End-to-end debt resolution for operating businesses

There is a particular fear that we've seen time, and time again, that hits a business owner in the morning, when their daily ACH hits and the business bank account can't cover it. The accountant, or bookkeeper, sees it first. Then the owner. Then, usually within forty-eight hours, the funder. By the end of the week, three more funders have tried pulling their ACH and it failed, the bank has flagged the account for excessive returns, and the phone is ringing in a way it wasn't ringing the week before. Every lender is worried about their money, and increasingly making threats, and you're sitting there wondering: now what?

This is the moment most owners type "business debt resolution" into Google to figure out what Plan B looks like.

If that's you, read the rest of this article very carefully. We have written this article in order to make it as informative and helpful as possible. The goal is to get you to a better place, even if you're not working with Delancey Street. The decisions you make in the next few days will determine whether this becomes a six-month workout or a three-year unwinding that drags personal guarantees, vendor relationships, and your credit through the mud.

There is a credible way out. But it's not easy, and it requires a lot of effort, and collaboration.

What "business debt resolution" actually means in practice

Business debt resolution is a term for any process which takes your business from being over-leveraged and behind on payments to current, current-on-modified-terms, or settled. It is not one product. It is an outcome, designed to get your business into a better place. It is a categorical term, and the term contains several distinct strategies that business owners routinely confuse with one another:

• Debt settlement: negotiating a lump-sum or term payoff for less than the full balance owed.
• Debt restructuring: modifying the terms without necessarily reducing the principal.
• Reconciliation: for merchant cash advances specifically, using the contractual right to adjust daily debits based on your actual revenue.
• Workout / forbearance: a temporary pause or reduced-payment period, usually with an SBA or bank lender.
• Litigation defense: challenging the enforceability of the debt itself, including Confessions of Judgment (NY S6395), usury claims, and breach of contract.
• Bankruptcy: Subchapter V (small-business reorganization), Chapter 11, Chapter 7, depending on entity and circumstance. The last resort, and frequently the wrong tool.

Most business owners who are struggling to keep up need some combination of two or three of these. The job of a business debt relief company is figuring out which combination, in which sequence, against which creditors, and with what leverage. That coordination is what Delancey Street does for a living.

The type of debt we usually see: merchant cash advances

If you took a merchant cash advance, or you took two, or you took five (what the industry calls a "stack"), it eventually catches you and nails you to the wall. It catches everyone. This is not debt any business can afford. It is an emergency lifeline, but it ends up taking your life. Factor rates of 1.35 to 1.55 on six-to-twelve-month terms work out to APRs that, if disclosed in TILA terms, would routinely exceed 100% and frequently exceed 200%. Stacking compounds the problem because each new advance services the prior one without adding any actual revenue to the business. These are not sources of funding any real business should be taking to grow their company.

The ACH debits hit daily, or hit weekly. Then an MCA position bounces. Then another funder sees the bounce on the bank statements you sent during underwriting and pulls a stop-pay or accelerates. Some lenders will even penalize you for stacking by invoking the stacking clause. Within thirty days of the first miss, an owner with three or four positions can be looking at COJs filed in New York County, UCC liens filed against receivables, and bank levies on operating accounts.

Resolution of MCA debt is not the same as resolution of a term loan or a line of credit. The contracts are different, and this is on purpose. The funders insist they are sales of future receivables, not loans, which has consequences in both directions.

The four-stage resolution process

What follows is the process Delancey Street has run more than a thousand times.

Stage 1 Triage and inventory

Before anyone calls a lender, the case has to be mapped. That means pulling every contract, every email, every payment record, every UCC filing, every bank statement going back at least ninety days. The goal is to see the full picture before the picture starts moving, because once funders sense a workout is in progress, things start moving fast. Many lenders are opposed to you working with a business debt relief company because it means they lose leverage.

This phase tells you:

• Who is owed what, exactly, and on what contractual terms.
• Which positions are first-position, second-position, third-position UCC.
• Which contracts have COJs filed or available to file.
• Which contracts have reconciliation provisions and what they say.
• Which payments are still landing and which have already bounced.
• Whether any creditor has accelerated, sued, or levied.
• What the operating account can actually sustain on a daily and weekly basis.

This is not simple work. It is the most important work in the case. Skip it, or hire a company who doesn't do this, and you negotiate from the wrong number, give up leverage you didn't know you had, or settle a position that was never going to be enforceable in the first place.

Stage 2 Leverage analysis

Every contract has weak points. During this phase, the Delancey Street job is to find them.

• Whether the contract has the indicia of a true sale of receivables or whether a court would recharacterize it as a loan (the LG Funding v. United Senior Properties three-factor test in New York; the parallel analyses developing in California, New Jersey, Florida).
• Whether the COJ, if one exists, was properly executed, properly venued, and properly served, or whether it is vulnerable to vacatur on technical grounds.
• Whether the funder has breached its own reconciliation obligations, sweeps obligations, or duty of good faith and fair dealing.
• Whether the personal guarantee has carve-outs or fraud-trigger language that the funder will or won't be able to invoke.

We use this phase to really understand what the strategy will be.

Stage 3 Negotiation, in priority order

Funders are not negotiated with simultaneously because that would not be smart. They are negotiated with in a deliberate order, driven by who has filed what, who is closest to legal action, who holds the operating account leverage, and who is most likely to set the tone for the rest of the stack. Get the first settlement signed at a 50% reduction and the next three funders price your case differently than they would have on day one.

What gets agreed to in this stage:

• Stop-pay and ACH halt.
• A new payment cadence, weekly or bi-weekly instead of daily, often with a holiday period.
• A reduced principal balance, paid as a lump sum from a settlement reserve or as a structured term.
• A release of the personal guarantee, or a covenant not to sue on it.
• A UCC lien release on closing.
• A no-disparagement clause, sometimes a tail period during which the merchant agrees not to take new advances from the funder's network.

Settlement agreements are not boilerplate. They are the product. A poorly drafted settlement leaves the merchant exposed to clawback, double-collection, or surprise reinstatement when an ACH bounces six months later. Read every line. Have a lawyer read every line.

Stage 4 Closeout, lien releases, rebuild

The case is not over when the agreements are signed. The case is over when:

• Every UCC-1 has a UCC-3 termination filed against it.
• Every COJ has been satisfied or vacated, on the record, in the right county.
• Every personal guarantee release is in the file.
• Operating bank relationships are stable, with appropriate ACH controls in place to prevent unauthorized re-debit.