We hear one question constantly: what do MCA “help” companies or debt relief companies charge and what do they do for you? It is not an easy question to answer: some of them are every bit as predatory as the funders. Their fees are structured so that they earn more money if they do less. They often have no incentive to even contact funders. They are supposed to negotiate settlements but the common strategy is usually “stall and save” which means that the client should stop paying the funders and start putting money into an account for a lump-sum settlement payment. In other words, a delay tactic.
This is super risky for the business owner: when you “stall and save” with a merchant cash advance, funders don’t give you a grace period. They can sue you, freeze your bank accounts, intercept receivables, and even shut your business down. Even worse, a lot of relief firms require the savings (escrow) account to be in the relief firm’s name instead of the owner’s. That means you lose control of the money, and you become vulnerable to legal claims like tortious interference and fraud.
The Fee Side
Then there is the fee side. Many contracts include this: “you must pay us a non-refundable Enrollment Fee equal to 15% of the enrolled debt amount when you sign this agreement.” If you’re already having trouble paying your bills, handing over a big sum of money doesn’t make a lot of sense. According to the FTC, it is against the law for a business debt relief company to collect fees before it has settled or renegotiated at least one debt. Many companies are now pushing “no upfront fees” as a marketing angle, but they’ve just shifted their profits into more obscure fees.
Be wary of promised savings, too. Nobody can guarantee that the company can negotiate a set percent of debt reduction. You might see examples such as, “our goal is to settle your enrolled debts for an approximate 57% reduction.” Nobody can guarantee the company can settle a business’ debts at any certain rate. Many Merchant Cash Advance funders will not agree to significant reductions in debt and long payment plans. A company that promises this is being disingenuous.
Watch for an “inactive debt” fee. It is possible that the creditor may never respond to your settlement offer. If they don’t respond within 120 days of the settlement offer, the firm will classify your account as “inactive” and charge you a fee for processing the resolution. This fee is 35% of your original enrolled balance. If you enrolled $100,000, and the creditor refused to work with them, you now owe $35,000. Here’s the bonus reason: it gives them a reason not to call the creditor for you, ever.
Some firms can charge a 1% a month service fee if the terms of a settlement are extended. On a $100,000 debt being paid off in 36 months, this comes out to a $1,000 monthly charge that adds up to $36,000 just to pay off the debt without a reduction.
They also impose a 35% success fee. So if they were able to negotiate a 25% reduction off of $100,000, you would save $25,000, but would owe them $8,750 in addition to the $36,000 of extension fees for a grand total of $44,750 to save $25,000. That is nearly double the savings.
Many firms also penalize cancellation. Here’s an example of such a clause: The client agrees to pay 2% of the balance of the enrolled debt for each full or partial month of the program if the client cancels the program early. Example: Let’s say a business enrolled $500,000 in debt and after two months the MCA funder froze all the accounts and took the receivables. The owner cancels the program. $500,000 x 2% x 2 months = $20,000 owed to the relief firm on top of fees already paid, even though the business is shut and broke.
MCA Consolidation Loan
Then there is “consolidation.” A business with two MCAs might get an offer for an MCA consolidation loan. The offer looks like a refinance, but the lender is just another MCA lender that usually hides predatory terms in the contract. And the terms might be worse, requiring more aggressive daily or multiple daily withdrawals of funds that increase the total amount to be paid back. Personal guarantees or confessions of judgment are sometimes required, which lets the lender quickly collect via legal judgment and seizure of assets. If the new loan isn’t better, it’s just another predatory loan.
According to the Federal Trade Commission (FTC), many debt settlement companies use deceptive marketing tactics, promising huge savings but failing to deliver. In 2023, an FTC official described some debt relief operators as “legal loan sharks” preying on companies in crisis. The Government Accountability Office (GAO) warned that business debt settlement programs can leave companies in worse financial shape, and in some cases, small businesses end up owing more than they started because of fees and interest. The New York City Department of Consumer and Worker Protection warned, “Don’t assume that debt settlement companies are acting in (the business’s) best interest - or are legitimate.” Some companies may pose as nonprofits, claim legal representation, or insinuate a relationship with the government.
A Legitimate Program Contacts the MCA Funders
Real help does exist. A legitimate program contacts the MCA funders right away, rather than stalling or advising the owner to stop paying - that only invites a lawsuit. It renegotiates the repayment terms so the business can continue operating without lawsuits, account freezes or collection efforts. It gives short-term cash flow relief while the business stabilizes. It helps the business refinance out of the expensive MCAs into lower-cost conventional financing, for example SBA loans, asset-based lenders or non-MCA revenue-based lenders. Often, business owners sought MCA advances to address other operational or management issues. A ‘real plan’ addresses these concerns, as well as the advances. For any firm, do your homework: a real one can generally be easily verified by a history of work with major banks, law firms, financial advisors and other established firms. You want a trusted advisor, not a telemarketer from a call center.
If you do decide to hire any of these firms, before you sign the contract, read it, check for those fee clauses, and ask the tough questions. If you pick the wrong one, you are going to end up further in debt and with fewer choices. At Delancey Street, we are a business debt settlement company, not a law firm. Our fee is one percentage of the amount of debt enrolled, quoted in writing before we start work. We offer a free first consultation, and it is confidential. If we cannot win your case, or if a cheaper option exists, we will say so on the first call. If bankruptcy is the better path, we will send owners to bankruptcy counsel.
