Welcome to DelanceyStreet. We are a premier, blue chip, business debt settlement company, that works with companies in 49 of the 50 states resolving business debt. Our expertise is resolving complicated situations, where you need a surgical approach that keeps the business alive and lenders at bay. Specifically, we’re going to talk about merchant cash advances specifically in this article. The merchant cash advance side, is where the real carnage is, so that's the only thing we’re going to talk about here. Not "business debt" in some broad MBA sense. MCA debt. The daily-ACH, factor-rate, your-bank-account-is-on-fire kind.
We’re going to keep it to one lane because everybody writes these sweeping "top 10 debt relief companies" listicles and they're useless.
First, what you actually owe (this changes everything)
A merchant cash advance is not a loan. Legally. On paper it's a "purchase of your future receivables," which is a technical way of saying they gave you 40k today and bought the right to take, say, 58k out of your account in daily bites over the next four months. In theory, advances are supposed to be risk free to the business owner, it’s not a loan - that’s why they can charge usurious high interest rates.
Why does the fiction matter? Because if it's not a loan, it's not subject to usury caps. So the effective APR on these things runs - 80%, 150%, sometimes north of 300% annualized once you do the math on the factor rate against the actual term. They don't quote you APR ever, it would scare you if you heard the APR rate. They quote you a factor rate, like 1.45, because 1.45 sounds like a number and 290% sounds like a crime.
So when a "business settlement company" tells you they're going to negotiate your "loan," small thing but it tells you they don't actually know the product.
How people end up needing this in the first place
Nobody takes four MCAs because business is great. They take the first one because they needed bridge financing, and usually the first position is the least predatory, and comes with the most significant amount of money as a lump sum. If you need funding to grow the business, getting $100,000 wired to your bank account can be an amazing relief. You feel like you have air.
Here's the spiral, and it's always the same spiral. You take one advance to cover a funding gap, and it comes overnight. The daily debit is brutal, say 600 bucks a day off the top before you've sold a thing, so cash gets tight, so you take a second advance to make the first one easier. You now have an infusion of $80k, that sounds amazing - you feel that fresh air again. Now you've got two daily debits. Then a third to handle those two. This is called stacking and the MCA industry built its entire growth model on it. Usually it’s the same broker, who gives you one MCA, and then proceeds to keep calling you - because the broker knows you’re going to say yes to more funding. They KNOW the second and third position are paying off the first, they fund it anyway because they price the risk into the factor rate and the personal guarantee covers them.
By the time someone calls me they've usually got three to six positions, eleven, twelve grand leaving the account every week, and they stopped being able to make payroll about a month ago.
The mechanics of an actual settlement
The reason MCA debt is settleable at all is leverage, and the leverage is grim - it's that the business is worth more to the lender alive and paying something than dead and paying nothing. But many predatory 3rd and 2nd position lenders take a narrower approach - they want their money, and they want it now. They don’t care if your business survives.
When the daily debits are killing the business, you reduce or stop them thinking it’ll stop the bleeding. The lender's automated debit bounces. Now you're in default, that’s not an opinion - that’s a legal definition. If you read your contract, you’ll see there are half a dozen different ways to get into a position of default. The lender's collections desk lights up the minute you miss even a single payment. MCA lenders know the recovery rate on a defaulted stacked merchant is bad. So a real negotiator, someone with an actual relationship and a track record at that funder, can often land a lump sum at 50 to 70 cents on the dollar, or a stretched-out plan that the business can actually breathe under. Often most outcomes end in 1 of 2 ways, that I mentioned previously.
Some funders settle all day. Some have a tier system. And some - I won't name them but the big aggressive bank-ish ones - basically never settle, they'd rather litigate you into the ground, and any settlement company that tells you "we settle with everyone" is lying to your face because that's just not how the lender landscape works. Every lender has a protocol. The protocol revolves around them doing a series of steps. For some lenders, filing a lawsuit is mandatory, and part of their process.
