How to Get Out of $1 Million in Merchant Cash Advance Debt

There are four realistic ways out of $1 million in merchant cash advance debt: a restructuring with every funder; a settlement paid from a sale, new equity or long-term debt; a court-supervised Subchapter V reorganization with a bankruptcy attorney; or an orderly wind-down. Which one fits depends on whether your business makes money before the debits. Meanwhile, the debits come out before payroll, and your personal guarantee is what keeps you awake.

Picture Andre, who owns a metal fabrication shop in Columbus, Ohio. Over the past year he took advances from six funders, each new one partly to cover the debits of the last, which is how MCA stacking turns into a spiral. Today the stack, all six advances together, shows about $1,000,000 owed. Scaled from Hamilton & Merchant's published stack model, a balance that size is debited about $45,200 a week, or about $189,900 a month.

The shop sells about $1,000,000 in a normal month and keeps about 10 cents of each dollar after steel, payroll, rent and every other cost. That is roughly $100,000 a month before any advance is paid, and the debits want almost twice that. For profit alone to carry $189,900 a month at a 10% margin, the shop would need about $1.9 million a month in sales.

Below are eight steps in the order I would take them, with the arithmetic shown. Hamilton & Merchant is not a law firm, and nothing here is legal advice; where a step needs a lawyer, I say so.

How much do $1 million in merchant cash advances cost each week?

A $1,000,000 stack shaped like the one in Hamilton & Merchant's model is debited about $45,200 a week, or about $189,900 a month. That is the cash cost; the price of the money, stated as an APR-equivalent, ran from 63% to 205% in the model.

The model, What a $500,000 Merchant Cash Advance Stack Costs, follows five advances that funded $625,000 over six months with a combined payback of $878,750, or $253,750 more than the business received. By month six it owed about $557,000 and was debited $5,033 every business day: $25,166 a week, $105,698 a month. Scaled to $1,000,000, the same shape gives the $45,200.

A debit is the automatic withdrawal a funder takes from your account; an APR-equivalent is the yearly rate a regular loan would charge to cost the same as the advance. Per weekday, $45,200 is about $9,040. To run your own numbers, use the merchant cash advance calculator.

What goes into a stack inventory?

A stack inventory is one table with a row for every advance and the same ten facts for each. Building it is the first step, because every later choice comes from it.

I grew up in a military family in California, and whenever new orders came, my mother pulled out one binder that held every lease, bill and school record we had. This table is that binder for your debt.

The factor is simple division: in the stack model, $878,750 of payback on $625,000 funded is a factor of about 1.41, so each dollar received cost about $1.41 to return. Convert every debit to a weekly figure (a daily debit times five), total the column and check it against your bank statements; if they differ, a debit is missing. The MCA glossary defines any unfamiliar term.

Does the business make money before the debits?

Find out by taking a normal month's sales, subtracting every cost of running the business except the advances, and comparing what is left, which I call profit before debits, with one month of debits. This cash-flow test is the second step and the first thing I check on any stack.

Use a normal month, not your best, and include costs you have been putting off to keep the debits paid. Then read the answer:

1. Profit before debits is larger than the debits. The business can carry the stack; the danger is another advance, so stop stacking and let the balances run down.
2. Profit before debits is positive but smaller than the debits. The business works; the payment schedule doesn't. A restructuring, a funded settlement or Subchapter V fits here.
3. The business loses money before any debits. Lower payments cannot fix that; the choices are fixing the operation quickly, selling, or an orderly wind-down.

For Andre, profit before debits is about $100,000 a month against about $189,900 in debits, so profit covers about 53% of what the funders take. He is in the second group. And at $189,900 a month, a $1,000,000 balance would be gone in a little over five months if the shop could pay it. His debt is not too big for the business; it is too fast.

So the question becomes how much time the business needs. At $75,000 a month, leaving Andre a $25,000 monthly cushion, the same $1,000,000 would take a little over 13 months. Whether funders accept a schedule like that is their decision, and results vary, but the arithmetic tells you what to ask for.

What should I look for in each contract?

Look at four parts of every contract: the reconciliation clause, the personal guarantee, any confession of judgment and the venue clause. This third step has to be done funder by funder, because six contracts can say six different things; how to read a merchant cash advance contract covers the basics.

