By Robert DiNozzi. Originally published March 14, 2025 in ABF Journal.
When business owners find themselves buried in debt — especially high-cost products like Merchant Cash Advances (MCAs) — they often turn to debt settlement companies for help. Unfortunately, many of these companies are just as predatory as the lenders that got them into trouble in the first place.
For asset-based lenders (ABLs), business debt settlement schemes can accelerate a borrower’s financial deterioration — disrupting cash flow, triggering default, and expediting liquidation. This poses a direct risk to secured lenders who rely on predictable cash flow and collateral value to protect their positions, leading to avoidable losses and limiting workout options.
The Truth About Business Debt Relief Companies
The truth is, most business debt “relief” companies do little to genuinely assist business owners. In fact, their contracts are often designed to obscure a predatory business model that prioritizes extracting excessive fees, while offering little to no actual debt relief.
Ahead, an inspection of some of the industry’s common contract clauses reveals why these firms often have zero incentive to even contact creditors, let alone negotiate settlements or make payments. That is because as written, their contracts often ensure that the less they do, the more fees they earn.
At the same time, while they typically promise to negotiate settlements and provide financial relief, their primary ‘strategy’ is most often to stall creditors by advising business owners to stop making payments and instead save money for a future lump-sum settlement. What is sold as a structured plan is, in reality, a delay tactic designed to maximize their earnings at the business owner’s expense.
This ‘stall and save’ tactic is not only ineffective but incredibly dangerous when dealing with MCA lenders. Stalling will invariably trigger aggressive collection tactics, including lawsuits, frozen bank accounts, and even the interception of receivables — putting businesses in an even worse situation than before or forcing them to shut down altogether.
Even more reckless are firms that advise businesses to default on their contractual payment obligations. This not only worsens immediate financial consequences but can also lead to civil tort and fraud claims. Worse still, these reckless strategies don’t just harm the borrower — they destabilize entire lending ecosystems.
For ABLs and factors, debt settlement schemes create unexpected repayment disruptions, whether through diverted funds sitting in settlement accounts or aggressive MCA collection actions draining cash flow. This increases the likelihood of loan defaults and forces lenders into crisis management rather than proactive portfolio oversight. What starts as a business owner’s misguided attempt at relief quickly ripples into a broader financial threat for secured lenders and investors.
While real debt restructuring solutions certainly exist for distressed debtors, business owners must be cautious of deceptive debt settlement firms. Many of these companies disguise themselves as nonprofits, claim legal backing, or suggest government affiliation to lure in struggling businesses. As the NYC Department of Consumer and Worker Protection warns: “Don’t assume that debt settlement companies are acting in (the business’s) best interest — or are legitimate.”
In this highly profitable industry, the marketing pitches are sophisticated and refined, making it difficult for business owners to identify help from harm.
The Business Debt Relief Industry’s Dark Side
According to the Federal Trade Commission (FTC), many debt settlement firms use deceptive marketing, promising massive savings while failing to deliver real relief. In 2023, an FTC official referred to some debt relief operators as “legal loan sharks” who take advantage of businesses in crisis.
The Government Accountability Office (GAO) has also warned that business debt settlement programs often leave companies deeper in debt. Their report found that “in some cases, small businesses end up owing more money than when they started the program due to accumulating fees and interest.”
These warnings are not just theoretical — business owners who turn to debt settlement firms often find themselves trapped in a cycle of worsening debt and financial instability. Debt settlement companies market themselves as a lifeline, but their approach typically follows the same predictable and risky formula.
Rise Alliance, a small business restructuring firm based in New York City, has seen firsthand how these ‘stall and save’ tactics leave business owners worse off. Because the business debt relief model is built around a strategy that is both ineffective and dangerous, it also raises concerns about bad faith practices.
“I would never advise a business to simply stop paying MCA lenders. It’s a recipe for disaster. Owners contact us all the time after getting caught up with these debt-relief outfits. Sometimes we can help. But if MCAs have swept their operating accounts and intercepted their receivables, it’s usually too late,” says Gerard Celmer, COO, Rise Alliance.
Because debt settlement companies are neither restructuring firms nor financial advisories, they have no means or methods of protecting a business’ cash flow from the collections actions they are precipitating. At the same time, their contracts are designed to pile fees on top of this harm regardless.
