MCA Debt Relief for Construction Companies

Yes, a construction company can get out of merchant cash advance debt, but rarely by out-earning it. The paths out are a restructuring, a settlement funded from finished-job collections or new capital, or a court-supervised reorganization with a bankruptcy attorney. The hard part is timing: progress billing, retainage and pay-when-paid terms make your cash arrive late and in lumps, while the funders take their debits every business day, whether or not the general contractor has paid you.

Take an owner like Marco, who runs a commercial drywall and framing subcontractor in Charlotte, North Carolina. He owes about $557,000 to five merchant cash advance funders, and $5,033 leaves his operating account every business day: $25,166 a week, $105,698 a month. Those figures come from Hamilton & Merchant's model of what a $500,000 stack costs, where the advances carry APR-equivalents (the cost restated as a yearly interest rate) of 63% to 205%. Marco is a composite, not a real client.

Marco has work: three jobs open, a fourth awarded, crews busy. But his general contractors pay on their schedule, after their owners pay them, minus the share they hold back as retainage, and the funders wait for none of it. He took the first advance to make a payroll while a bill sat unpaid, and the next four to cover the debits of the ones before.

I look at a stack like Marco's the way an accountant looks at any business: what comes in, what goes out, and on which day. Hamilton & Merchant is not a law firm, and nothing here is legal advice; where a step needs a lawyer, I say so.

Can a construction company get out of merchant cash advance debt?

Yes. The way out comes from changing the payment structure, not from trying to keep pace with it. The three paths are a restructuring of the payments, a settlement paid from completed-job collections or new capital, and a court-supervised reorganization run by a bankruptcy attorney. Results vary with your contracts, your jobs, your funders and how far behind you are.

A merchant cash advance, or MCA, is sold as a purchase of your future receipts rather than a loan: you get a lump sum, and the funder debits your bank account automatically (an ACH debit), usually every business day, until it has collected the agreed total. Advances taken to cover earlier advances form a stack, and the MCA glossary defines the other terms.

Hamilton & Merchant also has a page on MCA debt for contractors and subcontractors and a broader guide to merchant cash advance relief.

Why does a contractor's cash arrive weeks after the work is done?

Because construction is paid in arrears, through a chain. You bill the general contractor, the general contractor bills the owner and waits to collect, and then you are paid, minus retainage. Every link adds days, and the daily debits run through all of them.

Three terms explain most of it:

• Progress billing means billing each period, usually monthly, for the share of the contract you completed, on a form called a pay application.
• Retainage is the part of each payment the general contractor holds back until the job is finished and accepted. You have earned it but cannot use it yet.
• Pay-when-paid is a subcontract clause that ties when you are paid to when the general contractor is paid.

Here is one pay application followed start to finish, as an illustration only; retainage and payment terms differ by contract and by state.

1. In March, Marco's crews put $150,000 of work in place on a medical office building, and at month's end he bills it on a pay application.
2. His subcontract lets the general contractor hold back $15,000 as retainage until close-out, leaving $135,000 due.
3. The general contractor bills the owner, waits to be paid, then pays its subcontractors.
4. Marco's $135,000 arrives five weeks after he sent the bill, and as much as nine weeks after some of that work was done.

Now count the debits. Five weeks is 25 business days, so at $5,033 a day the funders take $125,825 before the March check clears. Nearly all of March's money is spoken for before it arrives, while Marco keeps paying his crews every Friday and buying board and studs.

Growing up in a California military family, I learned to plan a month around the day money actually arrives, not the day you hope it will. Daily debits force a contractor to do the opposite: the funders are paid on a calendar, the contractor through a chain.

How much revenue would a contractor need to cover the debits from profit?

For a stack like Marco's, about $1.78 million a month. That is the $105,698 in monthly debits divided by 5.94%, the average net margin of U.S. public engineering and construction companies. Marco bills less than a fifth of that.

Net margin is what is left of revenue after every cost, from labor and materials to insurance and taxes. At 5.94%, each $100 a job brings in leaves $5.94 of profit; that average covers 48 companies in Aswath Damodaran's Margins by Sector (US) data at NYU Stern, as of January 2026. These are public-company averages; many small private businesses run thinner margins. At the 8.56% average for 4,822 U.S. public non-financial companies, the same debits need about $1.2 million a month in revenue; at the 3.79% average for public trucking companies, about $2.79 million.