Reconciliation

Reconciliation is the funder's promise to adjust your debit to your actual sales, so the debit falls when sales fall. Hamilton & Merchant Research's How Courts Decide Whether a Merchant Cash Advance Is a Loan (October 2026) read 59 U.S. court decisions on whether an advance is a loan or a true sale (a real purchase of future receivables). Where a court found a real, mandatory reconciliation right, the funder won 16 of 16 times; where the clause was discretionary or illusory, left entirely to the funder, the decision went toward a loan 21 of 21 times. If you have the clause, use it in writing: in New York's Second Department, merchants who never used the procedure could not later argue it was illusory. More in how the MCA reconciliation right works.

The personal guarantee

A guaranty of payment promises the money if the business does not pay; a guaranty of performance promises only that the business will keep its contract promises, such as not diverting deposits or closing the account. In Cap Call, LLC v. Foster (In re Shoot the Moon, LLC), an "absolute, primary, and continuing guaranty of payment and performance" helped a Montana bankruptcy court hold 18 transactions were loans in 2021, while a guaranty that did not cover payment on default supported a sale in a 2025 Maryland case, and other courts have found loans despite narrower guarantees. Your exposure turns on the exact words and on which events count as a default, such as a bankruptcy filing alone. See how merchant cash advance guarantees are worded.

Confession of judgment

A confession of judgment is a signed statement that lets a funder get a judgment without first winning a lawsuit. State law decides whether yours is usable:

• New York: on an affidavit filed after August 30, 2019, a funder cannot enter one against a business with no New York place of business (N.Y. CPLR 3218(b)).
• Florida: a power of attorney to confess judgment signed before a lawsuit is filed is "absolutely null and void," wherever it was signed (Fla. Stat. 55.05).
• Virginia: barred in sales-based financing contracts entered on or after July 1, 2022, with businesses based in Virginia, except single transactions over $500,000 (Va. Code 6.2-2234(C)).
• Texas: since September 1, 2025, a commercial sales-based financing contract containing one is void and unenforceable (Tex. Fin. Code 398.055).

More in how confessions of judgment work in merchant cash advances.

Venue and deal size

Note each venue clause, which names the state and court for disputes. Then check each advance's size: per Hamilton & Merchant Research's State Merchant Cash Advance Laws in 2026 (October 2026), six states, including California and Florida, cover only transactions of $500,000 or less, and New York's law reaches $2.5 million. Because those limits apply to each transaction, some advances in a $1,000,000 stack may fall inside a law the total does not. If anything suggests an advance was really a loan, take it to your own attorney; usury and recharacterization claims are lawyer work.

Which of the four paths fits my numbers?

Your cash-flow answer points to the path. A business that earns money before the debits, but not enough to carry them, fits a restructuring, a funded settlement or Subchapter V; one that loses money before the debits fits a sale or an orderly wind-down.

Choosing is the fourth step. The time frames are descriptions, not promises, and results vary.

Paths can be combined, as long as one plan covers every funder. How bankruptcy, settlement and restructuring compare goes deeper; if you plan to hire a firm, read how to find a debt relief agency first.

If you would like help seeing which path your numbers point to, call Hamilton & Merchant at (407) 993-1416 for a free, confidential first conversation about your stack.

Can $1 million in merchant cash advance debt be settled?

Yes, a stack this size can be settled, but one funder at a time, and each funder decides for itself. A settlement also needs money behind it, because it trades a smaller amount for faster or more certain payment. Results vary, and no funder is obliged to accept.

No published average tells you what a funder will take, so look at what moves each one: its contract terms; how far along it is, since a funder holding a judgment stands in a different place from one that has only sent a letter; what it would collect if the business closed; and whether your plan is believable and covers every funder.

Each written settlement should state the amount and payment dates, release the business and every guarantor, and commit the funder to file a UCC termination once paid; see getting a UCC lien removed after payoff. The full process is in how to settle with an MCA funder. Show every draft to your CPA before you sign, for the tax reasons below.

When does Subchapter V make sense at $1 million?

