Your revenue is down, but the debits have not changed. As sales go down, you’re paying the exact same amount of money to your MCA company every day. If that sounds familiar, look again at the contract you signed. Most merchant cash advance agreements include a reconciliation provision, which gives you the right to ask for your payments to be adjusted when your revenue drops.
Trouble is, most businesses don’t realize they have this power when their sales start to tank. Or they don’t realize it at all, not until it’s too late. Many funders will take their payment and hope that their clients do not understand the contract or are not attentive enough to pay closer attention.
A Reconciliation Provision
When you took the advance, the funder bought a percentage of your future receivables, and you agreed to pay it back through frequent debits. Simply put, the more you make the more they get, and the less you make the less they get. A reconciliation provision is a look back feature of a merchant cash advance that is used to ensure the business and the funder are on the same page. A reconciliation is a comparison of how much the funder has collected with how much it should have collected, based on the percentage that you agreed to. If the funder took more than it should, you could get a refund, reduced future debits, or even a credit to your account. It’s important to note that a reconciliation provision is different from refinancing or restructuring your debt. That’s different than an MCA company offering to reduce your advance payments to help you out. Reconciliation just enforces a right you already have.
New York Courts
Why does the clause matter so much? Because of how New York courts look at these deals. New York courts apply a three-part test, as articulated in the LG Funding, LLC v. United Senior Properties (2020) case, to determine if an MCA is a legitimate purchase of receivables or a loan in disguise. One of the first questions under the LG Funding test is whether the agreement includes a reconciliation provision. The other two parts of the test are whether the agreement is for an indefinite period of time rather than a fixed term and whether the funder has recourse if the merchant files for bankruptcy. If the agreement does not include a reconciliation clause, or if it uses discretionary language such as “may” rather than “shall” a court may determine that the MCA is in fact a loan. Then, the agreement would be subject to New York’s 25% usury cap, and the contract may be void and unenforceable.
Regulators have noticed. In early 2025, New York Attorney General Letitia James announced her office has reached a $1.065 billion judgement against Yellowstone Capital, one of the largest MCA operators. The Attorney General has alleged that Yellowstone targeted small business owners with predatory loans and unfairly high interest rates. Yellowstone routinely violated the reconciliation provisions of its contracts, using deceitful tactics to ensure that merchants never satisfied the conditions of the contract. Other courts have determined that MCA agreements were actually criminally usurious loans because the reconciliation provisions were illusory or deceptive. In Richmond Capital Group, the funders admitted that reconciliation never actually took place. The court observed that the reconciliation provisions were “a complete sham.” The trend is clear: courts and regulators treat a failure to reconcile as evidence that an MCA is really a loan and should be regulated like one.
Formal Reconciliation Request
So what happens if you ask and the MCA company says no? Start with the paperwork. Document the drop in revenue with bank statements and other financial records. Contact your funder in writing. Submit a formal reconciliation request. Make it clear that you expect a response and that they will honor your right.
This is where many owners get stuck. MCA companies often make this process very challenging for merchants. They may stall, force you to submit endless documentation, or not respond at all. Some have even answered with aggressive collection tactics or threats. Funders that do not want to reconcile will simply ignore or reject requests. That can mean your daily debits stay too high, your balance takes longer to pay down, and money you could use for operations gets buried in unnecessary payments. Why stall? Because if they do the math and find that they received more than the agreed percentage, they will have to correct the debit amounts. They will be reluctant to pay money back and may just be looking to give you a hard time.
The problem is that not every funder is ethical. A merchant cash advance is nothing more than an agreement between a fund and a business, and both are required to abide by the contract. If they don’t go through with it, their refusal may indicate that your MCA is unenforceable. If they continue to deny or delay, seek legal advice from a merchant cash advance attorney. In this situation, you need an advocate. An attorney can help you work out the next steps. If your MCA is recharacterized as a loan, you may not have to pay the remaining balance, and existing judgments may be vacated. But remember, even when they don’t reply, you still have rights.
Don’t let your frustration get the best of you. Whatever happens, do not stop making your MCA payments without legal advice. It can be dangerous to simply refuse to pay. If you ignore your advance, you may be violating the agreement, and your funder may take legal action against you.
If you have more than one advance, you need to look at each one. Each one has its own reconciliation provision and its own contract language. Having two or more MCAs that are being debited at the same time (which is sometimes called “stacking“) makes reconciliation even more important, because the total amount taken by multiple funders can easily become a disproportionate share of your revenue, which means cash shortfalls. If a funder threatens you over your request for reconciliation, that’s a major red flag. Document the threats and reach out to an attorney immediately. An aggressive response to reconciliation requests has been used as evidence of predatory practices, so this could help you in your case.
If you’re a business owner in the middle of a cash crunch, and you suspect your funder is getting more than the contract allows, ask for reconciliation. Don’t ignore it. And if the funder refuses, remember that the refusal may say more about the contract than about your business.
