Stacking MCAs: Why the Arrangement Fails and How to Unwind It

A stack of advances fails when each new commitment consumes receipts that the earlier commitments already require, while the deposit creates a temporary sense of capacity as remaining operating cash contracts.

Unwinding the arrangement requires a complete view of the obligations, since negotiating the most persistent account first can leave the business unable to perform the next agreement.

1. Build One Record of the Active Positions

Before proposing a settlement, before describing any amount as available for a particular funder, identify every active agreement and the payments it currently requires, including amendments, collection arrangements, and whatever the processor retained without a matching invoice.

What the owner discloses, or withholds, at the first meeting shapes the plan that follows, so distinguish the company asserting the claim from any intermediary communicating about it. Establish who can authorize a compromise and who must receive the payment, since authority to discuss an account and authority to settle it rarely reside in the same voice.

Intermediaries who place second and third advances understand what overlapping debits do to a ledger. They prefer to describe the product as flexibility, an outlandish name for the same debits. Where one advance paid part of another, the proceeds, the payoff, and whatever obligation remains after the offset need reconciliation before the same money is counted twice.

Simply place the schedules beside the bank history. This reconciliation is extremely tedious and extremely necessary, so place it before any offer is drafted.

2. Establish the Cash the Business Can Preserve

The business must keep enough capacity to produce the revenue from which every proposed agreement will be performed, so begin with collected receipts after essential expenses rather than with the total the creditors demand. That reserve is the only money the negotiation must not spend.

Identify the payment dates as well as the amounts, since a month that appears affordable in total can still contain a shortfall before a major customer pays. Some receipts will remain uncertain, and the proposal should reflect that limit rather than requiring the owner to promise the most favorable forecast. Most owners describe the third advance as the one they would undo first. The ranking is understandable.

Resist the urge to allocate the entire reserve to the first creditor willing to discuss a discount, since a signed settlement can become another default if it leaves no room for the remaining obligations. I have yet to see a stacked forecast survive contact with the second debit cycle.

Decide the Order Through the Combined Forecast

A creditor offering the largest discount may also require funds needed to address another account, so evaluate the effect on the whole schedule before accepting. Delancey Street is available for an initial review where multiple MCA positions require a coordinated commercial assessment, though the company is not a law firm and independently licensed counsel must address any proceeding against the business. Use the discussion to ensure that each active account appears in the proposed scope.

3. Examine Existing Adjustment Rights

In LG Funding v. United Senior Properties, a New York appellate court considered reconciliation provisions when evaluating the legal character of an MCA. The court considered, if we are being precise, the repayment terms rather than the label the parties had chosen. That decision does not make every stacked arrangement unlawful.

Establish the records and submission procedure required by each contract rather than assuming the same request applies across the stack. The procedure only helps the owner who follows it on time, and that is the whole of it.

Preserve the requests and responses. The performance record may matter alongside the written provision in any later assessment by counsel, and the New York appellate analysis of MCA repayment can inform that review. A concern identified in one account does not establish the same defense against every funder.

4. Another Advance Is Not a Resolution

Six months after the first advance funded, the owner who accepts a replacement transaction should identify which obligations it retires and which remain active. A fourth advance functions the way a second roof functions on a house with a failing foundation: additional cover over an identical collapse.

Review and analyze the total commitment and the point at which the new proceeds are exhausted. A lower initial payment is extremely misleading when followed by a burden the same receipts cannot support. Whether the new funder examined the stack or priced its own exposure in order to profit from the existing distress is a question worth considering.

5. Track Each Agreement Through Completion

Record accepted terms, payment dates, and documents due after performance, and confirm which withdrawals have changed while keeping proof of payment. Update the combined forecast when one account is resolved.

And the forecast should not count relief that has not reached the account. Compare actual withdrawals with the modified schedule after acceptance. If an old amount continues, preserve the record and seek correction through the appropriate channel, since the schedule changed only where the creditor permitted this change.

The Delancey Street initial MCA assessment can consider the stack as a coordinated negotiation question. Confirm every included account, the fee structure, and whatever independent legal work the stack still requires. Often we see omitted accounts destroy an otherwise workable forecast. In most of the stacks we have reviewed, though the sample is not scientific, at least one balance required correction after the first forecast.

After a payoff, obtain the acknowledgment and any promised release or filing. The account can be paid in full while documentation remains incomplete, so protect and preserve those papers before moving on.

6. Recognize When Negotiation Needs Another Route

Private settlements cannot bind a creditor that refuses to participate. If competing enforcement demands make a coordinated arrangement impracticable, counsel may need to assess reorganization or another legal process, even briefly pausing negotiation.

The last advance felt necessary at signing. The last advance created the present impossibility. A consultation with Delancey Street can establish the commercial questions while independent legal advisers examine the alternatives, and ensure the owner retains authority over proposed terms. Whether reorganization suits any particular business is a question counsel must answer from the actual agreements.

A useful resolution leaves the business with a smaller stack and obligations it can perform from operations.