Subchapter V, created by the Small Business Reorganization Act, is a form of Chapter 11 reorganization built for small businesses. It can make sense when the business earns money before the debits, its debts fit under the limit, and funders will not agree to terms or a lawsuit is close. Make that decision with your own bankruptcy attorney.

The limit counts secured and unsecured debts on the filing date that are noncontingent (not hanging on a future event) and liquidated (a known amount). Debts owed to affiliates or insiders are left out, and at least 50 percent of the debt must have come from business activities (11 U.S.C. 101(51D)). Defaulted advances likely count: a Colorado bankruptcy court treated them as noncontingent and liquidated in In re Heart Heating & Cooling, LLC (Bankr. D. Colo., March 21, 2024), 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 higher limit is pending, not law. H.R. 7730, the Bankruptcy Threshold Adjustment Act, passed the House on Sept. 16, 2026 and the Senate on Sept. 28, 2026, but as of October 9, 2026, Congress.gov showed no signature and no public law number. If it becomes law, it would set a $7,500,000 limit for cases filed from then on; the earlier temporary $7.5 million limit expired on June 21, 2024.

How a Subchapter V case runs

• The business must file its plan within 90 days after the order for relief, and only the business may file one (11 U.S.C. 1189).
• A Subchapter V trustee is appointed in every case; one of the trustee's duties is to facilitate a consensual plan (11 U.S.C. 1183).
• 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: here, 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 that test (11 U.S.C. 1181(a) and 1191).

What the automatic stay covers

Filing automatically stays collection of claims that arose before the case, enforcement of earlier judgments, confession-of-judgment judgments included, and acts to take or control property of the estate (11 U.S.C. 362(a)(6), (a)(2) and (a)(3)). It protects the debtor that filed, so the business's case does not automatically protect you as guarantor. And if a court treats an advance as a true sale, the sold receivables are not property of the estate, and the stay does not protect them.

Courts differ on that last point. In VPR, LLC v. Vox Funding (Bankr. W.D. Va., interim order June 13, 2024), the court barred a funder from collecting the debtor's receivables and directed customers to pay the debtor, without yet deciding loan or sale. In Carr's Plumbing (Bankr. D. Kan., March 9, 2026), the court denied, without prejudice, a motion to enforce the stay against a funder that had notified the debtor's customers, wanting fuller evidence in a separate lawsuit inside the case. Neither predicts your case; results vary.

Which funder should I deal with first?

Start with the funder that can hurt the business soonest, not the one that calls most often. Ordering them is the fifth step, and I rank them by four questions, in this order:

1. Who is closest to suing? A default notice, a lawsuit or a judgment moves a funder to the top. If you have been served, call your own attorney first, then read the MCA lawsuit survival guide.
2. Who holds a confession of judgment that may still be usable under the state rules above? It can become a judgment without a lawsuit, and a judgment can be used against a bank account; if that has happened, see what to do when a business bank account is frozen.
3. Who has the strongest lien position? A UCC financing statement is the public notice of a funder's claim on business assets such as receivables. Your attorney can tell you how the filings rank; the top one matters most if you plan to sell assets or borrow.
4. Who takes the biggest debit? Changing that one frees the most cash each week.

In Andre's stack, say Funder D has sent a default notice, Funder B holds a confession of judgment and Funder A takes the largest debit. He would put D first, ask his attorney whether B's confession can be used against an Ohio business, and turn to A third.

Where does the money for a settlement come from?

When monthly profit already falls short of the debits, settlement money has to come from outside it: a sale, an investor or debt with a longer term. An SBA 7(a) loan cannot pay off a merchant cash advance that is still running.

Finding that money is the sixth step. Before selling a division, a building or equipment, check which UCC filings cover it. New equity is an investor's cash for a share of the company; long-term debt swaps daily debits over months for monthly payments over years.

SBA calls a merchant cash advance a "Sales-Based Repayment Agreement." For 7(a) applications that receive an SBA loan number on or after October 1, 2026, SBA SOP 50 10 8.1 allows refinancing one only if the advance was converted to a term loan, that loan has amortized for at least 24 months, and no new MCA-type agreements have been taken since. The debt must also have been current, with no payment more than 29 days late, for the last 12 months or the life of the loan if shorter, and the new payment must be at least 10 percent lower than the existing payments combined. Active advances and factoring agreements are not eligible, and the rules cover every 7(a) program, including 7(a) Small and SBA Express.

