Negotiating a Settlement Agreement to Finalize Your MCA Obligation

The Challenges of MCA Agreements 

MCAs appeal to businesses because they provide fast financing based on a percentage of future sales, rather than credit scores or existing debt. However, most MCA agreements have extremely high effective interest rates ranging from 40% to as high as 300% APR when all costs are calculated. Repayment terms are also rigid, deducting a fixed percentage of daily credit card and debit card sales until the full amount plus fees is repaid.For businesses with inconsistent cash flow, this repayment structure can quickly become unmanageable. Any downturn in sales triggers larger deductions, making it harder to cover other expenses. Before long, you end up falling behind with no flexibility from the MCA provider.At this point, MCA providers often resort to aggressive collection tactics – constantly calling at all hours, threatening lawsuits or merchant account termination, reporting late payments to credit bureaus, and more. However, businesses still have options, the most effective being negotiating a settlement agreement.

• The Challenges of MCA Agreements
  • Extremely high interest rates – up to 300% APR
  • Inflexible repayment terms based on percentage of sales
  • Spiraling issues when sales drop even temporarily
  • Aggressive collection tactics from MCA providers

Why Settlement Makes SenseRather than enduring endless collection calls or lawsuits, negotiating a settlement agreement can permanently resolve your MCA debt – typically for pennies on the dollar. MCA providers have incentive to settle because:

• Lawsuits are expensive, time-consuming, and not guaranteed to produce repayment
• Accepting a lump-sum settlement provides quick capital they can re-lend at high rates
• Your business is unlikely to ever repay 100% under the original agreement

The key is negotiating from a position of power and leverage. Businesses hold more leverage than they often realize – simply by making settlement difficult and unattractive for the MCA provider.Settlement negotiations are also completely confidential, so there is no risk or stigma involved. Once signed, the agreement legally releases your business from any further obligation related to the MCA. This gives you a clean slate to rebuild and avoid similar mistakes going forward.

• Settlements are faster, cheaper, and more productive for MCA providers
• Businesses have more leverage than they think
• Settlement terms are confidential
• Agreement legally releases business from debt
• Chance to reset finances and avoid future MCA mistakes

Assessing Your PositionBefore opening settlement talks, take time to thoroughly assess your situation and prepare your negotiating strategy. This evaluation should determine:

• Remaining Balance – Request a full account statement from the MCA provider showing the original advance amount, fees charged to date, payments made, and any other adjustments. Verify this matches your own records so you know the existing payoff amount.

• Sales Trends – Compile sales records since origination of the MCA agreement. Calculate the percentage or fixed amount deducted by the MCA provider each day/week/month. Identify any seasonal fluctuations or downward trends.
• Future Outlook – Project sales over the next 6-12 months based on current data and industry forecasts. This helps determine a realistic repayment schedule if settlement talks fail. Be conservative to demonstrate the unlikelihood of repaying 100% under the original agreement.

• Cost of Collections – Estimate the MCA provider’s internal costs for employees making collection calls, issuing notices, consulting attorneys, filing lawsuits, enforcing judgments etc. This is a major incentive for them to settle.
• Other Debts – List all business and personal debts owed by your company owners and guarantors, including amounts and monthly payments. Highlight urgent obligations that threaten essential assets like homes if MCA collection efforts escalate.

Compiling this data not only identifies your leverage points for negotiation, but also prepares you to substantiate financial claims made to the MCA provider.

• Verify precise remaining balance
• Gather sales records since origination
• Project future sales conservatively
• Estimate provider’s costs for aggressive collections
• List other critical business/personal debts

Structuring Your Settlement OfferWith a clear understanding of your position, you can now structure an initial settlement offer to the MCA provider. This should cover:

• Percentage Discount – Most experts suggest opening with an offer to settle for 25-35% of the balance. Asking for a 50% or higher discount risks offending the provider. You can gradually negotiate up as talks advance.
• Payment Timeline – Given your financial constraints, determine the maximum monthly amount you can reliably dedicate to settlement. Be conservative again here, as breaching the settlement contract has dire consequences. Propose spreading payments over 6-12 months.

