The phone is ringing. The ACH bounced. The funder’s relationship manager has gone from polite to threatening in under a week. Default is not an event, it is a phase, and what you do in the first seventy-two hours decides how the next ninety days play out. This is the action checklist.
Open new account at unrelated bank. Revoke ACH authorization in writing.
Locate PG, COJ, and choice-of-venue clauses. NY-governed COJs entered in days.
Rank funders by enforcement power, not balance size. COJ-holders go first.
60 days bank statements, 13-week cash flow, A/R and A/P aging.
Written position statement to each funder. Invoke reconciliation clause.
Engage independent counsel before suit. Usury, unconscionability, COJ defects.
Hour Zero Through Hour Seventy-Two
Move your operating cash. The funder has a routing number and an account number from the original ACH authorization. Even if you have revoked the authorization in writing, expect attempts. Open a new operating account at a bank that has no relationship with the funder, transfer working capital, and route customer payments to the new account.
Pull every MCA contract you have. Look for three things: the personal guarantee, the confession of judgment clause, and the choice of venue. If the contract was governed by New York law and you signed a COJ, the timeline for entered judgment is short, sometimes days, not weeks.
Stop talking to the funder on recorded lines without a plan. Anything you say becomes part of the file. Acknowledging the balance, admitting hardship, or promising payment all change your negotiations position. A short written response stating that you are evaluating options is enough.
Week One: Triage the Stack
If you have more than one MCA, rank them. The ranking is not by balance, it is by leverage. The funder with the COJ goes to the top. The funder who has already filed a UCC lien notice goes next. The funder with the strongest customer notification language follows. The funder with the weakest contract and the slowest enforcement history can wait.
Triage by leverage, not by loudness. The funder yelling on the phone is rarely the funder who can do the most damage. Read the contracts.
Build a real cash position document. Last sixty days of bank statements, a thirteen-week cash flow forecast, accounts receivable aging, and accounts payable aging. This is the package every senior advisor and every independent attorney will ask for. Have it ready.
Week Two: Initiate Negotiations
Reach out to each funder in writing. The opening is not an offer, it is a position statement: the business is in distress, payments cannot continue at the contracted rate, and you are open to a structured resolution. Funders settle aged defaults at significantly lower rates than current accounts, but most will not lock in a settlement until the file is sixty days delinquent.
Common resolution paths:
- Reduced lump sum settlement at thirty-five to sixty cents on the dollar
- Extended payment plan at the full balance over twelve to thirty-six months
- Hybrid: down payment plus monthly installments
- Reconciliation under the contract’s own reconciliation clause if revenue dropped
The reconciliation clause is the most underused tool in the MCA contract. If the contract requires the funder to true up payments to actual receipts and the receipts dropped, the funder has a contractual obligation, not a favor to grant.
Week Three: Prepare for Legal Escalation
If any funder has threatened a lawsuit, filed a UCC notice, or has a COJ in hand, do not wait for the suit to be served. An independent attorney from a vetted referral network should be reviewing the file now, not after the bank account is frozen.
The cost of preparing a defense in advance is a small fraction of the cost of unwinding a frozen account after judgment. Defenses that actually work in MCAn engagements include usury reclassification, contract unconscionability, lack of true sale characteristics, and improper COJ execution. None of these can be raised after the fact if no one is paying attention.
Delancey Street senior advisors handle the financial negotiation. When the file needs court work, we refer you to an independent attorney from our network who has handled MCA litigation specifically.
What Not To Do
Do not take a new MCA to pay the old MCA. Stacking is what got most defaulted borrowers into the spiral. Do not transfer business assets to a relative or a new LLC, that is a fraudulent transfer and creates personal liability beyond the original debt. Do not ignore certified mail.
Default is survivable. Thousands of small-business owners come out the other side with the business intact or wound down on their own terms. The difference between the survivors and the ones who lose everything is almost always whether they acted in the first three weeks.
Delancey Street is a business debt-relief company, not a law firm. When a matter requires legal work, we refer you to an independent attorney from our referral network; the attorney–client relationship is between you and that attorney.
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- Move quickly to stop daily ACH debits where reconciliation rights apply
- Vacate Confessions of Judgment in 72 hours
- Senior advisor, not a salesperson