5 Debt Relief Offers That Are Actually New Advances in Disguise

The most expensive one is settlement funding: a firm negotiates your advances down, then arranges capital to pay the settlements. A $120,000 stack settled at 46 cents and financed at 1.35 costs 62 cents, plus a new guarantee. Reverse consolidation, receivables lines, sale-leasebacks and credit stacking follow. Delancey Street sells none of them.

• Settle at 46 cents, finance the payment at 1.35, and the real cost is 62 cents on the dollar.
• A receivables line is not quieter than an advance. It can notify your customers to pay the funder directly.
• A sale-leaseback trades the truck or the oven for cash, then lets the lessor repossess it over one missed payment.
• The tell in all five: the money moves toward you, and someone is paid a commission at closing.

Relief has no legal definition, so the word is available to anyone. The secondary market around the advance industry uses it on products that put new money into a business already carrying too much, because a distressed merchant is a cheaper lead than a growing one and the commission is the same size either way.

One test sorts all five. Watch which direction the money moves. If any part of the transaction sends capital toward you, it is funding, whatever it is called on the term sheet. Settlement moves money the other way, and it is the only thing on this page that reduces what you owe.

The bridge capital your relief firm arranges to pay your settlements

This is the most expensive product on the page, because it arrives after the good news and wearing the same badge as the person who delivered it.

The firm negotiates well. Your $120,000 of advances comes down to $55,200, which is 46 cents on the dollar and a genuine result. Then the funders want the money on a schedule the business cannot meet, and a partner is introduced who will advance the $55,200 so the deals can close this month.

Price it. At a 1.35 factor rate you repay $74,520 to fund a $55,200 settlement. Against the $120,000 you started with, you did not settle at 46 cents. You settled at 62, and you signed a fresh personal guarantee and a new UCC-1 to do it.

Ask two questions before that introduction is made. Is the firm paid anything for it, and can the settlements be structured as payment plans with the funders instead. Many funders take three to twelve monthly payments. That is the same bridge, from the party who already owes you a discount, at no factor rate at all.

One payment instead of four, sold as consolidation and priced as an advance

A genuine consolidation lowers the cost of capital. This one raises it, and the name is the only part of the product doing what it says.

A new funder wires enough to retire some of your advances at their full payoff figures, adds a slice of working capital, then applies its own factor rate to all of it. The money that went straight from one funder to another gets charged twice: once by the original, whose profit was baked into the payoff, and again by the new one.

On a stacked file it usually reaches the two largest positions and leaves the smaller ones debiting, so the count of creditors goes down by one while the balance goes up. Meanwhile the advances that are paid off are satisfied, and a satisfied contract cannot be argued with. Whatever defects sat in that paper are gone.

Ask for the total repayment figure in dollars, by email, before anything else is discussed. A broker who will not put that one number in writing has already told you what it is.

The receivables line that claims not to be debt because it buys invoices

This one is sold on a technicality, and the technicality is true. Factoring is a purchase of invoices, not a loan, so the pitch can honestly say it adds no debt to the balance sheet while it hands you cash to clear the funders.

Read what it costs in things other than money. Notification factoring tells your customers to remit to the factor instead of to you, which means every account you invoice learns your receivables have been sold. Recourse factoring makes you buy back any invoice that goes unpaid, so a slow customer becomes your obligation on the factor's timetable. The reserve holdback keeps a slice of every invoice until collection, which is the working capital you needed.

Then there is the lien. Your existing funders hold UCC-1 filings over the same receivables. Selling them to a factor while those filings sit unterminated is a priority fight you have volunteered for, and most advance agreements prohibit it outright.

Factoring can be a reasonable working capital tool for a healthy company. As an exit from advance debt it is a fourth party inside your customer relationships.

The sale-leaseback that unlocks equity in equipment you still need

Sold as unlocking equity, which is a phrase that only ever appears when someone wants you to sell something cheap.

The mechanic is straightforward. A finance company buys the truck, the oven, the excavator or the CNC machine at a discount to market, and leases it back to you. You keep operating and use the cash to pay funders. Nothing about the day changes except the paperwork.

What changed is the collateral. You no longer own the asset the business runs on, so it is no longer available to finance anything else, and you have added a fixed monthly obligation on top of the debits you already could not cover. Miss the lease and the lessor does not sue you and wait. It takes the equipment, because it owns it.

