It is not advisable in most circumstances. It puts pressure on a funder that hasn’t recovered its cash, but it triggers the nasty stuff in the contract: acceleration, penalties, confession of judgment in Pennsylvania or against a New York merchant, and probably the personal guaranty. There are less risky ways to pressure the funder. Timing is covered in whether to stop paying before you try to settle.
Does stopping payments make an MCA funder settle for less?
Stopping may or may not pressure the funder to settle. It doesn’t depend on how much you owe; it depends on how much cash the funder has recovered. In a funder-side deBanked commentary, if the funder gave you $100,000 against a $150,000 payback and you’ve paid back $135,000, the funder has a “default” but hasn’t lost any money.
Take the Cedar Advance contract filed with the SEC. The funder paid $515,000 for $746,750 in receivables. If the merchant pays back $300,000, the funder has $205,000 it hasn’t gotten back (the contract included a $10,000 “fee”), which is 46% of the $446,750 it is owed. A merchant who stops then faces a funder that can afford to sue. Stopping earlier hurts the funder more but looks like the merchant “got funded and ran,” which invites fraud and guaranty claims.
The same contract includes acceleration, “liquidated damages” of 25% of the unpaid balance, attorney’s fees of up to 40% of the amount claimed, interest of 24%, a $2,500 fee if the merchant “blocks” the account, and $50 per returned debit. So if the balance owed is $80,000, the funder can demand $100,000 before even seeking fees. If it then “settles” for 40%, the merchant will have paid about 50% of what it owed.
When will stopping MCA payments backfire?
It backfires when your paperwork lets the funder skip negotiation and go straight to a judgment or to you personally.
| Your situation | What a stop can hand the funder |
|---|
| New York business that signed a confession of judgment | A judgment by filing with the county clerk, without suing you (CPLR 3218(b)) |
| Pennsylvania business that agreed to a confession of judgment | A judgment by filing, with 30 days after notice to petition to strike or “open” it (Pa.R.C.P. 2959) |
| Texas contract under the 2025 law | No confession of judgment, which is void in a contract financing your sales (Tex. Fin. Code 398.055), but still a lawsuit |
| Business outside New York with a New York funder | A New York lawsuit, where a lot of MCA cases end up as default judgments |
What about my personal guaranty on my MCA?
Most MCA guaranties are “performance” guaranties, triggered not by missed payments but by acts like blocking receivables, changing your bank account or processor, or closing without notice (LG Funding, 2020; Principis Capital, 2022). If your business just isn’t selling much, you may never trigger the guaranty, but if you revoke the ACH authorization or change where you deposit your receipts, you probably will.
Do I have to ask for a reconciliation before I stop making MCA payments?
Yes. In Apollo Funding v Dave Reilly Construction (2d Dept, September 2025), the funder won summary judgment on a $25,000 deal with a $37,750 payback because the merchant never used the contract’s reconciliation procedure, and the court refused to consider its argument that the procedure was “illusory.” Skipping it forfeits the disguised-loan argument behind a credible New York settlement demand.
Stacked advances and moved money
Defaulting on one MCA can default you on the others. Under some 2025 agreements, you default if another funder’s ACH debit is returned with reason code R08, R10 or R29 unless you give a written explanation within two business days. Redirecting funds into a “war chest” account invites pre-judgment attachment in New York when property is secreted to frustrate a judgment (CPLR 6201(3)).
Collection at the source
After default, a secured funder may notify your customers or your credit card processor to pay the funder directly, without a court order (UCC 9-607(a)(1)). Once notified, a customer who pays you hasn’t discharged its debt (UCC 9-406(a)).
When is it a good idea to stop paying my MCAs to force a settlement?
It may make sense if:
- Your business is no longer viable and you are considering bankruptcy.
- You have no confession of judgment, no guaranty or a narrow one, and you’ve requested a reconciliation in writing and been denied (or ignored).
- Your contract has some of the loan markers from People v Richmond Capital Group (1st Dept 2026).
See what happens if you stop paying a merchant cash advance.
What can I do to increase my settlement leverage without risking a default?
- Request a reconciliation in writing and send your bank statements. Under the Cedar contract, the funder has to respond within two business days and can’t debit your account until it has completed the review. This preserves your Apollo argument. Blocking your ACH debit is also a default only if you haven’t given the funder advance written notice of an alternate method of collection. Use the five letters to send before you stop paying.
- Hire a lawyer to send a demand letter outlining all of the loan markers in your contract.
- Consider Subchapter V bankruptcy. The debt limit is now $3,424,000. Creditors don’t need to vote on your plan if you pay “projected disposable income” over 3 to 5 years.
- Be careful before you sign a modification. One 2026 New York stipulation let a funder enter a $1,476,330.68 judgment without notice.
Frequently Asked Questions
If my business files bankruptcy, am I off the hook on the personal guarantee?
No. Under federal bankruptcy law, the “discharge of a debt of the debtor does not affect the liability of any other entity on ... such debt” (11 U.S.C. 524(e)). LLCs and corporations get no Chapter 7 discharge, so only a personal filing can discharge the guarantee.
I'm in Texas. Does a void confession of judgment make stopping safe?
As of September 1, 2025, a sales-based financing contract that includes a confession of judgment is “void and unenforceable” under Texas law. However, the law does not provide a private cause of action. The funder can still sue you for breach of contract and enforce the personal guarantee.
My settlement company told me to stop paying. What am I paying them?
Review the fee schedule before you engage them. In one law firm’s example, a settlement company charges $15,000 up front and $12,000 in “administrative fees” in addition to 35% of the savings. So if you had a $100,000 MCA and settled for $60,000, you would pay $101,000. Funders have also sued settlement companies directly.