You can settle your MCA with the business still open, but staying open changes the price.
Most web pages on settling MCA debt with the business still open treat an open business only as a leverage point for the borrower, which it is, but they fail to recognize that it is also a leverage point for the funder, and each affects the walk-away price in a settlement. Which is stronger depends on the particular file.
How does staying open change what the funder will accept?
The funder will have better collection options if the business is still open, and that affects its walk-away point. The funder can send notices to your customers under UCC 9-406, and once a customer receives an authenticated notice, paying you no longer discharges what that customer owes, even if your customer contracts have an anti-assignment clause. In New York, the funder's attorney can issue a CPLR 5222 restraining notice without a court once it has a judgment, and it binds your bank for up to twice what you owe for one year. It works far better when deposits keep arriving than when the business is closed. Here's a chart of the differences:
| Factor | Business still open | Business closed |
|---|
| Receivables to intercept | Live, so 9-406 notices bite | Few or none |
| Bank restraint value | High, deposits keep arriving | Low |
| Your ability to fund a lump sum | Revenue can build one | Limited to owner assets |
| Subchapter V threat | Credible | Not available as leverage |
| Funder's main target | The business | The guarantor and collateral |
State laws can be a factor, too. In Pennsylvania, a funder with a confessed judgment only has to give you 30 days to petition to strike or open it under Pa.R.C.P. 2959. In Texas, since HB 700 took effect on September 1, 2025, the funder cannot get a confessed judgment on a sales-based financing contract without voiding the contract, and it can't do automatic debits unless it has a first-priority, perfected security interest in the account.
Why would a funder take less from a business that's still making money?
The funder may settle for less because an open business can put the funder on notice that you will file for bankruptcy under Subchapter V of Chapter 11 if it does not settle. Under Subchapter V (you have to be a small business with debt of $3,424,000 or less) you can confirm a plan over the funder's objection as long as you pay all of your projected disposable income over three years (or up to five, as the court determines) to unsecured creditors under 11 U.S.C. 1191. Disposable income does not include what you need to operate the business. And 11 U.S.C. 1129(a)(7) means you don't have to pay more than the funder would receive in a Chapter 7 liquidation. Waiting for plan payments, plus the cost of the bankruptcy, may make the funder settle for less than it would if the business were closed.
While the business is open, you can build a record of whether the funder is reconciling the account as required. In People v. Richmond Capital Group, decided by the First Department in 2026, the funder's failure to reconcile in practice, even when merchants requested it, was important evidence that the transactions were loans. That risk of recharacterization pressures the funder to settle for less.
The funder's cost basis matters too. Take a contract filed with the SEC: the funding company advanced $250,000 to purchase $357,500 in receivables, and $157,500 has already been delivered. The funding company is out of pocket $92,500 in cash. An offer of $92,500 (46% of the remaining $200,000) gives them all of their cash back.
Does being current on your Merchant Cash Advance help or hurt your ability to settle?
Being current is likely to make the funder want to restructure your payments instead of settle. They do not want to discount while you keep paying. Defaulting, however, increases what you owe. In the contract above, a default increases the balance by twenty-five percent (25%) of the amount not delivered or $5,000 (whichever is greater) plus nine percent (9%) interest. So a $200,000 remaining balance becomes $250,000. An offer of $100,000 (50% of the balance) before default is only 40% after. Many firms report better prices on lump sums, but no agency or court releases information about where MCA settlements fall.
What terms matter most when you settle an MCA while your business is still open?
The most important terms include:
- Request a UCC-3 termination; under UCC 9-513(c) the secured party must file a UCC-3 within 20 days of receiving an authenticated demand from you once the obligation is satisfied.
- Request withdrawal of all 9-406 notices sent to your customers and a promise not to send more.
- Release of all bank restraints, dismissal or vacatur of any confessed judgments, and release of all guarantors.
- If you are paying via installments, what the terms are in the event you default on the settlement payments.
Also consider the tax implications under 26 U.S.C. 108. And consider how to keep your business running while settling MCA debt.
Frequently asked questions about settling MCA debt
Do I have to stop paying my MCA in order to settle?
You do not have to stop paying your MCA in order to settle it, but funders are likely to prefer restructuring. By not paying, however, you are likely incurring a default damage amount, which in many contracts is 25% of the undelivered amount.
Is it better to settle via lump sum or payments if my business is open?
A lump sum is often safer because if you default on the settlement payments you are subject to whatever the default clause states. In the Diesel Funding case, if the merchant defaulted, the stipulation let the funder enter judgment without any notice for the amount of the settlement plus an additional 20% of the remaining balance. This resulted in a judgment of $1,476,330.68.
Do reconciliation clauses help me in settling my MCA?
Reconciliation clauses only help you if you request reconciliation of your MCA. In Apollo Funding (2025) and Diesel Funding (2026) the New York appellate courts refused to hear the merchants' arguments that the reconciliation clause was illusory because the merchants never asked for reconciliation of their MCAs.
Do I have to pay taxes if I settle my MCA and my business is healthy?
You may have to pay taxes on the amount forgiven unless you are in bankruptcy or to the extent that you are insolvent (liabilities exceed fair market value of assets immediately prior to the discharge of debt). If your business is healthy you may not qualify for this exclusion, so please consult a tax professional prior to settling your MCA.