Compare the two numbers before anyone signs. What the sale actually nets you against market value, and what the lease costs over its full term. Then check whether an existing UCC filing already covers that equipment, because selling collateral out from under a lien is its own problem.

The business credit program that ends with cards guaranteed by you

The pitch is repair rather than funding. Build your business credit profile, get access to real bank capital, stop depending on advances. It is aimed at exactly the owner who has just discovered what a factor rate costs.

The deliverable is applications. Several business credit cards and lines opened in a short window, each one personally guaranteed, and cash pulled off them to pay the funders. Cash advanced on a card is priced as a cash advance, not as a purchase, and it starts accruing immediately.

The fee is paid up front, before any of it works. And the guarantees are the real product from the seller's point of view: liability that was commercial and negotiable is now personal and sitting on your credit report, where a settlement firm cannot help you and a bankruptcy filing by the company will not discharge it.

Advance debt is commercial debt. That is what makes it negotiable at 30 to 60 cents. Converting it into personally guaranteed consumer-style credit gives away the one advantage the file had.

How we evaluated this

Twelve firms were scored against the six weighted criteria at left, and one rule was applied before scoring began: any firm that sells, originates or refers a funding product to owners already in advance distress was excluded outright.

That rule does the most work on this page, because four of the five products above reach merchants through a referral from someone describing themselves as a relief provider rather than as a broker.

Fee basis was scored on what the percentage is charged against, and on whether any part of it is earned before a settlement closes. Scoring used company fee disclosures, BBB profiles and CFPB complaint data current through the updated date above.

Questions owners ask

How do I tell relief from funding?

Watch the direction of the money. Relief reduces what you owe and sends cash to creditors. Funding sends cash to you and increases the total. If any part of the transaction puts capital in your account, it is financing, and someone is being paid a commission at closing that will not be returned when you default.

Should I finance my MCA settlement?

Ask the funders for a payment plan first. Many take three to twelve monthly payments, and that is the same bridge with no factor rate attached. A $55,200 settlement financed at 1.35 repays $74,520, which turns a 46-cent result on a $120,000 stack into a 62-cent one plus a new personal guarantee.

Is invoice factoring a safe way out of advance debt?

It is a legitimate working capital tool and a poor exit. Notification factoring tells your customers to pay the factor. Recourse factoring makes you buy back unpaid invoices. Your existing funders already hold UCC-1 filings over the same receivables, and most advance agreements prohibit selling them without consent.

What is wrong with a sale-leaseback on my equipment?

You sell the asset the business runs on at a discount to market, add a fixed monthly obligation, and lose the collateral that could have financed something cheaper later. Miss a lease payment and the lessor repossesses rather than sues, because by then it owns the machine. Check any existing UCC filing over that equipment first.

Are business credit building programs a form of relief?

No. The deliverable is applications: several personally guaranteed cards and lines opened quickly, with cash pulled off them at cash advance pricing. The fee is paid before any of it works. Commercial debt that settles at 30 to 60 cents becomes personal liability that a corporate filing will not discharge.

My relief company introduced me to a funding partner. Is that a problem?

Ask whether the firm is paid for the introduction, and who owns the funder. A firm compensated only for reducing balances has no funding product to offer, because it makes money no other way. Distressed refinance paper often circulates among related entities, so the party retiring your advance and the party selling the replacement can share a roof.

Does a reverse consolidation ever make sense?

Rarely, and almost never once you are behind. The payoff goes out at the old funder's full value with its profit intact, a second factor rate is applied to all of it, and the contracts that are satisfied can no longer be challenged. On a stacked file it usually retires only the largest positions.

What should I do instead of taking any of these?

Have the advance agreements read against ninety days of bank statements, the funding deposits, any default letters and a current UCC search. Send written reconciliation requests with revenue documentation to each funder. A review turns around in 24 to 48 hours and prices the debt you already have rather than adding to it.

The bottom line

Watch the direction of the money. Any offer that sends capital toward you is funding, whatever the term sheet calls it, and someone is collecting a commission at closing that no default four months later will claw back. Before you accept settlement financing, ask the funders for a three to twelve month payment plan first.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.