NYC Construction Subcontractors: 8 Restructuring Rules Your MCA Funder Did Not Price

The subcontractor debt crisis starts before the MCA, with a progress payment that arrived short, a retention held past release, and a daily debit calibrated to revenue the project did not produce, and the funder priced none of those project realities into the advance.

1. Read the Subcontract Before the MCA Agreement

Before the funder file is opened, before counsel quotes a fee, the prime contract and the subcontract answer the questions that decide everything downstream. Anti assignment clauses, pay when paid terms, setoff and recoupment rights, and consent requirements for assignment of receivables determine whether the funder can reach the general contractor for payment and whether the subcontractor can redirect project funds at all. UCC 9-315 keeps the security interest in the collateral despite disposition unless the secured party authorized free and clear transfer, attaching it to identifiable proceeds within the statutory exceptions. The agreement controls, and the unread subcontract controls the MCA dispute. The check arrives short and the debit arrives whole.

2. Calendar the Lien Window Before It Closes

New York Lien Law 10 sets the filing windows at eight months after completion or final performance for general improvements, four months where the improvement is a single family dwelling, and ninety days after the date retainage was due for release where the lien covers retainage, with filing in the clerk office of the county where the property sits. Content, service, enforcement, and willful exaggeration defenses sit outside that section, and counsel must build each of them from the surrounding law. A lien past its window is not a lien at all, and no MCA settlement structure restores a deadline the statute has closed. Often the filing is complete and the service defective.

3. Segregate Project Funds From Operating Cash

Progress payments may carry trust treatment under statutes this article does not capture, which is why project funds stay segregated until counsel approves any transfer (the trust statutes vary by state, and this article states only the caution, not the rule). Commingling converts a contract dispute into something with criminal overtones in the states that treat diversion as a violation, and New York trust provisions demand their own reading first. The consequences are extremely disproportionate to the transfer.

The discipline is tedious.

The alternative is outlandish exposure for the principals whose signatures the state may use against them.

4. Map Every UCC Filing Against Every Obligation

One advance can produce several filings, and several advances produce a thicket. Gather and review the filed financing statements from each relevant office, match each filing against its security agreement to ensure the description supports what was filed, and test whether any filing exceeds what the agreement granted. This is where refinancing files stall. A payoff alone authorizes no self filed termination, though UCC 9-513 requires the secured party to send or file termination within twenty days after signed debtor demand where the statutory conditions are met, with proper authorization and filing office confirmed. Stale filings cloud refinancing and sales alike (the secured party who ignores a proper demand creates its own liability, and that liability belongs in the settlement conversation).

5. Test the Debits Against the Receipts

Fixed withdrawals that ignore receipts invite recharacterization. New York courts weigh substance over labels, asking whether repayment is absolute through reconciliation practice, finite term, and bankruptcy recourse, as LG Funding v. United Senior Properties (2d Dept. 2020) establishes for MCA characterization. Stacked daily debits against collapsed project revenue test that substance hardest, because fixed withdrawals that ignore receipts look less like purchases of future revenue and more like loans wearing purchased language. Consider the subcontractor carrying three stacked advances on separate debit schedules. Operating cash drains faster than under any single default, and the statements prove it before counsel says a word. Whether any particular advance survives recharacterization is a question no article can answer from labels alone. Reconciliation demands, made in writing and preserved with the bank records, create the paper that later supports every defense and every negotiation.

Revenue absent from the ledger cannot be reconciled from memory.

6. Separate Bank Mechanics From Contract Default

A bounced debit starts as a bank event. Nacha return codes distinguish insufficient funds, uncollected funds, and authorization defects, with consumer and nonconsumer return windows running on different tracks, and none of those codes decides whether the underlying MCA debt is valid. Stopping payment, closing accounts, or relabeling an authorized business debit as unauthorized carry consequences out of all proportion to the bank fee, and false unauthorized claims poison the very credibility the later defense requires. Most subcontractors call after the second debit fails, when the options have narrowed. Resist the urge to solve a contract problem at the teller window, even briefly, and counsel separates the three inquiries of mechanics, default, and remedy.

7. Keep the General Contractor Out of the Collection Fight

Whether the funder may contact the general contractor or intercept the subcontractor receivables turns on assignment and notice provisions, account stated mechanics, and the subcontract anti assignment terms, not on any general right to be left alone. No consumer style right to stop commercial collection contact exists through the FDCPA for business debts, so conduct is assessed under the actual debt purpose, the actor, and applicable state law. A funder that calls the general contractor acts in order to redirect payment before defenses mature. What the subcontractor discloses, or withholds, in the first conference call shapes the negotiation. Does a single aggressive call to the general contractor ever cost the subcontractor the next contract. The answer varies with the contract language and the project history. Before anyone picks up the phone for either side, counsel should assess tortious interference risk.

8. Restructure Around the Payment Calendar

Settlement works when it follows the project money rather than the creditor demand schedule. The project observes monthly certification. The funder observes daily collection. Written releases must cover the obligation, the UCC filings, and the personal guarantees as separate items, because retiring the company balance while leaving the guarantee alive settles nothing for the owner who signed it. Refinancing through an SBA 7(a) guaranteed loan remains subject to eligibility, debt purpose review, and lender underwriting, with no automatic approval for MCA consolidation.

The calendar does the arguing.

Delancey Street reviews the subcontractor file as a settlement company rather than a law firm, coordinating each release with the payment dates the project produces, and the objective is to ensure independent counsel handles the lien filings, the UCC demands, and the guarantee negotiations the calendar requires. Simply bring the subcontract, the MCA agreements, and the payment records to the first review.

The Project Pays for Everything or Nothing

Eight rules reduce to a single discipline, which is that project funds obey project documents before they obey funding agreements. Funders price risk in factor rates that look extremely reasonable until the project stalls. Subcontractors live it in requisitions. The documents decide which of those two realities governs.