had clients who stacked multiple MCAs. One default triggered another, and the practice of stacking merchant cash advance loans can quickly sink a business. By reviewing each contract, consolidating the debts where possible, and showing lenders how you’re creating a way to avoid going out of business, it’s probable that the lender will work with you and create a payment plan that works for you, which added two extra years to repay—and cut the overall balance.
In another case, a business owner discovered the MCA had a COJ. Many of our clients first realized they were in distress because they failed to make their minimum payments, and the lender froze their accounts. Our legal team found that the MCA company had filed the COJ in the wrong jurisdiction, giving us grounds to vacate the judgment. After that, achieving successful debt negotiation, and settlement, isn’t easy. It requires immense knowledge of the law.