“Getting out from underneath MCA debt is a matter of restructuring and refinance, not wishful thinking and promises,” added Celmer.
For business owners, recognizing how these companies operate, understanding their contract terms, and being aware of alternative solutions can be the difference between survival and failure.
The Impact on Secured Lenders and ABLs
For asset-based lenders (ABLs) and factors, the consequences of their borrowers engaging with business debt relief firms can be severe. When MCA-burdened companies enter these misleading “relief” programs, they often stop making payments to all creditors — not just their MCA lenders. This disrupts cash flow, triggering defaults, impairing collateral, and increasing the risk of a full-blown business failure.
More concerning, these debt relief firms typically lack the expertise to properly assess restructuring options that could preserve enterprise value. As a result, by the time a secured lender becomes aware of the situation, the borrower may have already suffered frozen accounts, aggressive legal action, or operational collapse, leaving lenders with diminished recovery prospects. Proactive secured lenders and ABLs should educate borrowers on the risks of debt relief firms and encourage them to seek legitimate restructuring solutions before predatory tactics push them past the point of no return.
By intervening early, lenders can steer distressed borrowers toward viable restructuring options that preserve both the business and the lender’s recovery prospects. In some cases, lenders may even be able to facilitate structured solutions that improve the borrower’s financial position while protecting their own collateral interests.
Predatory Contracts: How They Work
If a debt settlement company asks a business owner to sign a contract, they must be sure to read the fine print. Many firms bury harmful terms deep in their agreements. Here are some of the biggest red flags:
1. Requiring Large Upfront Fees
A legitimate business debt restructuring firm won’t charge thousands of dollars before taking any action. But many firms often include clauses like this in their contracts:
‘The client agrees to pay a non-refundable Enrollment Fee equal to 15% of the enrolled debt amount upon signing this agreement.’
If a business is already struggling with debt, handing over a large lump sum doesn’t make sense. The FTC warns that it is illegal for business debt relief firms to charge fees before they’ve settled or renegotiated at least one debt.
In recent years, many debt settlement firms have realized they can’t get away with blatant upfront fees, and while some still try, others have adapted by using their ‘no upfront fee’ policy as a selling point to appear legitimate. In reality, they’ve simply shifted their profit model — leaning harder into the more obscure, deceptive clauses that follow.
2. Delaying Creditor Negotiations Until You Save a Lump Sum
Many firms instruct businesses to stop paying their creditors and instead deposit money into an escrow account. Their contracts often contain language like:
‘Settlement offers will be presented to your creditors once your settlement account accumulates 20% of the enrolled debt.’
This is one of the most dangerous clauses because it directly leads to legal action. MCA lenders do not wait — they seize assets, freeze accounts, and intercept business receivables. By the time the firm acts, it’s often too late.
Even more troubling, many of these firms require that escrow accounts be held in their name rather than the business owner’s. This not only strips the business of control over its funds but can also give rise to serious legal claims, including tortious interference and fraud. By inserting themselves between the business and its creditors under the guise of “relief,” these firms create even greater legal exposure for their clients — turning an already precarious situation into a legal minefield.
3. Claiming Specific Debt Reductions
Be cautious of business debt relief companies that claim they can reduce your debts by a fixed percentage before negotiations begin. Their contracts may include language such as:
‘Our program aims to settle your enrolled debt for an approximate 57% reduction of your principal balance.’
No company can guarantee a settlement amount before speaking with creditors. MCA lenders, in particular, rarely accept major reductions or long-term payment plans because their business model relies on aggressive collection tactics. Any company making these promises is misleading you.
4. Hidden Fees That Inflate Costs
Some firms hide their true fees deep in their contracts, using terms like “inactive debt fees,” “settlement extension fees” and “success fees.” Consider each and how they impact any potential savings or relief:
4.1 “Inactive Debt Fees”
“If within 120 days of a settlement offer, a creditor fails to respond to our settlement efforts, we are entitled to reclassify the debt to an ‘inactive’ status, which will incur a resolution fee of 35% of the original enrolled debt balance.”
These hidden charges mean that even if a creditor never agrees to a settlement, the business still owes the firm thousands in fees.