In practice when you've got multiple positions, the work isn't "settle the debt," it's, modify everything, every position, different funder different math. That's the actual job. It's triage on six positions at once.
Is your MCA actually a usurious loan? The question almost nobody tells you to ask
Everybody treats business debt settlement like begging for a handout, a favor, it’s humiliating as a thought - because you’re acknowledging your business is in distress, you can’t keep up - and you need financial help. You go to the funder hat in hand and ask for a discount and hope they feel kind. Sometimes that is the whole game. Sometimes it is not. Sometimes, the contract you signed may not be an advance at all. It may be an illegal loan, and that changes who has the leverage. This is the goal whenever an advance is evaluated, to try and position it as “not an advance,” - have it reclassified as a loan.
Here is the 1 thing the funder never wants you to think about. An MCA is legal only because it is a purchase of receivables and not a loan - we’ve said this before, and it’s an important legal ramification. That is the entire foundation. Our goal is to knock the foundation out and the have the advance fail, because if a court decides the deal was really a loan, it gets measured against the usury laws the funder was pretending did not apply. The only reason they can charge the rates they do (factor rates), is because it’s not considered a loan. In New York a loan over 25 percent per year is criminally usurious under Penal Law section 190.40. Most stacked advances, once you annualize the factor rate against the real term, are not at 25 percent whatsoever. They are at 80, 150, sometimes north of 300. So the recharacterization question is not theoretical, it has real implications that can change your entire game plan.
New York courts use a three-part test for whether your “purchase” is really a loan. It comes from LG Funding, LLC v. United Senior Properties of Olathe, LLC, and the Second Circuit picked it up in Fleetwood Services v. Ram Capital. Three things:
One. Is there a real reconciliation provision? Meaning can your payment actually drop when your revenue drops. The reason MCA’s are not considered loans, is because your future receivables are bought, and collected - at a fixed %. For example, it could be 8% of your daily receivables. But that # is based on your revenue, and if revenue goes down, that number goes down.
Two. Does the contract have a finite term, a hard stop by which the funder must be paid no matter what.
Three. Does the funder have recourse if you go bankrupt through no fault of your own, a personal guarantee or a confession of judgment that lets them chase you, and hold you liable and responsible for making good on the MCA?
The real question underneath all three is one question. Is the funder absolutely entitled to repayment under all circumstances. If this was a traditional loan, the scales typically shift towards “Yes.” Because legally it’s a loan.
A true purchase, a real advance, means the funder took on the risk that your business tanks and the receivables never show up.
If the contract is built so the funder gets paid regardless of whether you actually earn the money, then they did not buy anything - they issued a loan, but called it a sales of receivables. The court in LG Funding said exactly that. When the agreement let the funder enforce a personal guarantee, and a confession of judgment, the moment the business filed bankruptcy, those provisions showed the funder never assumed the risk of low or no revenue. That is the tell that courts look for typically when re-classifying an MCA as a loan.
The reconciliation clause: the promise they write and then ignore
Almost every MCA contract contains a reconciliation clause in their agreement. It is the clause that makes the whole thing legal, and most owners never read it and most funders never honor it. No one talks about it; on your onboarding call with an MCA lender when you took the advance, no one discusses it. It’s not something they want you to actively know, because if every merchant tried asking for reconciliation, it would overwhelm the lenders underwriting department.
Here is what it is supposed to do. Your daily payment is set as a percentage of your sales. Sales move up and down. So the contract is supposed to let you ask the funder to adjust the daily debit to match what you are actually bringing in. Slow month, the daily ACH goes down. The funder’s payment actually rising and falling with your real revenue, is the thing that makes it a sale and not a loan. Take the reconciliation clause away and you have a fixed daily payment that does not care whether you earned a dollar, which is a loan under a different name.
