MCA debt relief options in Michigan2026: the contract argument, and what it is worth

Your options in Michigan: reconciliation, recharacterization, and the two statutes that turn on your entity type

Most Michigan owners want to know one thing: is there an argument here, or do I just owe it. There is an argument. It does not start where the advertising says it starts.

It starts with your own contract. Whether the funder honored reconciliation, and whether the deal was ever a purchase of receivables at all, decide everything downstream. The interest rate statutes only become relevant after that question is answered, and then only if your business is organized the right way. Both of those conditions get skipped in almost everything written about this.

Start with the reconciliation clause, because it is your contract

A merchant cash advance is written as the purchase of a percentage of your future receipts. The daily ACH is an estimate of that percentage. When receipts fall, the estimate is supposed to be corrected. That correction is the reconciliation clause, and it is the only thing in the document that makes the purchase framing coherent.

In practice funders build friction into it. Requests must be in a particular form, with particular statements, within a particular window, and they get lost. Meanwhile the fixed debit keeps landing at the same hour, on a Michigan shop that just lost a program and is running at sixty percent of last quarter.

Send the request in writing. Keep the send date, the statements you attached, and the silence that follows. That silence is a breach of a document the funder drafted, and it is also the evidentiary foundation for everything in the next section.

Was it ever a purchase, or was it a loan

A true purchase of receivables means the buyer takes real risk. If the receipts never arrive, the buyer loses. A loan means repayment is owed no matter what the business does.

So the question is where the risk actually sits. Was the daily amount fixed rather than a live percentage. Was reconciliation refused or made unusable. Does a personal guarantee move the loss back onto you. Does the default clause treat a slow month as a breach. Where those answers stack up, the paper says purchase and the economics say loan.

Michigan courts are not required to accept the label on the document. In Soaring Pine Capital Real Estate and Debt Fund II v Park Street Group Realty Services, decided June 23, 2023, the Michigan Supreme Court said courts "look beyond the parties' labels when determining whether an illegal interest rate has been imposed," in a case where the trial court found the purported fees and expenses were really disguised interest. Be precise about the limit: that was a lending case, not an MCA case, and no Michigan appellate decision recharacterizing a merchant cash advance was located. The reasoning is available. The outcome is not guaranteed.

What sits on the other side of that door

If a transaction is a loan, Michigan draws a hard line at 25 percent. MCL 438.41 makes it criminal usury to knowingly charge, take or receive interest "at a rate exceeding 25% at simple interest per annum," punishable by up to 5 years, up to $10,000, or both. MCL 438.42 adds a separate offense for possessing the records of such transactions.

Michigan then extends that same ceiling to business credit from non-bank lenders. MCL 438.61(2) lets banks, savings banks, savings and loan associations, credit unions, insurance carriers and manufacturers' finance subsidiaries agree with a business entity to any rate. Subsection (3) governs everyone else, and an MCA funder is everyone else.

Read the words "simple interest" before anyone does math for you. Converting a factor rate over a four month term is not a casual exercise, and the number a firm quotes you on a first call is a sales number until someone shows the calculation.

Your entity type decides whether you can even raise it

This is the fork almost nobody tells Michigan owners about, and it is decided by a filing you made years ago.

If the merchant is a corporation, MCL 450.1275 says a domestic or foreign corporation "may by agreement in writing, and not otherwise, agree to pay a rate of interest in excess of the legal rate and the defense of usury shall be prohibited." No dollar threshold. The defense is gone by statute.

If the merchant is an LLC, MCL 450.4212 says it may agree in writing to any rate of interest so long as the rate is not in excess of the rate set in the 1968 criminal usury act. Two things follow. The LLC's ceiling is 25 percent. And that section contains no bar on the defense of usury, unlike the corporate provision. Most Michigan MCA merchants are LLCs. Find out which one you are before you plan a strategy around a rate.

What the remedy is actually worth

Michigan does not just void the excess. MCL 438.32 bars a seller, lender or assign that violated the act from recovering "any interest, any official fees, delinquency or collection charge, attorney fees or court costs," and gives the borrower its own attorney fees and court costs from that lender. Total forfeiture of the interest component plus one-way fee shifting.

Funders answer this with a usury savings clause, the paragraph promising that nothing in the agreement shall be construed to exceed the lawful rate. Soaring Pine held that such clauses "are unenforceable when they nullify the statutory remedies for usury," and that enforcing one is contrary to public policy where the interest is facially usurious at the time of contracting. The court applied that to the civil usury statutes as well as the criminal one.

That combination is why a funder holding Michigan paper prefers a negotiated number to a ruling. Not because the argument is a certainty. Because the downside is asymmetric.

The realistic options, ranked by what they cost you

1. Written reconciliation demand. Costs nothing, takes an afternoon, and either lowers the draw or creates the record. Do this first regardless of what else you decide.
2. Negotiated settlement. A lump sum retires the balance. Two to eight weeks per advance with an attorney-led firm, three to twelve months on a stack. The lien release belongs inside the settlement document, not in a follow-up email.
3. Defense and counterclaim. Where the contract is genuinely bad, the MCL 438.32 remedy and the fee shifting change who is under pressure. This requires a lawyer and a docket.
4. Restructuring or an orderly wind-down. If revenue has stopped, if the guarantee exposure exceeds what the business could ever produce, settlement is the wrong instrument. Forgiven debt can also be taxable, so any number gets reviewed with your accountant before you sign.

A firm that presents only option two, whatever your file looks like, is selling a program.