If you’re a small business owner in Washington, D.C., grappling with multiple merchant cash advances (MCAs), we understand how that debt is toxic, and it’s impossible to keep up. Maybe your cash flow looked strong when you took the first advance, but now daily or weekly ACH deductions can lead to one merchant cash advance after another, and pretty soon your cash flow is crushed. Worse yet, you might be facing a lawsuit, a possible Confession of Judgment, or calls from lenders threatening legal action. At DelanceyStreet Debt Relief, our job is to help you navigate these issues, create a plan, and focus on a Business Debt Settlement approach that’s effective, if you feel like you’re going to go out of business.
Why Washington, D.C. MCAs Are Problematic
Many business owners get MCAs hoping to manage a cash crunch. Eventually, the interest rates, hidden fees, and daily payments become unmanageable. When you’re in Washington, D.C., you face specific statutes and local rules that shape how MCAs are enforced. For instance, if a lender does something so extreme that it can quickly sink a business—like charging an “effective interest rate” that might violate D.C. Code § 28-3301—then the MCA could be reclassified as a high-interest loan subject to stricter scrutiny. That alone might create a strategic conversation, giving you leverage for a partial reduction or renegotiation of the debt.
Common MCA Defense Angles
We’ve seen many different types of debt disguised as MCA contracts. Some look like standard loans but are disguised as “purchases of receivables.” Others contain Confessions of Judgment (COJs) or personal guarantees that put your home and bank accounts at risk. Below are some of the major defense pathways we explore:
- Recharacterization of the MCA as a Loan
If your agreement imposes a fixed payment schedule and sets factor rates that mimic interest rates of 20% or higher, D.C. law may consider it a loan. You could challenge the contract under local usury regulations. This often leads to negotiations that lower your principal or extend your payment term. - Motion to Strike or Void a Confession of Judgment
COJs allow lenders to obtain a judgment without a traditional lawsuit. In Washington, D.C., this tool must meet strict procedural rules. If the COJ is defective, you can demand the court toss it, giving you breathing room to renegotiate. - Consumer Protection Claims
Some MCA providers misrepresent factor rates or hide fees. Under the D.C. Consumer Protection Procedures Act, you may have grounds to hold them accountable if their actions qualify as deceptive or unfair. - Bankruptcy Considerations
If you have multiple stacked MCAs and other unmanageable debt, Chapter 11 or Chapter 7 may be an option. Bankruptcy triggers an automatic stay on collection actions, though it comes with legal fees and strict reporting requirements. We explore this path only if other routes aren’t viable.
Roleplaying Different Scenarios
Scenario A: You run a small restaurant in Georgetown. Two MCAs can quickly sink your business if they keep taking a chunk of your daily sales revenue. You missed payments, and a lender is threatening to enforce a COJ. We’d start by examining the COJ for errors. If it’s invalid, we file a motion to strike. Then we’d discuss a payment plan that reflects your current cash flow.
Scenario B: A nonprofit in Adams Morgan took an MCA disguised as a “simple receivables purchase.” The contract’s factor rate exceeds 40%, and there’s evidence the lender promised “no hidden fees.” We might invoke D.C. Code § 28-3301 to show the MCA is actually a usurious loan. Simultaneously, we could cite the Consumer Protection Act if the lender advertised deceptive rates. That combination often means lenders realize you’re serious about paying what you can realistically afford, and they might be reasonable and help you.
Hidden Risks and Tax Implications
If you reduce or settle your MCA debt, the IRS may treat the forgiven portion as taxable income. Many of our clients first realized they were in distress when they saw how a portion of forgiven debt could be taxed as income. That can be overwhelming if you’re already under financial pressure. Before finalizing any workout or settlement, we encourage you to consider reaching out to a tax advisor who can help plan for any forgiven debt.
Our DelanceyStreet Debt Relief Approach
We’re owned by an attorney, and we have a sister law firm ready to make an initial offer to the lender if they’re being unreasonable or threatening legal action. Our first step is to gather your bank statements, profit/loss reports, and MCA contracts. Then we open communication with your lenders. Often, they prefer a settlement or a structured plan over forcing you into a default or bankruptcy.
Because many MCAs rely on fear, it’s important you consider your options, because lenders often rely on the fact that you may not know you have rights. By highlighting potential legal defenses, we shift the conversation away from aggressive collection practices and toward a reasonable resolution. Our clients frequently see extended terms, reduced overall balances, and relief from chronic late notices so you can refocus on your business.
Practical Next Steps
- Gather Documentation: Keep all contracts, emails, and statements.
- Assess Real Cash Flow: Know exactly how much you can afford in payments.
- Be Transparent: Show your creditors you’re serious about repaying on terms you can handle.
- Consult a Tax Professional: Plan for any forgiven debt so you aren’t hit with a surprise tax bill.
- Act Quickly: The longer you wait, the more time lenders have to obtain judgments or freeze accounts.