What happens in practice is the clause is written so you can almost never use it, this is truly by design. It requires you to request reconciliation in writing every single period. It gives the funder sole discretion to grant it, you cannot negotiate with their decision. No mechanism really exists. Your reconciliation request is a plea, not a formal right when lenders actually get it. It demands documentation on a timeline no struggling business meets. Or the funder just ignores the request, which is what the Attorney General said Yellowstone did at scale. The clause exists on paper so the funder can point to it in court and say look, this MCA is a real purchase - we have a clause that says we’re willing to adjust the payment. Whether they actually reconcile is what gets looked at in court.
This matters to you in two ways. If you are still paying, asking for the reconciliation correctly and in writing can lower the daily ACH right now, legitimately, using a right in your agreement. If the lender refuses, they are in breach of the contract they signed. Done correctly, enforcing reconciliation is not a favor you are asking for. It is a contract term you are holding them to. This is the core of what our Reconciliation Shield program is built around.
What a real settlement agreement has to say, or you are not done
A settlement agreement that actually protects you has to do specific things, and you read every one of them before money moves. When a settlement agreement is signed by you and the MCA lender, this is a new contract that is now taking over the pre-existing agreement you had signed with the lender.
Now the part that'll make you mad
There's a whole class of "debt settlement companies" that are not in the settlement business at all. They're in the fee-collection business and you are the fee. They see you’re in trouble, and they’ll prioritize collecting their fee first, and if your business is still around, they’ll work on getting you an outcome. But once they’ve collected their fee, to them, you’re just a file and that means no real interest in helping you.
The tell is the upfront retainer. They charge you five, ten, fifteen grand up front, "for the file," and then they tell you to immediately stop ALL payments to ALL your funders. They go quiet on the lenders, and don’t even reach out to them for several months.
Here's what happens to you while they're quiet. The funder files a UCC lien or just sweeps your receivables, they hit your processor, they freeze the account, in some states they come after the personal guarantee you signed which means your house is in the conversation now, and if you signed a confession of judgment - which New York restricted for out of state debtors a few years back, they can get a judgment against you without you ever seeing the inside of a courtroom. All of this happens fast and it’s on purpose, because the lenders need to collect their money ASAP. They don’t want to negotiate, they just want the funds.
And the settlement company that took your ten grand? They have no ethics what so ever, and will behave in ways that shock you, they'll stop answering, the rep who was so warm on the sales call has "moved to a different department," your emails bounce around, meanwhile the lawsuits are stacking up. At Delancey Street, we often clean up the mess of other scammy business debt settlement companies who promise the moon, and deliver nothing.
That's the predator tier. They are not rare. They advertise heavily.
Why your customers and your processor suddenly stopped paying you right
When you default, the funder does not just call you and harass you, they start swarming anyone in your orbit. The aggressive ones go straight at your money before it ever reaches your bank account. Many business owners who are unfamiliar with predatory lenders, will be shocked that their private affairs are now being shared with their clients, and vendors. Everyone suddenly knows your business is in distress. Many relationships start getting severed.
The mechanism responsible for this is the UCC lien. When you took the MCA, and signed the agreement, you almost certainly signed a security interest in your receivables and usually in all business assets, and the funder filed a UCC-1 to record it with the state. On default that filing becomes a weapon used against you the next day. Under the rules that govern secured transactions, the MCA lender can notify your customers directly and demand that they pay the lender instead of you. They can apply the UCC lien on your credit card processor to divert or freeze your deposits as well. Overnight, cashflow that you were counting on to make payroll gets intercepted, and the first you hear about it is a customer asking why a finance company told them to redirect payment. Usually the letter the customer gets is very legally intimidating, and as a result the customer will get scared and comply.
How to tell a real one from a wallet-hunter
Few things.
Do they have a lawyer actually involved. Not "attorney affiliated," not a logo. When a funder sues you - you need someone who can answer the complaint and show up. Often some lenders will purposefully sue you, as part of their standard operating procedures, in order to pressure you. The pressure is part of their game plan, because they think you can’t afford an attorney, and will buckle under pressure.
