Settling your MCA may have a minimal impact on your credit since most MCA funding companies do not report to the credit bureaus. The most likely impact comes from UCC filings, collection agency accounts, and/or judgments. The good news is each of these can be cleaned up with the proper paperwork after you settle.
Do MCA funding companies report to the credit bureaus?
Most MCA funding companies do not report to the credit bureaus each month like your credit card or auto loan. According to Nav's merchant cash advance guide, MCAs "don't report your payment history to the business credit bureaus." So any damage will likely come from the UCC-1 that was filed when you signed your MCA, or through collection agencies and/or judgments following your default.
Your business credit report (Dun & Bradstreet, Experian Business, Equifax Business) is not subject to the Fair Credit Reporting Act because the FCRA only applies to "consumers". A "consumer" is an individual and consumer credit is credit "primarily for personal, family, or household purposes." See 15 USC 1681a. A 2011 FTC staff report explains that reports on a corporation "are not consumer reports subject to the FCRA." So the FCRA’s 7-year reporting limit and dispute deadlines do not apply to your business credit report.
UCC filings appear on all three business credit reports. According to Nav, they typically do not affect your business credit score, but some lenders will not give you a loan if you have as few as two open UCCs on your business.
How can an MCA get on my personal credit report?
Your MCA may get reported to your personal credit report because you signed a personal guaranty. According to the FTC staff report, a lender may pull an individual owner's personal credit report if that individual "is or will be personally liable on the loan as a co-signer or guarantor." Further, the guaranty can only be listed on the personal report if it "accurately reflects the nature of the individual's involvement."
MCA personal guaranties are typically "performance" guaranties, not for the entire amount purchased. See MCA Personal Guaranty Defense. "Performance" guaranties only apply to the debtor's truthfulness, covenants (failure to move bank accounts, failure to redirect receivables, etc.), cooperation, and collection costs. Therefore, in my opinion but without any holding to support it, it would not be accurate for a collection agency to report the entire amount of the MCA on your personal credit report if you signed a "performance" guaranty. Under the FCRA, furnishers (i.e., collection agencies) are not allowed to report inaccurate information if they have "reasonable cause to believe" that it is inaccurate, and they must investigate direct disputes from consumers on generally the same timelines as the credit bureaus. See 15 USC 1681s-2. However, that section does not allow you to sue over its accuracy provisions.
Will a judgment or confession of judgment be reported on my personal credit report?
Generally, no. The three credit bureaus (Equifax, Experian, TransUnion) entered into a settlement with 30+ state attorneys general, and starting July 1, 2017, it required more identifying information to link public records to an individual. Since then, civil judgments have "disappeared entirely" and tax liens have gone down by 49% on personal credit reports, according to a CFPB study from 2018. Of the roughly 8 million consumers with an active judgment, 65% saw their score rise more than 5 points once it was removed.
It can still be found on your business credit report or by any lender that searches public records. Therefore, file a satisfaction of judgment if you have paid it off as part of a settlement.
How long does MCA debt settlement credit impact last?
Personally, it depends on when you first fell behind, not when you settled. Under federal law (15 USC 1681c), collections/charge-offs can be reported for seven years starting from 180 days after you first fell behind; judgments for seven years or the statute of limitations, whichever is longer; and bankruptcy for ten years. But these time limits don’t apply if your credit is being pulled for a credit transaction of $150,000 or more, which can happen for SBA loans or commercial real estate where you’re a guarantor.
Under UCC 9-515, a UCC-1 is effective for 5 years unless your funder files a continuation within six months before it expires.
What do I need from the MCA company when I settle?
- A signed settlement agreement that includes a specific date for filing the UCC-3
- A “settled in full” or paid letter
- The UCC-3 termination statement, filed
- Satisfaction of judgment (if applicable)
- Release of personal guaranty in writing
The settlement agreement needs a specific UCC-3 filing date because under UCC 9-513(c), except for accounts sold, the secured party has 20 days after your authenticated demand to file the UCC-3 if nothing is owed. But funders may argue that exception applies, because MCAs are technically a purchase of accounts. Some lending websites say only the lender can file the UCC-3, at its discretion, but under UCC 9-509(d)(2), if the secured party doesn’t comply with the law, you can file it yourself. Under UCC 9-625, you’re entitled to $500 statutory damages, plus actual losses. If you’re not behind yet, see Will getting MCA debt help now hurt my credit?
Frequently asked questions about credit and MCAs
Will settling an MCA debt start the seven years over again for my credit report?
No, the seven years start from 180 days after you first fell behind, and the furnisher is required to include the month and year of the first delinquency.
Can an MCA funder pull my personal credit if I didn’t sign a personal guaranty?
No, the FTC staff has said the lender wouldn’t have a permissible purpose to pull the personal credit of an owner, officer or shareholder who isn’t personally liable.
Will the 1099-C I got for settling my MCA debt hurt my credit?
No, the 1099-C is a tax form and doesn’t go on your credit report. Any organization whose “significant business” involves lending money has to issue a 1099-C if they discharge $600 or more, though it’s questionable whether MCA funders qualify; some issue them anyway. If you’re personally liable for the debt, canceled debt is generally income to you unless an exclusion such as insolvency applies, which you claim on Form 982.
How can I get a UCC-1 filing removed after settling an MCA debt?
Ask the funder to file a UCC-3 termination statement and put a filing date in the settlement agreement. If the funder doesn’t comply with a valid demand for a UCC-3, you can file it yourself under UCC 9-509(d)(2) and you’re entitled to $500 statutory damages under UCC 9-625.