For example, if a business enrolls $100,000 in debt and its creditor either refuses to settle or is never even contacted, the business could be charged $35,000 in “inactive debt fees.” This deceptive clause incentivizes the so-called settlement firm to avoid contacting the creditor altogether — allowing them to collect a 35% fee after 120 days of inaction. Instead of finding relief, business owners seeking help often end up with even more debt. Unfortunately, this predatory tactic is a fundamental part of many ‘debt relief’ business models.
4.2 “Settlement Extension Fee”
“For each additional month a settlement’s payment terms are extended, an added 1% of the total debt will be charged as a settlement extension fee.”
In this example, if the creditor insists on payment in full over 36 months you would be paying an extra $1,000 per month in extension fees, adding up to $36,000 in fees — without reducing your actual debt.
4.3 “Success Fee”
Many settlement firms claim they are entitled to 35% of any negotiated balance reduction — framing it as a “success fee.”
Let’s break this down with real numbers:
Suppose a settlement firm negotiates a 25% reduction on a $100,000 debt, seemingly saving the business $25,000. At first glance, this might look like a win.
However, when you factor in:
- $36,000 in extension fees
- 35% of the $25,000 reduction ($8,750) as a success fee
The total cost to the business owner? $44,750 in fees — on an original $100,000 debt — just to achieve “relief” of $25,000.
Instead of finding financial relief, business owners can end up paying nearly double what they were “saved,” making these settlement arrangements anything but a real solution.
5. Early Termination Penalties That Lock a Business In
If the debt relief company isn’t delivering on its promises, the business owner might try to cancel. But many firms make it expensive to leave, using clauses like:
“Should the client terminate the program early, client agrees to pay an early termination fee equal to 2% of the remaining enrolled debt for each full or partial month in the program.”
Let’s say a business enrolled $500,000 in debt into a program, paying an upfront enrollment fee and expecting assistance. After two months, the MCA lender froze their accounts and seized their receivables, leaving them unable to continue operations. Realizing the debt relief firm had done little to prevent this outcome, the business owner decided to cancel.
With a cancellation penalty of 2% per month, the firm would charge:
$500,000 × 2% × 2 months = $20,000
This means the business, already shut down and out of funds, would still owe the debt relief company an additional $20,000 — on top of any fees already paid. These penalties ensure the company profits even when its service fails to protect clients from financial disaster.
What Real MCA Debt Resolution Looks Like
There are real solutions to unsupportable MCA and other business debt. Unfortunately, too many business owners under stress are taken in by predatory business debt relief firms without understanding the difference. One of the most misleading options business owners encounter is so-called MCA consolidation. While it’s often marketed as a form of refinancing, it’s usually just another predatory loan in disguise.
Beware: MCA ‘Consolidation’ Schemes
Some businesses, desperate for relief, turn to so-called MCA consolidation loans, believing they are refinancing their debt into a more manageable structure. In reality, these schemes are often just another high-cost MCA disguised as a solution. Instead of reducing the business’s burden, these “consolidation” agreements frequently come with:
- More aggressive repayment terms, sometimes requiring daily or even multiple daily withdrawals.
- Higher total payback amounts, often stretching the business’ distress further instead of solving it.
- Personal guarantees or confessions of judgment (COJs), which can lead to rapid legal enforcement and asset seizures.
Many debt relief companies claim they can “consolidate” MCA debt, but if the new loan carries the same predatory terms — or worse — it’s not a real solution. Business owners should be extremely cautious of any firm promoting MCA consolidation without offering a clear path to true financial recovery.
What Works: A Restructuring Plan for MCA Debt
A business should instead turn to a nationally recognized small business restructuring firm — one that works with creditors, including MCA lenders, to alter repayment terms, relieve short-term cash flow pressure, and guide the business toward long-term financial stability. Secured lenders can also be a valuable resource, as many have experience navigating distressed situations and may offer refinancing options or restructuring guidance that avoids the pitfalls of debt relief firms.
For lenders, actively working with a borrower through an Article 9 restructuring or other structured workout can salvage a distressed credit while preserving or even expanding the lending relationship under more sustainable terms. By engaging early, at the first signs of an eroding credit, lenders can help steer borrowers away from predatory settlement firms and toward real solutions that preserve enterprise value and repayment capacity.
