A merchant cash advance often settles for a fraction of the balance, and in some files the discount is steep enough to call cents on the dollar, but the moment anyone quotes you a fixed percentage you are being sold, not advised. The figure is not a rate. It is the answer to one question asked four ways: what could the funder actually collect if he refused to settle and ran the matter to its end.
The first input is insolvency, and it is the heaviest. A funder weighing a settlement against a business that can show a drained operating account, payroll it cannot meet, and assets already pledged elsewhere is weighing his demand against the recovery he would get by enforcing it, which on an empty account is the cost of the lawsuit and a judgment that collects nothing, so the worse the books look on the page the better the number tends to land, a symmetry that surprises owners every time. The deeper the hole, the smaller the settlement. I have said before that the books which embarrass an owner most are often the books that bargain best.
Stacking And The Recharacterization Argument Move The Figure
Stacking moves it next. When five funders hold positions in the same daily receipts, each one knows the others are reaching for the same dollar, and a funder fourth or fifth in line is collecting against a stream three others have already drained. He prices that reality. The merchant who is stacked, who feels furthest from any exit, frequently holds the strongest hand for exactly the reason that frightens him.
The recharacterization argument is the third input, and it is the one with teeth. The contract calls itself a purchase of future receivables, not a loan, which is, if we are being precise, the only thing standing between the funder and the usury statutes. When a court finds the reconciliation was a fiction and the remittance fixed in fact, the purchase becomes a loan in substance and the rate becomes unlawful. The Federal Trade Commission permanently banned RCG Advances and RAM Capital from the merchant cash advance industry and a federal court ordered Jonathan Braun to pay $20.3 million in relief and penalties; a funder who knows that history weighs his demand against it.
A restaurant owner asked me on the first call what percentage I could promise. I told him I did not know yet, because I had not seen who he owed or how empty the till was. He thought that was a dodge. It was the only honest sentence in the conversation.
Litigation Posture Is The Last Variable
How the fight would actually go is the fourth input. A funder with a clean contract, a real reconciliation history, and a forum that favors him prices a settlement higher than a funder whose paper invites the recharacterization claim and whose collector left a voicemail the FTC would recognize. The posture of the dispute, who would win and at what cost, sets the ceiling on the demand and the floor under the settlement.
So what is the number. The honest answer is that it is whatever the funder can truly collect, measured from the file, and that it bends low when the account is empty, the stack is deep, the contract is vulnerable, and the litigation would cost the funder more than the settlement. The owner who wants a percentage before the diagnosis is asking the wrong man the wrong question. The first call is a diagnosis, not a commitment, and the number arrives after it, not before.