How to Get Out of MCA Loans: A Comprehensive Guide
MCAs are often used by business owners because they were hoping to grow; or perhaps they needed a lifeline. Many business owners come to us at DelanceyStreet Debt Relief when they realize they’re in distress because they failed to keep up with these daily payments. Regardless—our focus is on helping you. Our team handles all types of unsecured business debt, especially MCAs, and we understand just how complicated it can get. Below, we’ll dive into key issues you should know, including legal pitfalls, possible negotiation strategies, and ways to avoid going out of business when MCA debt becomes toxic.
Why MCA Debt Turns Toxic
MCAs are commonly marketed as “purchases of future receivables,” not loans. That wording matters. MCA providers can avoid certain consumer-protection laws, which can lead to a chronic pattern of late payments and notices of default. Many business owners sign up because they need an urgent influx of cash—maybe you wanted to grow, or your business needed a lifeline. Either way, once those daily or weekly ACH debits start, it’s easy to fall behind. By the time most clients realize they’re in trouble, they’ve missed payments and received default notices from their lenders.
Common Legal Traps: Confessions of Judgment and Usury
A key clause we see is the “Confession of Judgment,” which is often used in states like New York. If you default, the MCA funder can obtain a judgment—no lengthy lawsuit required—and freeze your bank accounts. You may be in a state that has robust usury laws, like N.Y. Gen. Oblig. Law § 5-501, but since MCA agreements label themselves as a “sale,” they might not be bound by interest-rate caps. That’s why businesses often realize their MCA debt is toxic, and it’s impossible to keep up.
How DelanceyStreet Debt Relief Can Help
We are an award-winning business debt relief company, led by an attorney, which means we have a sister law firm that assists our clients. When you enroll in our business debt settlement program, our two-pronged approach can help you. We work on:
- Lowering the total owed (principle reductions where possible)
- Negotiating interest rates so you’re not drowning every week
- Extending your term so you’re creating a way to avoid going out of business
We believe open communication is why lenders are often willing to negotiate. Our team immediately establishes contact with your creditors. We share your up-to-date financials—like your P/L statements, balance sheets, and bank account summaries—to show the realities of your cash flow. This proactive approach helps us ensure you avoid going out of business without causing further harm to your operations.
Roleplaying Different Scenarios
Scenario 1: Multiple MCAs with Confession of Judgment
You’ve taken out two MCAs. You realize your daily collections have led to missed minimum payments and default notices, and you’re getting default letters. One MCA funder triggers a Confession of Judgment.
Strategy: Challenge any questionable terms in your MCA contracts. Sometimes, if the language blurs the line between an MCA and a high-interest loan, we can argue usury. Our sister law firm would also check if the judgment was properly obtained. Meanwhile, our negotiators aim to halt the aggressive debits and consolidate what you owe into a more manageable plan.
Scenario 2: Seasonal Business with Volatile Cash Flow
You operate a retail shop dependent on the holiday rush. You took an MCA expecting brisk sales, but a slow season set in. You fell behind on daily withdrawals, and the debt increased significantly with added fees.
Strategy: We’d present your seasonal sales data to show MCA funders why the schedule isn’t sustainable. Sometimes, they’ll agree to reduce your balance or pause payments during off-peak months. The key is explaining that your business isn’t trying to dodge responsibility—it just needs terms that match cash flow realities.
Scenario 3: Considering Bankruptcy to Stop Collection Calls
Your MCAs have become unmanageable. You find that it’s impossible to keep up. You’re getting calls from collection agencies, and the stress is affecting your business. You’re thinking about Chapter 7 or 11.
Strategy: Bankruptcy can trigger an automatic stay (11 U.S.C. § 362), stopping collection actions. But MCA funders may argue they own your receivables outright, which complicates matters. Our sister law firm can defend against such claims. Sometimes, a Chapter 11 reorganization is more appropriate than Chapter 7 liquidation—especially if you want to keep operating.
Core Options to Consider
| Method | Potential Outcome | Watch Out For |
|---|---|---|
| Negotiated Debt Settlement | Lower principal, extended terms, reduced interest | Forgiven debt may be taxable income (see IRC § 61) |
| Challenging Contract Terms | Possible reduction or nullification of the MCA | Confession of Judgment and “sale vs. loan” debate complicates this |
| Bankruptcy (Chapter 7 or 11) | Automatic stay, possible reorganization or discharge | Potential personal guarantees, disputes over future receivables |
Tax Ramifications of Settling MCA Debt
Many business owners forget that forgiven debt can count as taxable income under IRC § 61. That means if you settle your $100,000 MCA for $50,000, the difference could end up on a 1099-C. You need to plan for that. If you’re insolvent, you might qualify for an exclusion, but it’s critical to speak with a CPA or tax attorney. Bottom line – business debt relief is a complicated process, filled with pitfalls.
What Sets DelanceyStreet Apart
We know that business debt can be toxic, and it’s impossible to keep up once you fall behind. At DelanceyStreet Debt Relief, our attorney-led team negotiates with your creditors and is ready to help if legal challenges arise. We also emphasize transparency at each step. Most importantly, we do more than just reduce your payments; we help shield your business from going out of business.
Final Thoughts: Protect Your Future
If you’re struggling with an MCA, do not wait until you fall behind on your minimum payments. You deserve an opportunity to restructure, negotiate, or, if necessary, push back legally. Our debt relief strategies are designed to safeguard your business and maintain your reputation with creditors. Many business owners realize their debt is toxic, and it’s impossible to keep up. Instead, consider how a structured approach—backed by data, negotiation, and legal expertise—can help you avoid going out of business.