Successfully navigating financial distress requires a comprehensive approach — one that prioritizes long-term stability over short-term fixes. Experienced turnaround professionals and lenders recognize that only a holistic restructuring plan can help a business recover from an unsupportable debt position.
When dealing with MCAs, this often means renegotiating repayment terms as a critical first step to ease cash flow. From there, a restructuring firm might work with the business to produce and demonstrate several months of auditable financials and performance based on the newly adjusted terms. The goal? To qualify the business for lower-cost traditional funding and refinance out of high-cost MCAs.
In other cases, an Article 9 restructuring may be the best path — allowing the business to remove MCAs from its balance sheet while positioning it for conventional financing.
Ultimately, every situation is unique and requires a tailored approach. However, there are key factors that always distinguish a legitimate restructuring plan from predatory ‘debt relief’ practices.
A legitimate restructuring plan will always:
- Engage with MCA lenders immediately, rather than stalling or advising a business to stop payments, which only invites legal action.
- Negotiate altered repayment terms that keep a business operational while avoiding lawsuits, account freezes, and collection actions.
- Provide short-term cashflow relief, allowing the business to stabilize and avoid further distress.
- Position the business for responsible refinancing, helping it qualify and transition from high-cost MCAs to conventional, lower-cost financing with the SBA, asset-based lenders, or non-MCA revenue-based lenders.
Beyond the MCAs, underlying operational or management issues often brought about the demand for taking them on. So a holistic turnaround plan involves more than just getting out of MCAs but also addressing the issues that led an owner to them in the first place.
Another hallmark of a true debt restructuring firm is likely clear evidence that the firm has a history of working alongside major banks, corporate law firms, financial advisories and other reputable institutions and professional organizations. Simply put, business owners must do their due diligence if they want to make sure they find a trusted advisor, not a boiler room telemarketer.
The Bottom Line: What Works vs. What Makes Things Worse
Business owners facing financial distress must look past the sales pitches of debt relief firms and understand the risks. The traditional debt settlement model — stalling creditors and collecting high fees — often leaves businesses in worse shape than before.
By working with a reputable small business restructuring firm that collaborates with major financial institutions, turnaround experts, and legal professionals, a business can escape the cycle of high-cost MCA debt without facing legal battles, bankruptcy, or shutdown.
Before signing with any firm, business owners must take the time to do their research, read contracts carefully, and ask hard questions. The wrong decision can leave a business owner deeper in debt and with fewer options than before.
If a business owner becomes overwhelmed by MCA debt or other business loans, they should consult with a small business restructuring expert before committing to any debt relief program. Taking the right steps now can mean the difference between recovery and financial ruin.
References
“New York state weighs law to curtail predatory lending abuses.” Bloomberg. June 17, 2019. Retrieved from https://www.bloomberg.com/news/articles/2019-06-17/new-york-state-weighs-law-to-curtail-predatory-lending-abuses
Celmer, G. Personal interview. March 4, 2025.
“Consumers Beware: Debt Settlement Services.” Consumer and Worker Protection NYC. NYC.gov. Retrieved from https://www.nyc.gov/assets/dca/downloads/pdf/consumers/Consumers-Beware-Debt-Settlement-Services-English.pdf
“FTC official: ‘Legal loan sharks’ may be exploiting coronavirus squeeze.” NBC News. April 8, 2020. Retrieved from https://www.nbcnews.com/business/economy/ftc-official-legal-loan-sharks-may-be-exploiting-coronavirus-squeeze-n1173346
“Debt Settlement: Fraudulent, Abusive, and Deceptive Practices Pose Risk to Consumers.” GAO-10-593T. Government Accountability Office. April 22, 2010. Retrieved from https://www.gao.gov/products/gao-10-593t
Konish, L. “How to avoid a debt settlement scam.” CNBC. March 14, 2022. Retrieved from https://www.cnbc.com/select/how-to-avoid-a-debt-settlement-scam/
Sullivan, K. “What are the risks of debt settlement?” Experian. Sept.15, 2023. Retrieved from https://www.experian.com/blogs/ask-experian/debt-settlement-risks/