Now Marco's own numbers. If he bills about $320,000 a month at the average 5.94%, his profit is about $19,000 against $105,698 in debits. The other $86,700 or so has to come from somewhere: the next pay application, a supplier's patience, money meant for a payroll tax deposit, or the next advance. That is why I call this a structure problem, not a profit problem. You can test your own stack with the MCA calculator.

What does six weeks of cash look like with five daily debits?

It looks survivable in total and broken week by week. In this illustration, Marco collects more over six weeks than his jobs cost to run, so without the debits his balance never drops below zero. With them, he is short by week three and stays short.

Read the last row first. The jobs earn a thin but real $26,000 over six weeks, and the debits turn that into a $124,996 loss. A short balance is not an overdraft the bank will quietly carry. In real life it means bounced debits, a supplier paid late, a skipped payroll tax deposit, or a call from a sixth funder offering to help.

Should I take another advance to finish a job?

I would not, and the table shows why. A new advance adds a daily debit that starts long before the job it funds pays you, and that job will still pay late and minus retainage. A sixth advance would fill the hole in week three and deepen every week after it.

Each new advance borrows against receipts the earlier ones already claim, so the daily total grows while the jobs stay the same size, the pattern described in how MCA stacking turns into a death spiral. Give any offer to "consolidate" the stack the same test: read how a reverse consolidation can deepen the trap, then run the offer through your own six weeks.

A better first question is whether your contracts give you a reconciliation right, which lets you ask a funder to adjust the debits to the receipts that actually came in. In "How Courts Decide Whether a Merchant Cash Advance Is a Loan" (October 2026), Hamilton & Merchant Research found that where a court saw a real, mandatory reconciliation right, the funder won 16 of 16 times; where the clause was discretionary or illusory, the decision went toward a loan 21 of 21 times.

New York adds a lesson for contractors. In its Second Department, merchants who never used the reconciliation procedure could not argue it was illusory: Apollo Funding Co. v. Dave Reilly Construction, LLC (2025) and Diesel Funding, LLC v. Build Retail, Inc. (2026). If your receipts have dropped, request reconciliation in writing with bank statements attached, and keep copies. Your attorney can judge what the clause is worth; the guide to the MCA reconciliation right explains how it works.

What happens if an MCA funder contacts my general contractor?

Once your general contractor receives a signed notice that the money it owes you was assigned and must be paid to the funder, it can discharge that debt only by paying the funder; until then, it may keep paying you. That is Uniform Commercial Code (UCC) 9-406(a), and Florida (Fla. Stat. 679.4061(1)) and New York (N.Y. U.C.C. 9-406(a)) have the same rule.

The UCC calls your general contractor the "account debtor." The notice must be signed or authenticated by your business or the funder; Florida and New York say "signed." In practice:

• A careful general contractor that gets a notice will hold the money while its own lawyer reads it, because it does not want to pay twice.
• A notice is ineffective if it does not reasonably identify the rights assigned and, at the general contractor's option, if it says to pay the funder less than the full amount of an installment, such as only a purchased percentage of each pay application (UCC 9-406(b)(1) and (b)(3); Fla. Stat. 679.4061(2)(c)).
• The general contractor can ask the funder for reasonable proof that the assignment was made, and the funder must furnish it (UCC 9-406(c)).
• A secured party may tell your customers to pay it directly if the agreement allows it, and in any event after a default (UCC 9-607(a)(1)). Article 9 also covers outright sales of accounts (UCC 9-109(a)(3)), so a funder that calls itself a purchaser is still inside Article 9.

For a subcontractor, this can be the most damaging letter in the stack: your general contractor decides whether you bid its next job, and a notice can freeze the pay application meant for payroll. If one arrives, get it to your attorney the same day, and do not tell the general contractor to ignore it; whether it is valid is a legal question. See also what to do when an MCA funder contacts your customers.

Can a funder claim my retainage and other receivables?

A funder may try. Retainage is money your general contractor owes you for finished work, which makes it a receivable, and an MCA contract is written as a purchase of future receipts or receivables. Whether a given funder's claim reaches your retainage depends on the contract's wording, its UCC filing, who filed first and your state's law, so that answer has to come from your attorney.

The first thing I check is what the contract says was purchased: a percentage of the receipts deposited into your account, or every account and every payment due from every customer. Then I look at the UCC-1 financing statement the funder filed, which is the public notice of its claim, and at who filed earlier, such as a bank or an equipment lender. How to read your MCA contract walks through the clauses that matter.

