Yes. It is possible to settle MCA debt and keep your business open. No statute requires you to close your business to settle, because settlement is a contract between you and the MCA company. The risk is the period from when you stop paying to when you successfully settle.
For how keeping your business open may impact the settlement process, see our article Can you settle a merchant cash advance while the business is still open?
How do I settle MCA debt and keep my business open?
You need to manage your cash flow weekly and prioritize payments. Too many owners falling behind let the MCA companies debit the majority of their cash flow daily.
A common scenario CredibleLaw describes is a business being debited $1,200/day, while only receiving $900/day in net new deposits. With 21-22 business days per month, that owner is bleeding $6,300-$6,600/month.
What bills do I pay first to settle MCA debt and keep my business open?
It is critical that you deposit your payroll taxes. Under 26 U.S.C. § 6672(a), a responsible person who willfully fails to pay payroll taxes owes a 100% penalty. The IRS says using available funds to pay other creditors when the business is unable to pay employment taxes is an indication of willfulness. Since the IRS is not a party to any settlement you negotiate with an MCA company, keep depositing payroll taxes.
Order of payments while settling MCA debt
| Priority | Payment | Why it sits here |
|---|
| 1 | Payroll Taxes (941) | Protect yourself from personal 100% penalty under 26 U.S.C. § 6672(a) |
| 2 | Net Payroll | Your team generates the revenue you settle with |
| 3 | Rent, Insurance, Critical Suppliers | Need to keep your business open to settle |
| 4 | Settlement Funds | Reserve funds for a lump sum or payment plan |
| 5 | Everything else | Negotiable or deferrable |
Can a funder freeze your bank account while you're negotiating?
The short answer is no, not with a UCC-1 alone. Under UCC § 9-341, the duties of a bank that holds a deposit account are not altered by a security interest or instructions from a secured party unless the bank agrees in an authenticated record. MCA companies usually lack control as defined in UCC § 9-104.
Freezes come via a judgment. For Pennsylvania borrowers, MCA companies can use a Confession of Judgment to get a judgment without a lawsuit and execute on your bank account. You then generally need to file a Petition to Strike or Open within 30 days of notice. See Pa.R.C.P. 2959. In New York, a Confession of Judgment can only be used in the County in which you reside. See CPLR 3218(b). If you do not reside in New York, a New York MCA company generally cannot use one. In Texas, beginning September 1, 2025, any sales-based financing contract containing a confession of judgment is void. See Texas Finance Code 398.055.
Should I open a new bank account while settling MCA debt?
This is a contract question you should ask an attorney. Most MCA contracts make it an event of default to change your depository or block the ACH debit without consent. Under UCC § 9-315, if your MCA company has a security interest in your existing account and you move those funds, its security interest will follow the funds, even if the funds are commingled. If your MCA company has a New York judgment and serves you with a New York restraining notice, you cannot transfer or interfere with that property while the notice is effective. See CPLR 5222(b). Once served on your business, the notice is effective for one year.
What should you tell customers and vendors?
Let your customers and vendors know, and pay your vendors you need to keep the business on schedule. From a legal standpoint, your customers are the pressure point, as the only way the funding company can really stop your customers from paying you is by sending them a letter pursuant to UCC 9-406. Once it arrives, your customer can no longer discharge the debt by paying you. This matters most for businesses that invoice other businesses, since a restaurant that mostly takes credit cards has few customers who owe it money.
What should the signed settlement say?
Make sure the terms you agree to are in the document you sign. That includes the amount, the payment schedule, a release of the business and of you (if you are a guarantor), an agreement to stop debiting your account, and a deadline to file a UCC-3 termination. UCC 9-513 gives a secured party 20 days to file a termination after a demand, but it limits that demand right where the financing statement covers sold accounts, and most MCAs are structured as a sale of accounts. Any future lender will see a UCC-1 left on file.
What if staying open stops working?
Consider filing a Sub 5 Bankruptcy. Sub 5 is Chapter 11 for small businesses with up to $3,424,000 of debt (as of April 1, 2025, see 11 U.S.C. 1182). The business reorganizes and gets a chance to stay open. The automatic stay will stop the ACHs and other collection activity. If you want to close the business, Chapter 7 might be the way to go, but only individuals can get a discharge in a Chapter 7 pursuant to 11 U.S.C. 727(a)(1).
Frequently Asked Questions (FAQ)
Can I continue paying my employees while I negotiate with my MCA funder?
Yes, you can continue paying your employees, and the taxes you withheld from them, which you will be personally liable for. That holds until a restraining notice is served on the company after a judgment.
I have multiple MCA funders. If I stop one from debiting my account, will I default with the others?
It depends on the contract you have with each funder. For example, a contract filed with the SEC in 2025 put the merchant in default if he caused an ACH to be returned with a code of R08, R10, or R29 without explaining why in writing within 2 business days. If you have a "stack," speak to counsel about the order in which to stop the debits.
Do I have to pay taxes on the amount my MCA funder forgives?
Possibly, pursuant to 26 U.S.C. 108, unless you get a discharge in bankruptcy or are insolvent, and insolvency only excludes the amount your liabilities exceed your assets. Speak to your CPA, because the funder may or may not send a 1099-C, and either way the income must be reported.
What can my customers do if the MCA funder sends them a letter?
Pursuant to UCC 9-406(c), your customer has the right to request a reasonable demonstration that the account was assigned to the funding company. You can tell them about this right, but only they can use it. Until they get it, they can continue to pay you.