Contractors With Stacked MCAs: 7 Moves to Protect the Next Progress Payment

The next progress payment is obligated before it arrives.

A contractor with stacked advances regards the deposit as relief from daily debits. The project documents regard the same funds as restricted receipts, asserted collateral proceeds, and payroll for labor not yet performed. Protection begins with that correction, and the correction must precede the next debit.

Often we see the owner forecast the gross application amount as available cash. The file rarely supports that forecast. Resist the urge to budget the deposit before counsel reviews the restrictions.

Match the Payment to the Project Record

The approved amount decides what the contractor can discuss. Retrieve the contract, the approved application, and whatever correspondence shows what the customer accepted.

Distinguish the amount requested from the amount approved, then identify deductions and conditions still under discussion. Stored materials, disputed extras, and retainage require separate lines in the accounting record. A deposit that mixes project receipts with other revenue answers no question about who holds rights in the funds. Record and retain the application register behind each deposit. The margin for allocation becomes extremely narrow once two funders debit the same account.

Keep change orders apart until their status is known. An owner who treats a disputed extra as settlement money describes a different proposal from one based on an approved receivable.

Six months after the first advance was signed, the lien calendar still governs the receivable. New York lien filing guidance sets different filing periods for general work, qualifying single family improvements, and retainage.

The last work date and the payment terms belong with the project record, though filing offices differ in how quickly they reflect new notices.

The Deposit Already Has Owners

Every dollar in the deposit answers to more than one claimant. Subcontractors, suppliers, and the question whether remaining work can be funded at all press competing claims against the payment, and project fund restrictions in some states add another layer for counsel to assess.

The deposit was real money. It belonged to someone else.

There are exceptions, though in practice they seldom decide the outcome. No contractor should assume every construction receipt is unrestricted cash, and no contractor should import another state rule.

I understand why most contractors call only after the second debit fails.

Review the Entire Stack in One Place

Delancey Street offers a free confidential initial review of MCA concerns through its merchant cash advance settlement service. The company provides debt settlement services and coordinates legal matters with independently licensed counsel rather than acting as a law firm. The paperwork for this stage is usually manageable.

Treat the progress payment as project money until construction counsel says otherwise. That single instruction prevents most allocation errors.

Reconciliation language deserves the same consolidated review, because each advance defines covered receipts in its own terms. Definitions and submission procedures differ across the stack, so the owner cannot answer every funder with a single bank statement. Funder counsel in these matters tends to quote the balance before producing the agreement.

The stack agreement, if we are being precise, is not one agreement at all. A fourteen page contract, most of it remedies, may sit beside a shorter advance with broader receipt definitions, and the interaction of the two decides the value of a reduced payment. Counsel should review and analyze both definitions before characterizing any shortfall, since broad receipt language is often drafted in order to support collection claims beyond the original bargain. The sample behind that observation is not scientific, though the pattern recurs.

Ask the adviser to ensure the proposed budget includes every active draw. Simply state the full payment picture at the first meeting, including the debits the owner hoped to omit.

Steps the owner takes, or does not take, in the first week set the posture for the negotiation. A peculiar arithmetic governs partial proposals, and counsel should ensure the terms respect the restrictions identified in the project review.

Security Interests and Reconciliation Terms

The state rules on disposition of collateral and proceeds provide that a security interest continues in collateral and identifiable proceeds unless the secured party authorized disposition free of the interest, subject to statutory exceptions. Counsel must still examine the actual grant, the governing law, and the property described (the precise exceptions turn on the article and the transaction).

In LG Funding LLC v United Senior Properties of Olathe LLC, 181 A.D.3d 664, a New York appellate court weighed reconciliation alongside other features bearing on absolute repayment. The decision supplies a framework. It cancels no particular contractor balance.

Preserve each adjustment request and the response. The file should show what the agreement required and what the funder did.

Offer Only What the Project Can Support

Whether a returned debit persuades a funder or only documents distress is a question the records rarely answer. National payment return guidance distinguishes returns for insufficient funds from returns based on authorization and treats business accounts under different timelines from consumer accounts. Bank mechanics, contract default, and legal remedies remain separate inquiries for the bank to classify, and any discussion of balances with a funder, even casually, can narrow later options.

A settlement should account for completion cost before it promises a number. Before any figure is offered, the owner must identify uncertain change orders and disputed amounts while reading the missed installment consequences, though promised releases complicate that accounting, and an extremely favorable discount may remain unsuitable if it requires money already committed elsewhere. An extremely favorable discount may remain unsuitable if it requires money already committed elsewhere (exact capacity turns on the project budget).

Estimation errors compound once two funders debit the same account. Most servicers know exactly what the stack costs. They prefer not to examine it too closely.

Obligation accumulated on the stacked balances the way moss accumulates on stone: slowly, and without notice to the owner watching the daily debits. I have yet to see a progress payment stretch far enough to cover both the project and the stack.

You spend the deposit and then you learn who owned it. The relief the owner seeks cannot come from funds the project still needs. A sound proposal recognizes that a progress payment belongs to a continuing job, with responsibilities that remain after the bank records the deposit.