You opened your mail, or your email, and there it is. A demand letter from your MCA funder, or their attorney. The letter says you’re in default, the full balance is now due, and you have a short window to pay before they sue you, file a UCC notice, or worse – get a restraining order on your accounts.
Short answer: Do not ignore the letter. Do not call the lender and start negotiating on the phone. Do not pay what they’re asking just to make it go away. A demand letter is the lender’s opening move, not their final one, and what you do in the next 7 to 10 days will shape every single thing that happens next.
Here are the 8 steps, in the order you should do them.
Step 1: Read the letter carefully, and write down every deadline
Most demand letters give you a deadline. Sometimes 5 days, sometimes 10, sometimes “immediately.” Write the date down. Put it on your calendar, set a reminder, and tell whoever else needs to know – your attorney, your business partner, your bookkeeper.
The deadline matters because if you blow past it without responding, the lender’s next move is almost always a lawsuit, or a Confession of Judgment filing if you signed one. Both move fast. You don’t want to find out about the deadline after it passed.
Step 2: Pull the original MCA agreement, and read it
This sounds obvious. Most business owners don’t do it. They signed the agreement months or years ago, the funder wired the money, and they never looked at it again.
Pull it now. Look for:
- The purchased amount, and the specified percentage (the daily/weekly holdback)
- Any personal guarantee language – this tells you who the lender can come after personally
- The stacking clause, and whether you’ve taken on additional financing since
- The Confession of Judgment (COJ), if there is one, and what state it was filed in
- The choice of law and venue clauses – usually New York, sometimes New Jersey, sometimes Florida
- The default provisions – what specifically does the agreement say constitutes default
If you can’t find your copy, request it from the lender in writing. They have to provide it.
Step 3: Do not call the lender, yet
This is where most business owners blow it. The demand letter has a phone number. You’re stressed, you want to fix it, you call. Within 5 minutes you’re admitting things on a recorded line that the lender’s attorney will use against you later.
Do not call them. Not yet. Not until you’ve done steps 4 through 6, and ideally not until you have someone (an attorney, or a debt restructuring firm) calling on your behalf.
If you’ve already called, don’t panic – but stop calling now.
Step 4: Stop the bleeding on the bank account
If the lender is still pulling daily ACH debits, and you’re now in formal default, those debits are going to keep failing, and each one costs you money. NSF fees from your bank, returned payment fees from the lender, and every failed pull is more ammunition for the lender to use in court to show you’re in default.
You have a few options here, and none of them are clean:
- Block the ACH through your bank. This stops the bleeding, but most MCA agreements treat blocking ACH as an additional default – so you’re in default either way at this point.
- Switch banks. This is also treated as a default under most agreements, and the lender will figure it out fast because they have your old statements and they know your processors.
- Let the debits keep failing, and absorb the fees, while you figure out the bigger picture.
There’s no right answer here that applies to everyone. It depends on how much cash you have, how many other MCAs you have stacked, and what your overall plan is. This is one of the reasons you want help before you make the move.
Step 5: Inventory every MCA, and every other debt
Before you respond to the letter, you need to know the full picture. Pull every MCA agreement, every line of credit, every equipment finance contract, every credit card balance, every tax liability. Write it all down.
For each MCA specifically, you need:
- Funder name
- Original purchased amount
- Total payback amount
- Daily or weekly payment
- Remaining balance
- Whether they’ve sent a demand letter, filed UCC notices, or sued
Most business owners I talk to have between 3 and 8 MCAs stacked when they hit default. The lender who sent the demand letter is one of several, and how you handle this one affects how the others will respond. They talk. They share information. They watch each other’s UCC filings.
Step 6: Get a real assessment of where you actually stand
This is the step most business owners skip, and it’s the most important one. Before you respond, you need an honest read on:
- Can the business actually keep operating, with the cash flow it has, after the MCA payments stop?
- Are you personally exposed through a PG, and on which agreements?
- Is there a COJ filed, and in what state?
- Are there assets the lender can realistically reach – real estate, equipment, receivables, personal accounts?
- Is bankruptcy on the table, either Chapter 11 for the business or Chapter 7 personally?
You can’t make this assessment yourself, and frankly, you shouldn’t try. This is where a debt restructuring firm, or an attorney who actually does MCA work (not a general business attorney), earns their fee. The wrong move here costs you 10x what the right advice costs.
Step 7: Respond to the demand letter, in writing, before the deadline
Once you know where you stand, respond. In writing. Before the deadline. Even if your response is “we received your letter, we are reviewing it with counsel, and we will respond substantively by [date]” – that response, sent before the deadline, changes the dynamic.
What it does:
- It creates a paper trail showing you are not ignoring the lender
- It buys you time, sometimes a week, sometimes more, to figure out the real response
- It signals that the lender is dealing with someone who knows what they’re doing, not a panicked business owner
Do not admit the debt amount in your response. Do not admit you’re in default. Do not promise to pay anything. Just acknowledge receipt, and state you’re reviewing.
Step 8: Negotiate a settlement, restructure, or prepare a defense
This is where it splits into different paths, depending on your situation.
If the business can be saved, and you have some cash flow, the goal is usually to negotiate a reduced lump sum settlement (often 40-60 cents on the dollar for the remaining balance), or a restructured payment plan with smaller weekly payments over a longer period.
If the business is not going to make it, the goal is to limit personal exposure, which usually means negotiating settlements on the personally guaranteed obligations, and either winding down the business cleanly, or filing bankruptcy if the numbers don’t work.
If the lender has already sued, or filed a COJ, you need a litigation defense, fast. There are real defenses to MCA enforcement – the agreement may be a disguised loan (usurious), the COJ may be invalid in your state, the lender may have breached the reconciliation clause. None of this is DIY territory.
The 8 steps above are the framework. The execution is what separates business owners who get out of this with their company intact, from those who lose everything they spent years building.
If you’ve received a demand letter, and you’re not sure what to do next, the worst thing you can do is wait. The clock is already running.