So a restructuring that converts an advance into a term loan you can keep current is also the first step toward the earliest SBA route, 24 months later. One caution: SBA-guaranteed loan proceeds may not be used to pay a creditor in a position to sustain a loss, so ask the lender how that applies to a settlement. Getting an SBA loan after MCA debt covers more. And be wary of anyone who wants a fee up front to find money; Florida, Georgia and Kansas bar commercial financing brokers from charging the business advance fees.

Do I owe taxes if an MCA funder forgives part of the balance?

You might. Forgiven debt is generally taxable income unless an exclusion applies, and how that rule treats a merchant cash advance written as a purchase of receivables is a question for your CPA. So the seventh step is seeing your CPA before you sign any settlement.

The general rule treats forgiven debt as income from discharge of indebtedness (26 U.S.C. 61(a)(11); IRS Publication 4681, 2025). The two exclusions that matter most for a business are debt forgiven in a bankruptcy case and debt forgiven while insolvent (26 U.S.C. 108(a)(1)(A)–(B)). Insolvent means liabilities exceed the fair market value of assets immediately before the cancellation, and the exclusion is capped at that gap (26 U.S.C. 108(a)(3) and 108(d)(3)).

A small worked example: a company owes $1,600,000 and its assets are worth $1,300,000 just before a funder forgives $350,000. It is insolvent by $300,000, so at most $300,000 can be excluded; the other $50,000 may be taxable. Four more points to raise:

• Excluded amounts are not free; they reduce tax attributes such as net operating losses and basis (26 U.S.C. 108(b)).
• For a partnership, including a multi-member LLC taxed as one, the tests apply owner by owner; for an S corporation, at the company level (26 U.S.C. 108(d)(6) and 108(d)(7)(A)).
• The insolvency exclusion is claimed by attaching Form 982 to the federal return and checking the box on line 1b.
• Applicable financial entities must file Form 1099-C for each canceled debt of $600 or more when an identifiable event occurs; whether a given funder will issue one is a question for your CPA.

Bring your CPA the draft settlement and a list of every asset and debt as of the expected signing date.

What should I protect while I work through this?

Protect payroll, the taxes withheld from employees' pay, and a clean record of where every dollar goes. And the day a lawsuit is served, call your own attorney.

This eighth step runs alongside all the others:

• Payroll and the taxes withheld from paychecks come first. Withheld taxes, often called trust-fund taxes, belong to the government, not to a debit.
• Don't move money around the funders. Opening a new account, closing the one they debit or redirecting customer payments are the kinds of acts a guaranty of performance covers, so they can turn a performance-only guarantee into personal exposure. If a debit has to stop, read stopping MCA ACH withdrawals the right way first. In Texas, since September 1, 2025, a provider may not automatically debit a business's account under a commercial sales-based financing contract unless it holds a validly perfected security interest (Tex. Fin. Code 398.056).
• Take no new advance. A "consolidation" advance can add a funder rather than remove one; see the reverse consolidation trap.
• Keep a dated log of every call, letter and notice from each funder.
• Call an attorney the day a suit is served. A lawsuit comes with a deadline to respond, and your attorney will want every day of it.

What to do this week

1. Mark every merchant cash advance debit on the last three months of bank statements.
2. Build the stack inventory, with each balance confirmed in writing.
3. Run the cash-flow test on a normal month and write down the gap.
4. Pull every contract, guaranty and confession of judgment; mark the reconciliation wording, guarantee type and venue.
5. Set aside payroll and payroll taxes before the next debit.
6. Sign nothing new: no advance, no "consolidation," no single-funder settlement, until one plan covers them all.
7. If you have been served, call your own attorney today. If bankruptcy is possible, ask for one who handles Subchapter V cases.
8. Book time with your CPA on the tax side before any settlement is drafted.
9. Call Hamilton & Merchant at (407) 993-1416 for a free, confidential first conversation about your stack and the right kind of merchant cash advance relief for it.

Questions and answers