Can You Settle One MCA While Paying Others?

Welcome to Delancey Street. This is one of the most common questions we get from business owners who are stacked with three, four, sometimes seven MCA’s at once.

Short answer: Yes, you can. But it’s risky, and most business owners who try to do it on their own end up triggering cross-defaults on the MCAs they were trying to keep current. The strategy works — we do it every day — but only when it’s done in a specific order, with specific protections in place. Do it wrong, and you’ll have every funder accelerating at once instead of just the one you were trying to settle.

If you’re considering this, read the entire article before you call any of your funders.

Why this question even comes up

You’re stacked. Maybe you took a second MCA to cover the first one, then a third to cover the second. The math stopped working months ago. Now you’re paying $4,000 a day across multiple funders, your bank account is bleeding out by Wednesday of every week, and you’re trying to figure out: can I settle the worst one — the one with the highest factor rate, the most aggressive collections, the one that’s choking me — while keeping the others on their daily schedule?

The instinct is good. You don’t want to default on all of them. You want to surgically remove the worst position, and keep the rest healthy.

The problem is, mca agreements weren’t written with surgery in mind. They were written so that any move you make outside the original payment schedule, on any agreement, is a default on every agreement.

What the MCA contracts actually say

Every MCA agreement has a cross-default clause buried in it. Sometimes called a “default clause,” sometimes “events of default,” sometimes embedded inside the representations and warranties. The language varies, from funder to funder, but the meaning doesn’t.

Here’s what you agreed to when you signed:

• You will not take on additional financing without the funder’s written consent
• You will not enter into a forbearance, settlement, or workout with any other creditor that affects your receivables
• You will not allow any other creditor to file a UCC against the same collateral
• You will maintain the daily debits without interruption
• You will not transfer, restructure, or modify the obligation in any way

Read the second bullet again. The moment you settle with MCA #1, MCA #2 and MCA #3 — if they find out — can call it a default on their own agreement. Not because you missed a payment to them. Because you made an arrangement with someone else.

This is the trap.

How do funders find out about each other?

Faster than you think. Three ways, in order of how often they happen.

1. Industry databases. DataMerch is the big one. The moment a funder marks you as defaulted, every other funder who pulls your file sees it. Some funders check weekly. Some check daily. Some have automated alerts that fire the second your name appears.

2. Your bank statements. When MCA #2 pulls your bank statements as part of their normal monitoring — and most of the larger funders do this monthly, sometimes weekly — they see that the daily debit from MCA #1 has stopped. They see a lump sum going out. They see new patterns. They figure it out without anyone telling them.

3. The funders talk to each other. The MCA industry is small. The collections people, the brokers, the underwriters, they all know each other. A defaulted merchant gets discussed. This part isn’t on paper anywhere, but it’s real.

So how do people actually do it?

In practice, settling one MCA while paying others happens every day. It works. But it requires you to understand a few things most business owners don’t.

The order matters more than the strategy.

Most business owners try to settle the biggest MCA first because it feels like the biggest win. That’s usually wrong. The right order is almost always:

• Settle the most aggressive funder first — the one most likely to file suit, freeze accounts, or send UCC notices to your customers
• Then the one with the highest daily payment relative to balance, because that’s the one strangling cash flow the fastest
• Then the rest, in order of contractual aggressiveness, not balance size

The goal isn’t to save the most money on paper. It’s to remove the immediate threat to your business operations, in the order those threats are about to materialize.

Settlements before default rarely get good numbers.

This is the part nobody wants to hear. Funders don’t settle for 40 cents on the dollar with a merchant who’s still paying daily. Why would they? They have no reason to. The leverage in a settlement comes from the funder believing they’re going to get nothing if they don’t take what you’re offering.

This means, in most cases, you have to actually stop paying the funder you want to settle, before the settlement conversation goes anywhere productive. Which means you’re triggering the default clauses on the others the moment you do it.

This is why the timing has to be coordinated, not improvised.

What it looks like when it’s done right

Here’s the rough sequence we use when a client comes to us with five MCA’s and wants to settle two while keeping three current:

• We pull every contract and identify the cross-default language in each
• We map out the collections aggressiveness of each funder (some will sue in 30 days, some will negotiate for 6 months)
• We identify which funders are likely to discover a settlement, and which probably won’t
• We stop payment on the target funder, and open settlement conversations within days, not weeks
• We negotiate settlements paid out over 6 to 18 months, not lump sum, so cash flow stays intact for the funders being kept current
• We monitor the remaining funders for signs they’ve discovered the default, and have a contingency plan for each one

It is not a clean process. It is not a guaranteed process. Sometimes the funders we’re trying to keep current find out anyway, and we have to settle those too. That happens. But going in with a plan is dramatically different from defaulting on one and hoping the others don’t notice.

What you should not do under any circumstances

• Do not call MCA #1 and tell them you can’t pay, while you’re still paying MCA #2 and #3 on schedule. They will ask why. You will not have a good answer. They will accelerate within 48 hours.
• Do not move your bank account thinking it will hide the activity. Every MCA agreement requires you to keep the original account open. Moving accounts is itself a default on all of them.
• Do not stop the ACH on the funder you’re settling without coordinating the timing with your settlement negotiator. A stopped ACH triggers immediate phone calls, immediate UCC notices, immediate contact with your customers and processors.
• Do not assume the funders being kept current will stay current. Once you’re in workout on one MCA, your runway with the others is shorter than you think. Plan accordingly.
• Do not pay one funder with money borrowed from another. Stacking to cover stacking is how merchants end up with seven MCA’s instead of three.

The honest truth about partial settlements

Settling one MCA while paying others is not a long-term strategy. It’s a short-term tactic to relieve pressure, while you figure out what’s next. Most business owners who try it end up settling all of them eventually, because the underlying math — too much daily debt, not enough revenue — doesn’t get fixed by removing one position.

If you’re stacked, the real question isn’t “which one do I settle.” The real question is, what does the business look like with no MCA debt, and how do I get there from here. Sometimes that’s a full settlement of all positions. Sometimes it’s a structured workout. Sometimes it’s bankruptcy. Sometimes it’s a refinance into a real loan once the MCAs are cleared.

We can walk you through every option. But you have to call before the first lawsuit hits, not after.