Reverse consolidation. If their "solution" is to put you into one new bigger advance to pay off the others, that's not settlement, that's a seventh MCA.
So is the whole industry a scam?
No.
For a business that genuinely cannot service the daily debits and is heading for the wall, real settlement is sometimes the only thing between the owner and financial ruin. Done right it can take 200k of stacked advances down to a number the business survives, keep the owner out of a confessed judgment, and buy you time to fix your operation. Some clients we’ve worked with, restructure their debt and get an extension of 1-2 years. They save up money during that time, and then offer a lump sum payment to the lender. I've watched it save companies and save families. The function is legitimate.
What is business debt settlement
Delancey Street regularly engages in business debt settlement; the process of negotiating with your creditors to your MCA debt for less than the full balance, or to restructure by extending the terms of the business loan so your business can survive; usually because you cannot keep up with the debt on its current schedule. The outcome for business debt settlement is workout, not a loan and most definitely not bankruptcy. If business debt settlement is correctly done, it ends with a signed settlement agreement, and lien releases across your creditors.
What types of business debt can actually be settled
Not all business debt behaves the same way. Not all debt can actually be settled. If you keep reading, you’ll learn about each type of business debt that exists, and what type of outcomes are possible. Here is the situation.
Merchant cash advances. Covered at length on our website. This type of business debt is the most settleable debt when handled by someone who knows the lenders. If you have relationships with the lenders, then it’s something which can be managed; but it’s dangerous if someone treats it like credit card debt and applies a formulaic cookie cutter approach to it. This requires precision, and a finetuned approach. Every lender is different, and is a personality to understand and work with.
Business credit cards and unsecured lines of credit. These settle the way consumer cards do, except the personal guarantee is almost always in play. Often, you can use a cookie cutter approach here because banks have internal settlement tiers and recovery desks. A card that has charged off is often settleable at 40 to 60 cents, sometimes less, depending on how far down the collections chain it has gone. The biggest issue we find when dealing with this type of debt is the personal guarantee.
Conventional term loans and equipment financing. Equipment loans are usually secured by the equipment and that’s why the APR on this type of debt is reasonable, in comparison to unsecured debt. That changes the math and the process of settling it. A secured creditor can repossess the collateral and often will insist on repossessing it - with you being unable to stop it. As a result, your leverage is weaker, and the negotiation is often about the deficiency, the gap between what the equipment sells for at auction and what you still owe. You can settle the deficiency. You generally cannot stop a lender from taking the assets that are collateralizing the loan, or equipment financing that was issued.
SBA loans. Different animal, and most settlement shops don’t know how to handle it. You do not “settle” a performing SBA loan. The SBA Offer in Compromise process only opens after the loan has defaulted and the lender has liquidated whatever assets they can. At that point the SBA will consider a lump sum offer on the remaining balance based on your documented ability to pay, your assets, and the cost to the government of pursuing you. It is a formal submission with required forms, not a phone negotiation.
Vendor, supplier, and trade debt. Often the most negotiable debt you have, because the vendor wants the relationship to continue. These settle quietly and fast when you still have a working relationship and a plan.
Commercial leases and landlord debt. Settleable, but governed by the lease and by state landlord remedies, laws, and the landlord usually holds a security deposit and sometimes a personal guarantee.
Business tax debt. This is not settlement in the commercial sense. Federal tax debt goes through the IRS Offer in Compromise process, a separate statutory mechanism with its own forms, financial disclosure, and qualification standards.
The short version. Unsecured debt settles best. Secured debt is more complicated, and revolves around the collateral. SBA and tax debt run on their own tracks and require someone who knows the procedures specifically. Any firm that quotes you one fee and one playbook for all of it is selling you a template, a cookie cutter approach, which is doomed.
How much does business debt settlement cost
Three fee models exist. You need to know which one you are being sold, and often you need to read the agreements carefully, because many settlement shops will mislead you, omit crucial information, and you will only discover the truth once they are debiting your account.
