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At the Law Offices of Anthony Rumore, P.A. We are client and solution oriented, not problem oriented. We focus on resolving the legal matters and problems of every one of our clients. For us, sharing the precise nature of the legal issues with the client is just the beginning of the problem resolution process. We are determined to present our clients concrete and realistic solutions for their problems.

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  • 1318 Southeast 1st Avenue, Fort Lauderdale 33316
  • 954-942-2414

In the News

Negotiating Business Debt Settlement Part 1


Analysis, factors, and considerations when negotiating the settlement of defaulted or delinquent commercial debt.

We begin with the difference between the Repayment and the Settlement of a business debt specifically, a merchant cash advance. Repayment means the borrower pays the entire contractual amount owed under the MCA agreement. A typical MCA might fund a business owner $50,000 while the contract requires repayment of $75,000 through daily ACH deductions, usually over no more than three or four months. Paying the full $75,000 on schedule is a full repayment.

When we examine MCA debt for a new or prospective client, we first identify the Gross Funding the amount that would be advanced but for the origination or broker fees, which often run 5% to 10% of the total. Subtracting those fees gives the Net Funding, the money the owner actually receives.

Next we look at the full contractual repayment balance what the owner must repay over the full term if no payments are missed. These agreements are normally structured so the owner repays 150% or more of the gross amount funded. Borrowing $50,000 and repaying $75,000 over three months equates to roughly a 200% annualized interest rate; stretched to five months, it is still about 120%. Compare that to a conventional bank loan or line of credit, where a rate above 18% would be considered illegally usurious in most U.S. jurisdictions. In short, fully repaying an MCA means paying a cost that would be illegal if the account were a loan rather than a merchant cash advance the so-called "purchase of future receivables."

MCA DEFAULT FEES
If the borrower cannot stay current, the lender will likely add default fees on top of the contractual balance; missing or bouncing the scheduled daily or weekly payments triggers a default. On our $50,000 funding with a $75,000 repayment, a default might add a $5,000 or $10,000 default fee, and often attorneys' fees as well pushing the total balance to $85,000 or more.

NEGOTIATED SETTLEMENT AND BUSINESS VULNERABILITY ANALYSIS
A Negotiated Settlement Resolution is very different from repayment. It occurs after a borrower has defaulted, when the borrower alone or, better, with qualified counsel negotiates entirely new terms to settle the account and eliminate the debt. A negotiated settlement results in dismissal of any lawsuit, termination of any recorded UCC lien, and a Zero Balance Letter (ZBL) from the creditor.

The first step toward settlement is analyzing the business's vulnerability to MCA creditor collection tactics. A highly vulnerable business calls for one negotiating playbook; a business that is not vulnerable allows for a more aggressive one. To gauge vulnerability, we look at the nature of the business and how it is paid: Does it generate much of its revenue through credit or debit card receipts? Is it paid by wire from commercial customers? Does it receive payments from insurance carriers? Are its customers mostly consumer or mostly commercial? Based on how the business is paid-card processing, check, wire, or insurance payments to medical providers, roofers, and the like we assign the client a UCC 9-406 lien demand risk factor, also called UCC lien disruption vulnerability.

Nearly every MCA creditor relies on the UCC lien demand. When a borrower is first funded, the creditor records a UCC-1 in the public records of the state where the business is located, creating a security interest against the business's receivables. This does not let the MCA seize assets directly, but it does allow the creditor's attorneys or collection agencies to send UCC lien demand letters under Uniform Commercial Code Section 9-406 to third-party card and electronic payment processors such as Fiserv, WorldPay, Elavon, SquarePay, CashApp, or PayPal. On receiving such a letter, the processor will typically freeze the business's accounts imagine a restaurant unable to collect five days of card sales, with no way to recover those funds until a settlement is reached. Those letters can also go to a business's customers.

If a general contractor does substantial work for a real estate developer and that developer receives a UCC lien demand letter, the developer will likely stop paying the contractor and hold the funds in suspense sometimes tens or even hundreds of thousands of dollars until a settlement is reached with the MCA creditor. Our firm has developed effective tools for these situations and has frequently succeeded in getting clients paid the receivables their customers were holding in suspense. (Other articles on our website address UCC 9-406 lien demand letters in greater detail.) Our attorneys offer free consultations to help business owners assess UCC demand vulnerability and to advise on revenue isolation and negotiating favorable settlements.

Anthony Rumore, Esq.
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