Welcome to Delancey Street, a nationwide business debt settlement company based out of New York City. We service clients nationwide for all sorts of business debt, but most specifically merchant cash advance debt. The purpose of this article is to talk about the top three business debt settlement pathways available to you if you’re struggling with debt in New York City. At Delancey Street, we spend our days on the phone with funders, so here’s a plain explanation of how business debt settlement actually works, what moves the number, and where each path breaks down.
Business debt settlement is not one product
First, let’s frame this conversation. Business debt settlement is not one product. It is three different mechanisms, each with their own leverage, costs, and different modes of failure. Most owners pick the wrong one because they are looking at their bank balance instead of looking at the funders’ incentives, and more importantly, because they’re just not sold the right product.
New York law and New York courts
New York City is the center of the merchant cash advance industry. Most funders, brokers, and syndicators sit in one of the five boroughs. That matters even if your business is in Texas because these contracts almost always choose New York law and New York courts. You are going to get pulled into the New York system whether you like it or not. There are a few documented rules that shape everything, though, that follows.
CPLR 3218 and confessions of judgments
In 2019, New York amended CPLR 3218 in order to stop MCA lenders from filing confessions of judgments in New York against out-of-state companies. Before that, a funder could take a signed affidavit to a county clerk and get a judgment against you in days with absolutely no lawsuit or notice. That tool still exists against New York businesses, and the confession must be filed within three years of signing. For out-of-state merchants, the funder now has to sue, though.
Article 8 commercial finance disclosure law
In addition, New York’s commercial finance disclosure law, Article 8 of the Financial Services Law, requires standardized disclosures on financing that is given up to 2.5 million. The DFS regulation set a compliance date of August 2023. DFS can impose many penalties, like civil, with fines prescribed up to 2,000 per violation and 10,000 for intentional violations. But there is a cure provision for bona fide errors that are corrected within 60 days. You can take that for what it’s worth. It’s a disclosure law, but it doesn’t really help you right now get out of the debt you’re stuck in. It’s not a rate cap, and it does not hand you a potential settlement.
New York AG judgment against Richmond Capital Group
Having said that, enforcement is real, though. In 2024, the New York AG announced a $77 million judgment against Richmond Capital Group, Ram Capital Funding, Viceroy Capital Funding, and their owners. The allegations included rates as high as 260% and fraudulently obtaining judgments. The case tells you that punishment is possible, but it doesn’t mean that the funder you’re dealing with is in that category or that this is going to necessarily help you. It just sets the tone for the overall climate.
Lump sum settlement
What are your three pathways? Well, pathway one is lump sum settlement. This is the cleanest version. You pay one number today or in a few installments, and the balance goes away with some sort of release. The mechanism for this is simple economics. Once you default, the funder is no longer collecting a daily or weekly payment. They are simply holding a potential claim. Now, in order to enforce that claim, it costs money, takes months, and they may collect nothing if your business closes meanwhile. For them, cash today beats a potential judgment against an empty shell later. That is the entire negotiation.
Sequence from default notice to restraining notice
Now, what does the sequence look like for this? Typically, daily debits bounce or you cut them off. Then a default notice will arrive. The funder will typically send UCC Article 9 notices to your different payment processors and even your customers, directing them to pay the funder instead of you. Processors like Stripe, Square, or Clover will typically freeze the amount when the notice comes. Then you should expect a demand letter or a lawsuit or a confession filing, then a judgment, then a restraining notice on your bank. In New York, that restraint can reach up to twice the judgment amount.
Leverage and tradeoffs of a lump sum
The highest leverage you have is in the window between the default and the judgment, and it drops afterwards. Your leverage will also depend on something you can’t really fake, whether you actually have the cash and whether the funder believes your numbers. If you have clean bank statements and a real P&L statement, that moves settlement in your favor. There are two tradeoffs, though. A lump sum will drain any reserves you have that you need for payroll or expansion or anything else. And of course, forgiven debt can create cancellation of debt income on your taxes. Before you do any of this, ask your CPA.
Structured workout
The second path is a structured workout. Most businesses in trouble do not have a lump sum, but they do have revenue and consistent cash flow. The workout can convert a daily or weekly fixed debit into a fixed payment the business can survive. Sometimes it can come with a reduced total balance spread over many months or years. Often this workout will also reduce any punitive fees that may have been assigned, like legal fees, default fees, or other issues like that. Funders accept this for the same reason banks will restructure loans. A payment stream from your business beats a judgment against a potential dead business.
