If you’re a Houston business owner, and you’ve taken out merchant cash advances, there may come a point where that debt is toxic—and it’s impossible to keep up. We see this a lot. When weekly or daily payments are crushing your cash flow, you might be struggling to pay for inventory, utilities, or payroll. When you enroll in a business debt settlement program, you’re creating a way to avoid going out of business. At DelanceyStreet Debt Relief, we provide business debt settlement solutions that help you refocus on operating your company.
Understanding How Texas Law Impacts Merchant Cash Advance Debt
Texas has complex regulations that can affect how business debt is enforced. Often, MCAs are framed as future receivables purchases instead of “loans,” which can potentially bypass Tex. Fin. Code § 302.001 usury limits. In some cases, lenders threaten aggressive collection tactics, citing default judgments or even freezing your bank accounts. We’ve seen them file UCC-1 liens on business property, which can block future financing. Bottom line – business debt relief is a complicated process, filled with pitfalls if not addressed early.
Common Scenarios We See
Many owners come to us with similar stories:
- They started off using one MCA to boost their inventory. Then they stacked another. Now, they can’t manage the daily withdrawals.
- Sometimes, they signed a Personal Guarantee—which exposes them personally if the business can’t pay.
- Others worry about bankruptcy, because their business debt is overwhelming them and they need a way out. But they’re unsure whether Chapter 7 or Chapter 11 under Title 11 of the U.S. Code is right for them.
If you’re in any of these situations, you might be looking for a way to manage your debt and avoid going out of business.
Negotiating with Lenders: Why Communication Matters
You might think your lender wants to sue right away. Ultimately, every lender wants to get paid back. If you call them, share your financials, and propose a partial lump-sum or restructured payments, often they’ll listen. That’s especially true if you feel like you’re about to go out of business or file bankruptcy. Under IRS guidelines, if you settle for less than what you owe, the forgiven portion might be treated as taxable income—Settling debt for less than what you owe can also have tax consequences. This is important to plan for. You don’t want to settle your debt and then face big tax liabilities.
Roleplaying a Few In-Depth Scenarios
We often see nuances you might not expect:
- Scenario A: The Immediate Default Threat
You took two MCAs. Payments became unmanageable. You missed a few. Now the lender’s attorney is sending you emails referencing breach of contract and threatening a suit. You consider ignoring them. That’s risky. In Texas, once they secure a judgment, they can garnish certain business bank accounts or place liens on your company assets. If you have a personal guarantee, they might go after your personal assets too. A solid plan: reach out, disclose your cash flow challenges, and present a proposed payment plan. Alternatively, a business debt settlement attorney can step in and negotiate so if you have a COJ – it doesn’t result in huge financial issues. - Scenario B: Contemplating Bankruptcy vs. Settlement
Your debt is so high, you’ve lost track of the total you owe. A friend tells you to file Chapter 7. But you worry that might dissolve your company. Another suggests Chapter 11 reorganization. You’re unsure. No lender wants you to file bankruptcy, but if you do, you can explore reorganization. Sometimes, lenders agree to stretch payments over 12–36 months, reduce your interest, or lower your overall balance. For many business owners, this type of workout plan prevents the business from shutting down and helps avoid the negative credit impact of a bankruptcy. You must weigh the tax consequences of any forgiven debt, though, and possibly consult a CPA to handle the 1099-C. - Scenario C: A Questionable Agreement
We see MCAs with interest rates of 20% or higher that can look like triple-digit interest. Some providers claim they aren’t subject to Texas usury laws if it’s not a “loan.” But if the line between purchase of receivables and a traditional loan is blurred, you might have a defense. You can argue that the terms are unconscionable or that it’s effectively a loan subject to usury protections under Tex. Bus. & Com. Code provisions. If you do that, the lender might reduce a specific debt. We’ve seen them drastically reduce what’s owed to avoid litigation. But this requires strong negotiation skills, potentially involving your attorney to press the issue.
Possible Paths Forward
We know each business is unique. Here are some ways out of high-cost debt:
- Merchant Cash Advance Consolidation: If you qualify for a lower-rate loan, you could use it to pay off existing MCAs, turning multiple payments into one.
- Invoice Factoring: If your slow-paying clients are causing cash flow gaps, factoring may give you the immediate cash you need to pay down existing debts.
- Direct Negotiation: Sometimes, simply talking to the MCA provider can result in a reduced principal or extended schedule that keeps your business afloat.
- Bankruptcy: Considered a last-resort option, but it might be appropriate if your total debt is overwhelming. Just be mindful of how it impacts your operations long term.
Here’s a quick glance at some common pain points and potential strategies:
| Issue | Recommended Relief |
|---|---|
| Unmanageable MCA Payments | Negotiate a restructure or extension, possibly aim for a lower balance |
| Threat of Lawsuit/Default Judgment | Work with a business debt attorney to protect your assets or settle out of court |
| Personal Guarantee Leading to Personal Liability | Seek partial waiver or settlement of the personal guarantee to protect your personal assets |
| Fear of Bankruptcy | Evaluate workout plans or debt consolidation first, then assess Chapter 7 or Chapter 11 options |
| Tax Exposure on Forgiven Debt | Consult with a CPA about 1099-C implications and any potential ways to reduce tax liabilities |