MCA Consolidation Companies: 5 Questions About the Debt That Remains

The old providers should be paid and released before any business calls its obligations consolidated.

Before the new agreement is signed, before debit authority changes hands, the owner should learn whether incoming funds retire old balances or merely rent a lower payment for a season, because the marketing name describes the feeling of the transaction rather than its mechanics.

Retirement or Parallel Obligation

The closing date carries the entire weight of the promise.

Ask which debts the new funds will satisfy at closing, in what amounts, and through whose hands, because a proposal that names a total without naming recipients has described an aspiration rather than a schedule. Insist that the combined position be stated in one calendar.

Require the payoff figure from each old provider in writing, with the date through which it holds, the condition on which release follows, and the party responsible for confirming that funds arrived and were applied as intended rather than merely confirming that the new loan funded, since a delay of days can change the amount required and leave a shortfall the new financing does not cover.

A new payment proves nothing about an old debt.

The file showed three advances and two filings against the same receivables, a stack the proposal described as a single obligation, and that picture is extremely useful to keep in mind when a representative speaks of simplicity.

The consolidation funded on schedule. The debts remained where they were.

Treat every balance as open until a release says otherwise. Simply ensure the payoff proof names the creditor, the amount, and the release.

Price of the New Schedule

The Texas disclosure rules for covered sales based financing require specified cost and payment information for covered transactions, including additional detail where new funds satisfy an existing obligation, a statutory recognition that refinancing an old balance deserves its own accounting.

Compare total repayment, payment frequency, and term, because a smaller withdrawal can reflect a longer obligation with additional cost rather than any improvement in the economics of the debt. The payment was lower, if the term is read with care, because the obligation was longer.

Read the prepayment provisions and the charges retained from the proceeds, including any outlandish origination charge buried in the total, since the amount advertised as financing may differ from usable cash once old balances and fees are addressed. The lower payment sits on the proposal like fresh paint on a damp wall: bright at signing, blistered by the second quarter.

Whether the old provider treats the incoming wire as full satisfaction or as partial payment on a larger claimed balance is a question worth considering.

Price the transaction on total cash required, not on the size of the withdrawal.

Security Taken With the New Payment

The New York rule on security interests after disposition provides that a security interest generally continues unless the secured party authorizes otherwise, subject to exceptions, and that principle belongs before any discussion of replacement collateral.

List the assets, guarantees, and restrictions in the replacement contract, because a lower payment can arrive with broader exposure than the obligations it replaces. A new filing can be layered in order to stand ahead of the old one, which is why the priority question belongs in the comparison. In most of the cases we have seen, though the sample is not scientific, the new filing covers more collateral than the old ones combined.

The funder (who, it should be noted, had already collected a renewal fee on the balance now described as unmanageable) presented the new schedule as relief, and counsel should review and analyze every claimed interest against the actual documents.

Do not assume an old filing disappears upon funding.

The Intermediary and Its Pay

Determine whether the company supplies funds or introduces the business to another lender, because the actual counterparty should be identified before any guarantee is signed.

And the payoff letter, when it arrives, sometimes confirms a different creditor than the one named in the proposal.

Whether this pattern holds for equipment paper is a question I cannot answer from this desk.

Read the service agreement and the financing contract together.

Forecast After Closing

Six months after closing, borrowers in these arrangements are often still reconciling which filing belongs to which advance.

Prepare the forecast for the period after the proceeds are spent, including a weak month and the response of the new schedule if receipts arrive late, since something like sixty days of soft collections, though closings vary, can erase the benefit the proposal advertised. A plan that depends on immediate refinancing afterward is extremely fragile.

Most consolidation marketing knows the difference between retiring a debt and refinancing the appearance of one. It prefers the appearance.

Delancey Street offers a free confidential initial review for owners comparing new financing against negotiation of the existing MCA burden. The company provides debt settlement services and coordinates legal matters with independently licensed counsel; it is not a law firm. Counsel should ensure the comparison includes charges, remaining guarantees, and the legal work each route requires, and the owner should confirm eligibility for the accounts involved.

I have yet to see a payoff schedule arrive without a follow up question attached to it. Resist the urge to treat rapid approval as evidence of suitability, even briefly, and protect and preserve every version of the proposal. Consult and contact independent counsel where filings overlap.

We review the terms, identify the deficiencies, and construct a forecast that addresses both the financing claims and the practical realities of the calendar against the business. Payments the business makes, or misses, in the first quarter after closing tend to decide whether consolidation simplified the obligations or merely placed another agreement above them.

The calendar after closing is the only advertisement worth reading. An initial review gives that reading a place to begin, and the owner who insists on releases rather than assurances will rarely need a second consolidation.