7 Steps to Reopening a Business After MCA Default

You defaulted. The accounts got frozen, the UCC notices went out, the processor cut you off, and the business you spent years building went dark in about 48 hours. Now you’re thinking about opening again.

Short answer: You can. People do it every week. But if you reopen the same way you operated before, you’ll be back in the same spot within 6 months, and this time the funders will be waiting for you.

Here’s how to actually do it.

1. Figure out what the funders know, before you do anything else.

Before you sign a lease, open an account, or file a single piece of paperwork, you need to know what’s out there against you. Pull your UCC filings. Pull your court records in every county you operated in, and every county the funder operates in (most MCA funders sue in New York, regardless of where you are). Pull your personal credit, and the credit of anyone who signed a personal guarantee.

You’re looking for: active judgments, pending lawsuits, UCC-1 filings that are still live, restraining orders, and confessions of judgment that may have been filed but not yet executed. A COJ that’s sitting in a drawer in a Manhattan courthouse is a loaded gun. You need to know it’s there.

2. Do not, under any circumstances, open the new business under your own name.

This is where most people torch themselves in the first week. They default, they wait a few weeks, and they open a new LLC with themselves as the sole member, same EIN structure, same bank, same processor. The funder runs a simple search, finds the new entity, and files an amended complaint adding the new LLC as an alter ego. Now you’ve handed them a fraudulent transfer claim on a silver platter.

If you personally guaranteed the MCA — and you did, everyone does — a new entity owned by you does not protect you. It has to be structured correctly, and that means a lawyer, not a LegalZoom form. Don’t cheap out on this part. This is the part.

3. New bank, new processor, new everything. And not the obvious ones.

Your old bank is done. The funder has your account number, your routing number, and in many cases a live authorization to debit. Even if you close the account, banks sometimes honor reversal requests on closed accounts, and you do not want to find out the hard way.

New bank means a bank that is not in the MCA funder’s normal search list. That usually means not Chase, not Bank of America, not the big ones everyone uses. Smaller community banks, credit unions, or online business banks that don’t participate in the industry databases. Same logic for your processor. If you were on Square before, don’t be on Square now. The funders subscribe to services that scan processor data. Assume they’ll find you if you go back to the obvious players.

4. Deal with the old debt, don’t pretend it’s not there.

This is the step everyone wants to skip and nobody can. You can reopen, you can restructure, you can rebrand — the debt doesn’t go away. The funder will find you eventually. The personal guarantee follows you. The judgment, if there is one, will sit on your credit for 20 years and get renewed.

You have three real options: settle it (usually 30-50 cents on the dollar if you negotiate hard and have leverage), litigate it (expensive, slow, but sometimes the right move if the funder overreached), or file bankruptcy (last resort, and it doesn’t always discharge MCA debt cleanly because of the personal guarantee structure). Pick one and commit. Hoping it goes away is not a strategy, it’s a stall.

5. Rebuild revenue before you rebuild overhead.

The instinct when you reopen is to get back to where you were. Same lease, same staff, same inventory levels, same everything. Do not do this. The reason you defaulted, in most cases, is that the overhead was too high for the revenue. If you reopen at the same scale, you’re setting up the same failure with a new name on the door.

Open small. Smaller space if you can, fewer employees, leaner inventory. Prove the revenue comes in, then scale. This is boring advice and it’s the advice nobody follows, and it’s why so many business owners end up on their second and third MCA default.

6. Never, ever take another MCA. Even if it “saves” you.

At some point, 4 or 5 months in, cash is going to get tight. You’ll get a call, or an email, or a LinkedIn message from a broker who somehow found your new number. They’ll offer you $50k, funded tomorrow, no personal guarantee needed, we don’t care about your past. It’s a trap. It’s always a trap.

The MCA that almost killed you the first time didn’t kill you because you used it wrong. It killed you because of what it is. The math doesn’t work. A 1.49 factor rate over 4 months is an APR north of 150%. No business runs on 150% money. If cash is tight, cut overhead, collect receivables faster, or close — but don’t take the advance. The reason you’re reading this article is because someone told you the first one was a good idea.

7. Build a cash reserve before you consider yourself stable.

You’re not stable when revenue comes back. You’re stable when you have 3 months of operating expenses sitting in an account you do not touch. Most businesses that default on an MCA never had this reserve, which is why the first bad month became catastrophic. A bad month is a bad month. A bad month with no cushion is a default.

Until you have the reserve, you are not reopened. You are operating on borrowed time with a new logo.