• Lump Sum Option – MCA providers always prefer immediate capital, so indicate your ability to settle for a discounted lump sum payoff as well. This could involve borrowing from friends/family, taking a bank loan, or liquidating assets. Have these sources ready if requested.
• Collateral – Some providers may request collateral like business assets or personal guarantees in return for more substantial discounts. Weigh these options carefully based on the true value of the collateral and the discount percentage offered.
• Mutual Release – Your settlement contract must include an ironclad mutual release clause stating that acceptance of the final payment settles the MCA obligation in full. This prevents the provider from continuing collection efforts or selling the debt to third parties.

Remember, this is an opening offer. Expect to go back and forth negotiating before landing on mutually acceptable settlement terms.

• Open with 25-35% of balance offer
• Propose realistic payment timeline
• Highlight lump sum payoff ability
• Consider collateral requests strategically
• Insist on mutual release clause

Navigating the Negotiation

When settlement talks commence, you want to control the narrative by quickly establishing these key points:

• Unlikelihood of Future Repayment – Emphasize the data you’ve gathered about declining sales, future revenue uncertainty, and existing debts making it impossible to repay the MCA per the original agreement.

• Inability to Withstand Escalation – Clarify that while you want to resolve the debt amicably, continued collection harassment threatens your ability to keep the business open and meet other obligations.
• Willingness to Pursue Bankruptcy – As a final resort if talks fail and collections persist, raise the option of business bankruptcy or personal bankruptcy for owners/guarantors. This can mean the provider recoups almost nothing.
• Desire for Mutual Resolution – Note that despite past issues with the MCA agreement itself, you hope to find an reasonable solution allowing both parties to avoid negative outcomes.

With these table-setters established, you can then launch into your specific settlement offer, highlighting the significant discount and lump sum flexibility provided. Listen closely to counteroffers or requests from the provider and determine where you have room to move within the guardrails of what you can realistically pay.

The ultimate goal is securing freedom from MCA debt obligations at maximum savings, while avoiding business failure or personal financial ruin. Stay focused on that endgame throughout negotiations.

• Emphasize dim repayment prospects
• Note consequences of more harassment
• Raise specter of bankruptcy
• Stress desire for win-win solution
• Offer substantial discount with lump sum option
• Listen for counteroffers and adjustment opportunities

What To Do If Settlement Fails

While most MCA providers ultimately opt for settlement to maximize capital recapture and avoid legal costs, some may refuse reasonable offers and persist with aggressive collections. In these worst-case scenarios, you still have options:

• Pursue Legal Action – Consult an attorney about potential defenses against the MCA provider under state laws against predatory lending, usury statutes, or breach of good faith covenants. Seeking damages or contract voidance takes time but can halt collections.

• File Bankruptcy – As referenced earlier, business or personal bankruptcy instantly stays collections and can discharge all or part of the MCA debt. This obviously carries significant long-term consequences but may be necessary.
• Attempt Buyout – Research whether the MCA provider uses third-party capital sources or sells off debts. You may be able to negotiate buyout terms with these underlying investors at lower cost.

• Change Banks – If the MCA provider has access to directly sweep your accounts, close these bank/merchant accounts and reopen elsewhere. This cuts off their collection conduit.

• Shut Down Business – As an absolute last resort, closing down the original business entity tied to the MCA declares it insolvent. This forces the provider to write off the account even as you start anew.

While not ideal outcomes, understanding all leverage points and alternatives prepares you to stand firm if settlement talks collapse. The provider needs realistic proof that you will fight tooth and nail before accepting a reasonable resolution.

• Consider legal action for contract voidance
• Initiate bankruptcy process if necessary
• Attempt buyout from third-party investors
• Change bank/merchant accounts to block access
• Dissolve existing entity as final option

Key Settlement Agreement Terms

If negotiations prove successful, the last step is formalizing a written settlement agreement with the MCA provider. This contract must contain clear stipulations on:

• Amount Due – The discounted lump sum payoff amount or monthly installment schedule with no deviations allowed.

• Payment Method – How you will remit the settlement funds, typically either ACH transfers or wire transfers.
• Payment Terms – Exact due dates for any installments, acceptable grace periods, and ramifications for late payments like interest or reversion to full original account balance.
• Reporting – Terms for how the provider will report the account status to credit bureaus after settlement is finalized. Typically this requires deletion and rescission of all negative reports previously made.
• Mutual Release – As emphasized earlier, the contract must permanently prohibit the provider or any assignees from pursuing additional collection efforts, selling the debt, or otherwise resurrecting your obligation after all payments under the new terms are made.