Retainage arrives last, at close-out, and on a long job it can be the largest receivable on your books, which makes it a natural source for a settlement and a natural target for a funder. If a funder has written to your general contractor, treat that job's retainage as in question until your attorney says otherwise. If a judgment has already led to a bank restraint, read what to do when a business bank account is frozen first.

How do I show a funder or a court what each job will really produce?

With a job-by-job schedule showing, for every open contract, what is left to bill, collect and spend, and when the cash should arrive. Accountants call its core a work-in-progress schedule. A funder weighing a lower payment, or a judge reading a reorganization plan, will give a schedule far more weight than a promise.

For each open job, list:

1. The contract amount plus approved change orders, leaving out any still in dispute.
2. Billed to date and collected to date.
3. Retainage held, and when the contract releases it.
4. Cost to date, from the job-cost ledger rather than memory.
5. Estimated cost to complete, from remaining labor hours and material quantities.
6. The week you expect each remaining payment, based on that general contractor's real payment history.

On Marco's medical office job, as an illustration, the contract is $900,000 plus $40,000 in approved change orders, or $940,000. He has billed $610,000 and collected $504,000; $61,000 is retainage and $45,000 is a pay application not yet paid. Cost to date is $560,000, with $320,000 more to finish.

• Expected profit: $940,000 minus $880,000 in total cost, or $60,000.
• Cash today: $504,000 collected against $560,000 spent, so the job is $56,000 behind in cash even though it will make money.
• Still to come: $45,000 pending, $330,000 left to bill and $61,000 of retainage, or $436,000, against $320,000 still to spend.

That last line is what a funder needs to see: about $116,000 of net cash from here, much of it arriving at the end. Settlements funded from completed-job collections, and reorganization plans, are built from lines like this.

Why do payroll and trust-fund taxes come before the funders?

Because withheld payroll taxes were never the company's money. The income tax and the employee share of Social Security and Medicare you withhold from each paycheck are money you are holding for the government, which is why accountants call them trust-fund taxes. Using them to cover a debit borrows from the one creditor you should never borrow from.

In a short week, the tax deposit is the payment that does not bounce or call, which makes it the most tempting to skip. Ask your CPA whether every deposit is current and, if not, what that means for the company and for you personally. Then protect payments in this order:

1. Net payroll, meaning take-home pay, and the trust-fund taxes withheld from it.
2. The employer's share of payroll taxes.
3. The insurance your general contractors require before your crews can work on site.
4. Materials for jobs that will be paid.
5. Whatever is left, for the funders.

Crews come first because skilled people leave when a Friday payroll is missed, and the job slips with them. Public work adds a layer: contracts often require certified payroll, signed reports of who worked, for how many hours and at what pay, so a short payroll there becomes a compliance problem that can reach the general contractor, the agency and your surety. Protect those payrolls first.

What does each path out mean for open jobs and bonding?

A restructuring or a settlement happens privately between your company and the funders, so your general contractors and surety may never be involved unless a funder has already written to them. A court-supervised reorganization is public and brings your contracts, surety and general contractors in from the first day. Results vary on every path.

If a surety bonds your jobs, it stands behind your performance and your payments to crews and suppliers, and it sizes your bonding from your financial statements. A stack, a lawsuit or a filing changes that conversation, so talk to your bonding agent, with your attorney's guidance, before you choose.

A restructuring of the payments

The funders agree to new terms: smaller payments, weekly instead of daily debits, payments tied to collections, or a pause. With five funders, all five need to move together, or the one still debiting at the old rate eats the room the others gave. For a contractor, the best version matches payments to the pay-application calendar. Funders do not have to agree, and results vary.

A settlement funded from completed-job collections or new capital

A funder accepts a lump sum, or a short series of payments, for less than the balance it claims, paid from something real: final payments and retainage releases on finished jobs, surplus equipment, an investor or a new lender. Get each settlement in writing, and do not treat a funder as finished until its UCC filing is terminated; see how to settle with an MCA funder and getting a UCC lien removed after payoff. Results vary by funder and contract.

A court-supervised reorganization

A bankruptcy attorney files and runs a Subchapter V case, a form of Chapter 11 for small businesses. Your subcontracts and bonding agreements may say something about insolvency or bankruptcy, so have the attorney explain those clauses before you file, and plan together what you will tell each general contractor and your surety.

The comparison of bankruptcy, settlement and restructuring sets the three side by side, and the page on MCA debt over $500,000 covers what changes at this size. If you are hiring a firm, read how to find a debt relief agency first.

How does Subchapter V work for a contractor with MCA debt?