Structure matters more than the discount
But the structure matters more than the discount, and this is where owners will often get hurt. You have to look out for a few things.
- First, does the balance reduction apply immediately, or does it only happen if you complete every payment? Many agreements will reinstate the full balance on a single missed payment.
- Second, does the deal require a stipulated judgment or affidavit as a security? This converts a future default into an instant enforcement event that the lender can take advantage of.
- Third, and this is the one that most people often forget, does the funder agree in writing to rescind the UCC lien notice so your processor will release your money?
Any workout that leaves your credit card processor frozen is not a workout. Funders will typically only rescind on full payoffs, settlement, or a workout that spells out the exact release of those funds. One of the great benefits of a workout is that it can buy you time. If your problem is seasonal, that can be worth more than a discount.
Attorney-led settlement with litigation
The third path is an attorney-led settlement with litigation involved. In some rare cases, the contract itself is the argument. New York courts have looked hard at whether an MCA is a true purchase of receivables or a disguised loan. In LG Funding LLC v. Senior Properties, the Second Department pointed to three factors when determining this:
- whether a reconciliation clause existed and worked
- whether the repayment is open-ended rather than fixed
- and whether the funder is actually taking the risk on themselves of the failure of your business, including bankruptcy
Recharacterization and usury
If a court is recharacterizing the deal as a loan, then usury enters the picture. New York limits civil usury defense for corporate borrowers, but criminal usury arguments above the 25 percent line have real teeth, and recharacterization can void an agreement and successfully nullify the debt.
Fact-specific arguments, not switches
Here’s the frank and honest part, though: these are fact-specific arguments, not switches, not black or white. You have to litigate, and that can take time. Meanwhile, your business could flounder or be destroyed. A funder with a mandatory reconciliation clause that it honored is in decent shape. A funder that ignored your written reconciliation request, or whose contract says the funder may reconcile, is in worse shape. Again, the leverage comes from the lawsuit. And actually enforcing and litigating your claims. For the lender, the litigation cost and recharacterization risk makes settlement a top priority. Having said that, there are tradeoffs: time and money. Litigation is expensive and slow, and a judgment against you can lead to conversation immediately. This pathway only fits businesses that have a strong factual record, have meaningful exposure, and have a business worth saving.
Things that can change the number
There are some things that actually can change the number, though.
- For example, timing. Pre-judgment will always beat post-judgment every time.
- For the lender, the position in the stack is also important. If you have five advances, the later funders are back in line and usually will give you a deeper discount. The first position funders often will not because they have seniority on the UCC filings.
- Collectability is another thing that they look at. Personal guarantees, real estate, and strong receivables will all shrink your discount. Thin assets increase it.
- Another variable that increases or decreases it is documentation. For example, if you have many reconciliation requests sent in writing, that’s evidence. Phone calls are not.
- Another variable is whether you are still operating or not. A live business with revenue has options. A closed one mostly has judgment defense.
Direct questions to ask an MCA debt relief company
Now, if you’re looking for an MCA debt relief company or business debt settlement company, it’s important to know that there are no state licensing agencies that certify whether a company is in good standing or not. There is no federal advance fee ban covering business debt settlement the way the FTC’s telemarketing sales rule covers consumer debt relief sold by phone. That rule was written for consumers. Our reading is that business debt sits outside it, which means the discipline has to come from you when you’re signing the contract and reviewing the actual terms and conditions you’re about to enroll into. You have to ask direct questions.
- For example, how are fees calculated and when are they earned?
- Who holds the settlement funds?
- Are you going to see the release language before any money moves to the lender?
- Is counsel available if a lawsuit is filed mid-negotiation?
Anyone that is promising a specific percent before reading your contracts and bank statements is guessing and probably lying to you.
Three paths are not a ranking
The bottom line is the three paths are not a ranking; they map out to different situations. Cash on hand points to lump sum. Revenue without any cash on hand points to a workout with a written processor release, and a defective reconciliation clause or a questionable contract points to counsel. The choice is yours. What unites them is that they are all viable pathways forward depending on the situation your business is in.
If you are struggling and don’t know what to do, we encourage you to speak to Delancey Street today so we can give you a risk-free consultation on the different pathways available to you.