Percentage of enrolled debt. The business debt settlement company charges a %, often 15 to 25 percent, of the total debt you “enroll,” into the program. The issue here is what counts as enrolled debt by the settlement company. At Delancey Street, this is the model we use. We charge a flat %, and this flat % covers all fees, associated with representing you. We don’t nickel and dime you, just charge the flat fee. If you need legal services, we cover the cost of the legal representation within this flat fee.
Percentage of savings. In this model, the business debt settlement company is charging you a percentage of the difference between what you owed and what was settled for with the lender.
Flat fee. A fixed dollar amount for a defined scope. Cleanest to evaluate, because there is nothing hidden in a percentage base.
Business debt settlement vs the alternatives
Settlement is one option available to you when you’re trying to deal with your business debt. There are four others, and the right one depends on your unique situation.
Settlement vs debt consolidation. When you engage with a business debt consolidation company, they are going to roll multiple debts into one new debt with one payment. If the new debt has a genuinely lower cost and you afford to pay for it, consolidation is easier. When you go this route, it does not damage your standing with creditors. Typically, all of your lenders are being paid off - all at once, and there is no discount. They are simply getting paid a lump sum amount, and you are now responsible for paying the new lender. The problem in the MCA world is that “consolidation” is usually reverse consolidation, which is one larger advance used to pay the others. That is a seventh MCA, and it almost always makes the daily debit worse.
Settlement vs refinancing. If your credit score is good, and you have revenue, this is a real bank loan or SBA product that pays off the debt. Settlement is for businesses that cannot qualify for that exit. If a legitimate lender is willing to underwrite you today, then refinancing can be a good option. Most settlement companies will not push you towards refinancing the existing debt, because then the settlement company cannot make money from you.
Settlement vs bankruptcy. Chapter 7 bankruptcy results in a liquidation. Chapter 11 is different, and it’s a reorganization, and Subchapter V is the streamlined small-business version of Chapter 11. Bankruptcy has unique legal powers, which settlement does not. It imposes an automatic stay that freezes collection the moment you file. This means if there are UCC liens stopping you from getting paid by lenders, which often many MCA lenders file, the freeze from bankruptcy can prevent them enforcing the UCC lien. It can bind a creditor who refuses to deal, and it can discharge debt the entity cannot pay. Settlement has advantages bankruptcy does not. It is private, it is faster, it does not put a public filing on your record, and it does not hand control of your business to a court and a trustee. This is very important because sometimes you think bankruptcy is the right option for you, but then you realize - you might lose control. If your debt load is survivable, as long as creditors make concessions, and you want to keep operating quietly, settlement is the lighter instrument. If the debt is unpayable, or a creditor is determined to burn your business into the ground and will not settle at any number, Subchapter V may be the only real leverage you have.
Does business debt settlement hurt your credit
Yes it can, and anyone who tells you otherwise is lying. Settling a debt for less than the full balance means the account did not pay as agreed, and that gets reported. There are many layers to think about; for example is this a secured business debt, unsecured debt, MCA debt, etc.
Business credit. If your business debt is settled, or charged-off, then those commercial accounts typically hit your business credit profile at Dun and Bradstreet, Experian Business, and Equifax Business. Future commercial lenders are likely to see it.
MCA debt. Typically these lenders have a personal guarantee in them. Some MCA lenders report business debt writeoffs to credit reporting agencies, both personally, and commercially.
Who qualifies for business debt settlement
Settlement is not for every business. Some businesses need business debt settlement in order to survive, but do not qualify. It is a very nuanced conversation. You are a realistic candidate if most of the following are true.
- Your business is generating revenue but you are unable to service the current debt schedule.
- The debt is unsecured or the secured collateral is worth less than the balance.
- You have already missed payments.
- The total debt is large enough that creditors have a real incentive to take a discounted lump sum rather than chase you.
You are a poor candidate if the business has no revenue, and will not be able to generate revenue in the future any time soon.