Subchapter V is a form of Chapter 11 for small business debtors, created by the Small Business Reorganization Act. A business within its debt limit files its own plan within 90 days after the order for relief, and the court can confirm that plan even if creditors reject it, when the plan meets the test below.

The temporary $7.5 million limit expired on June 21, 2024. H.R. 7730, the Bankruptcy Threshold Adjustment Act, passed the House on September 16, 2026 and the Senate on September 28, 2026, and would restore a $7,500,000 limit, excluding debts owed to affiliates or insiders, for cases filed once it becomes law. As of October 9, 2026, Congress.gov showed no signature and no public law number, so $3,424,000 is still the limit.

The limit counts noncontingent, liquidated debts, and defaulted MCA balances likely count toward it: In re Heart Heating & Cooling, LLC (Bankr. D. Colo., March 21, 2024) treated them as noncontingent and liquidated, as quoted in "Merchant Cash Advance Loans in Bankruptcy," seminar materials hosted by the U.S. Bankruptcy Court for the Western District of Virginia (2025).

• A Subchapter V trustee is appointed in every case, with a duty to facilitate a consensual plan (11 U.S.C. 1183).
• Only the business may file a plan; creditors cannot file competing plans (11 U.S.C. 1189).
• If creditors reject the plan, the court, at the business's request, must still confirm it if it does not discriminate unfairly and is fair and equitable, which means committing all projected disposable income for 3 years, or up to 5 years if the court sets a longer period (11 U.S.C. 1191(b)–(c)).
• The absolute priority rule in 11 U.S.C. 1129(b) does not apply, so owners can keep their ownership without paying unsecured creditors in full if the court confirms a plan that meets the Subchapter V test (11 U.S.C. 1181(a) and 1191).

Filing brings the automatic stay, which covers acts to collect pre-filing claims against the business (11 U.S.C. 362(a)(6)), enforcement of pre-filing judgments, including confession-of-judgment judgments (362(a)(2)), and acts to take or control property of the estate (362(a)(3)). Two catches matter. First, an owner who signed a personal guarantee but has not filed is not the debtor in the company's case, so the filing does not automatically protect the owner as guarantor (see how personal guarantees on MCAs work). Second, if a court treats an advance as a true sale (a real purchase), the receivables the funder bought are not property of the estate, the business cannot freely use that cash, and the stay does not protect them; if it is a loan, the funder holds a secured or unsecured claim, according to the same seminar materials.

That brings back the letters to your general contractor. In VPR, LLC v. Vox Funding (Bankr. W.D. Va., interim order June 13, 2024), a Subchapter V court barred an MCA funder from collecting the debtor's receivables under the stay and directed the debtor's customers to pay the debtor despite the funder's demands, without yet deciding loan or sale. But in Carr's Plumbing (U.S. Bankruptcy Court for the District of Kansas, March 9, 2026), the court denied, without prejudice, a debtor's motion to enforce the stay against a funder that had notified its customers, saying ownership of the receivables needed fuller evidence in an adversary proceeding, a separate lawsuit inside the case.

Courts are split on loan versus sale: of the 59 U.S. decisions in "How Courts Decide Whether a Merchant Cash Advance Is a Loan," the Hamilton & Merchant Research study cited above, 27 went toward a loan or let a usury claim proceed, 22 held a true sale and 7 left it for trial, and many loan-side rulings came at an early stage. Arguing your side is your attorney's job.

What to do this week

None of these steps commits you to a path. They produce the numbers every path needs.

1. List every debit from three months of bank statements: each funder, its amount, how often it hits and the balance it claims.
2. Build your own six-week picture like the table above, and circle the first week your balance goes short.
3. Confirm with your CPA that every payroll tax deposit is current, and put certified payroll on any public job first.
4. Build the job-by-job schedule described above for every open job.
5. Find the reconciliation clause in each contract and, if receipts have dropped, request reconciliation in writing with bank statements attached.
6. Decide with your attorney what you will say to your general contractors and your surety if a funder's notice arrives.
7. Sign no new advance or consolidation offer this week.
8. Talk to a bankruptcy attorney about Subchapter V, even if you hope never to use it, so you know whether you qualify. If a funder has already sued, read the MCA lawsuit survival guide and call your own attorney first.
9. Call Hamilton & Merchant at (407) 993-1416 for a free, confidential first conversation about your stack and the kind of help that fits it.

If Marco did only the first four items, he would walk into any conversation, with a funder, an attorney or his surety, holding his own numbers instead of a guess. That page of numbers is what makes each path out possible to judge.

Questions and answers