How can a business settle stacked merchant cash advances with help from its lender?

An MCA is a “merchant cash advance,” a repackaged loan sold as the buying of future sales. It’s a multibillion business whose rates, once you do the math, go into the hundreds of percent APR. Traditionally, judges mostly went along with the lenders’ claim that they were only buying receivables. Lately, however, courts in New York, both state and federal, have started ruling against the MCA industry, finding the transactions to be loans, with usury rates, not buying future sales. The state attorney general filed a case against Yellowstone, biggest of the funder lenders, in March of 2024. The AG called the companies “predatory lenders”. The suit named the owners and their related companies too. By December 2024 all but two defendants had settled with damages totaling $1.065B, the company is out of business.

So why do owners agree to MCAs, with their ruinous rates? Not by choice. They apply because the bank has refused them a loan. By the time they do, they are in the throes of financial distress. Their desperation is not hard to understand. It’s fast, easy money. Once you are able to apply online, cash will be in your account in a day or so. That’s the good part. The bad part is that MCAs become an addiction, a hole that never ends. Repayments are brutal, and they leave merchants with too little cash to pay regular expenses. They need another advance to make ends meet, then another, falling deeper into a hole they never escape from.

While there is no easy way, there are ways out of the debt spiral. But for that to happen, you have to handle your lenders the right way. And probably get outside help. Your bank, or other institutional lenders, and especially your factoring lender have a stake in your survival, and their backing is key. For starters, you need to know who your stakeholders are. They’re your non-MCA lenders, who lose too when you are drained by debt. And, if you’re factored, your factor - who loses big time. With the right help, and the right people on your side, you can put a stop to predatory advances.

Two cases show how a company, a consultant, the lender and the factor can work together to find a resolution. The first case was a win, the second only half a win. In both, the position of the factor - its lien and its exposure - is what shaped what lenders would accept.

Take the first MCA debtor. Not in New York, with a factor holding about $20M in receivables, one of its biggest merchants. The factor had a first lien on all the company’s assets, which meant the receivables were pretty much the only things of value they could get their hands on. For the factor this was a big account at risk. It had every reason to help the merchant get the funders off its back. Over time, the business took out six MCAs, with five funders. That was about $6.3M altogether. The advances were stacked - each advance on top of the last, each taking its own daily debit from the account. The new rulings, plus the factor’s first lien, meant the funders ended up taking 25 cents on the dollar. Why did the funders cave? The receivables were the only things they could reach and the factor stood first on them. Facing usury rulings, a suit was probably seen as a loser. Best of all, the MCAs were stopped so the money didn’t keep being depleted, leaving more in accounts. It took almost a year to put a deal together. When all this closed, sales were up on the year before. With that, the factor’s risk was lowered.

The second merchant, a commercial printer, owed $6.8M to MCAs. That had come down to about $5M, but the weekly payments of $148,000 were too much for it, and the factor had over-advanced, then quit, rather than add more. The company was near bankruptcy. The owner had signed personal guaranties with both the factor and funders. The consultant was able to get the funders to take under half the weekly payments. Without the factor’s involvement, the company defaulted on the payments within a month. The catch is that the lower payments are just band-aids; they only help so long as the factor keeps funding, and without that the plan collapses. In the end, the owner sold the printer to a competitor. Factor, suppliers, and funders were all paid. And the owners’ personal guaranties were released. In April 2025 the consultant got the funders to settle for $1.8M, the factor’s first lien leaving them little to grab. Selling his company was painful, but the likely alternative was over $10M in personal liability. It was the right call.

What funders want, in the end, is to get paid. You are going to come up against funders who won’t cooperate. Or not at first. But court fights over merchant cash advance debt rarely pay for either side. The long, costly fight leaves each side a loser, and willing to make a deal. Even the most aggressive of them will accept a plan that they can count on, or a discounted payoff. Having the lender or factor’s backing helps too. If stacked advances are sinking your business, your lender or factor has a stake in helping you out. Bring them in early, with a professional.