MCA Settlement Companies: What to Know
MCA settlement companies: fees, default risk and questions to ask.
A merchant cash advance settlement company tries to get your funders to accept less than the balance. Many tell you to stop paying first, so the funders have a reason to deal. That can work, but stopping payments is usually a default, with fees, lien notices and lawsuits. Know the fee, the risk and your other options before you sign up.
How does a settlement plan usually work?
- You sign with the settlement company and often pay a fee, sometimes a share of your total debt, sometimes a share of what they save you.
- They tell you to stop paying the funders, or to ask your bank to block the debits.
- Funders send default notices. Some sue. The company negotiates with each one.
- If a deal is reached, you pay a lump sum or a payment plan on the reduced amount.
What are the risks?
- Stopping payments usually counts as a default. The whole balance can become due, plus fees. See what happens after a default.
- Your personal guarantee can come into play. See the personal guarantee guide.
- Funders can notify your customers or processor under their UCC lien, or sue.
- A settlement company isn't a law firm unless it is one. It can't defend you in court.
- Fees charged up front are due even if no funder agrees to settle.
How does settlement compare in dollars?
Say you owe $60,000 across two advances. Here's how two paths might look. The settlement figures are stand-ins; get the real ones in writing.
| Settlement plan | Consolidation, if it fits | |
|---|---|---|
| Payments during the process | Stopped | One new payment, smaller than the two old ones |
| Amount you end up paying | A negotiated amount, say $42,000, plus the company's fee | The new advance's total payback, which is more than $60,000 |
| Default and lawsuits | Likely along the way | Avoided if the old advances are paid off |
| Effect on future funding | Hard for a while | Normal, once the new advance performs |
Settlement can cost less in dollars. Consolidation costs more in dollars but avoids default. Which one fits depends on whether your deposits can carry any payment at all.
What should you ask a settlement company?
- What's your fee, in dollars, and when is it due? Is anything due before a funder agrees?
- Will you tell me to stop paying? What happens if a funder sues?
- Are you a law firm? If not, who represents me in court?
- What happens to my personal guarantee in your plan?
- Can I see a written agreement and cancel it without paying a fee?
What should you try first?
- A reconciliation request, if your sales fell.
- A restructure: ask the funder for a lower payment over a longer term, in writing.
- Consolidation or reverse consolidation, if the new weekly total would fit.
- A business lawyer, if you've already been sued.
We're a broker, not a settlement company, and we don't negotiate debts. Applying is free, and you never pay Afterfirst a fee. The funder pays our commission only if a deal funds, and the amount is in the offer paperwork before you sign.
Questions about your file?
Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.