MCA Debt Relief Options in New York

If you are behind on your merchant cash advance payments and can no longer repay at the original terms or structure, you have a few options to get relief. Options include restructuring, settlement, challenging the MCA agreement or bankruptcy. The best path depends on what the agreement says, how much cash the business still brings in, and how far the funder has already pushed collection.

Even people who understand how interest rates work can get blindsided by a cash advance. These products generally use ”factor rates” instead of traditional interest, and a typical factor rate runs between 1.1 and 1.5. For example, the $10,000 in your account today might represent a contract to pay back $12,000 in the months ahead. To make matters worse, the repayment often takes the form of automatic daily or weekly debits.

The Advance Is Really a Loan

An MCA is not legally a loan, though many borrowers see them that way. In New York, courts so far tend to look through that structure when it makes sense. They look to see if there is a reconciliation clause that really works, whether the deal has a fixed end, and whether the funder could still collect after a bankruptcy.

If the advance is really a loan, then usury rules apply. Criminal usury is a felony, and the rate where it applies is any rate over 25% a year, knowingly charged by a lender not authorized to make the loan.

One example is Crystal Springs Capital v. Big Thicket Coin. Terms said no reconciliation, and a fixed $4,000 debited daily, so the Second Department appellate court considered it a loan and vacated the default judgment.

The New York attorney general keeps a close eye on merchant cash advances. In January 2025 it reached a settlement with Yellowstone Capital. That agreement wiped out about $534 million in debt for small business borrowers. In June 2026 it filed suit against a private arbitration platform where businesses had lost nearly 97% of the roughly 3,000 arbitration cases.

Right now there are no legal limits on what factor rates or fees a merchant cash advance can charge. There is a bill to make that happen. It is called the End Loan Sharking Act, and it would put MCAs under the same usury caps as loans, but as of January 2026 it had not passed.

Ask the Funder for a Reconciliation

Merchant cash advance payments are supposed to be a percentage of sales, usually about 5 - 20%. If sales have dropped, the first step is to ask the funder for a reconciliation.

If reconciliation is not enough, talk directly with your creditors and do your best to get lower payments, a longer repayment timeline, or a settlement for less than the balance. Lower payments are preferable because they make it easier to keep the business going. A longer repayment timeline may be better, depending on your business. And in some cases a settlement for a fraction of the balance makes sense, but that all depends on how the settlement is structured and your other debt obligations.

In a negotiation, even if you get some portion of the debt forgiven, expect that the Internal Revenue Service will still want their portion. A canceled debt is generally considered taxable income unless you qualify for an exclusion such as insolvency or bankruptcy, claimed on Form 982, so watch out for that filing down the road.

Before you negotiate, look for a confession of judgment, a clause you should check for in every contract with a funder. In 2019 New York amended the civil procedure rules to say a confession of judgment may be filed only in the county where the debtor lived when signing or lives now, so funders cannot file against out-of-state borrowers. But NY-based businesses still must watch out for them.

Also check the disclosures that you got before the deal was final. A law called the New York Commercial Finance Disclosure Law requires funders to tell you certain key information before the agreement is final. It should have told you the total amount financed, the total cost of financing, the annual percentage rate, and a payment schedule.

The Bankruptcy Route

Sometimes trying to work out a restructuring and settlement just is not going to get there. At that point, you need an alternative path to minimize your losses. If yours is a small business, you can go the bankruptcy route. The maximum debt for a Subchapter V small business bankruptcy is $3,424,000 for cases filed in 2026.

If you find you’re under water when MCA funders lock out your accounts, sue, or send nasty letters, you need a plan, but that plan rarely involves taking out another advance to cover the first. That can get you stuck in a debt spiral instead of coming out of it. Ignoring it doesn’t help much either. A funder can get a judgment in court against a business that refuses to pay, and your personal assets could even be in danger if there’s a personal guarantee on the debt.

You are safest if you get help before the first mistake. Even if you missed a payment or got a letter threatening action, there may still be time to build a strategy. But if the funder is talking to your customers or trying to lock out your business account, the choices you had before may no longer be on the table. The strategies also differ if you signed a personal guarantee or a confession of judgment, so make sure your attorneys know these basic facts when you describe your situation.