MCA Settlement and Your Personal Guarantee: What to Get in Writing
By Century Debt Relief ·
Almost every merchant cash advance comes with a personal guarantee. The owner signs promising that if the business breaches the agreement, the funder can come after them personally. So when an MCA is settled for less than the balance, the most important question is not just how much you pay. It is whether the settlement actually ends your personal exposure.
A settlement is only as good as the document that records it. Here is what it should say before you sign or send a payment.
Why the personal guarantee matters in a settlement
In many MCA agreements, the guarantee is triggered by specific events — the business stopping payments, closing, changing bank accounts without consent, or otherwise breaching the contract. Once triggered, the funder may be able to pursue the guarantor for the remaining balance, fees and legal costs. If a settlement releases the business but says nothing about you, the funder could argue it still has a claim against you personally.
What a settlement agreement should include
- Who is released. The agreement should release both the business and every guarantor by name, not just "the merchant."
- The settlement amount and schedule. The exact total, the payment dates and how payments are made.
- "Paid in full" or "settled in full" language. It should say that once the settlement is paid, the full balance is satisfied and no further amount is owed.
- What happens if a payment is late. Some agreements let the funder revive the full original balance if you miss a settlement payment. Know whether there is a grace period and how you will be notified.
- UCC lien termination. A commitment to file a UCC-3 termination within a set number of days after the final payment. See how UCC liens get removed.
- Lawsuits and judgments. If there is a pending lawsuit, the agreement should say it will be dismissed. If a judgment was entered, it should say the funder will file a satisfaction of judgment.
- Stopping debits and collection activity. Confirmation that ACH debits, levies and any notices to your customers or card processor will stop.
- Credit reporting. If the funder reports to business credit bureaus, how the account will be reported once settled.
Get it in writing before you pay
Do not send a settlement payment based on a phone call or an email that just names a number. Get a signed agreement first, keep copies of every payment, and get written confirmation when the final payment is received. If you have several advances, each funder needs its own agreement. Resolving one does not release you from the others.
Taxes on forgiven amounts
When a debt is settled for less than what is owed, the forgiven amount can have tax consequences for the business or, in some cases, the owner. MCAs are often structured as purchases of receivables rather than loans, which can affect how this is treated. Talk to a tax professional before year-end about how a settlement should be reported.
If the business is closing
Closing the business is often what triggers a personal guarantee in the first place. If closure is on the table, address the guarantee as part of the negotiation, not after. Our guide on when you need an attorney covers when legal help is worth it, especially if a funder has already sued.
How Century Debt Relief helps
When we negotiate MCA settlements, we review each agreement for guarantee, lien and judgment terms and make sure the settlement paperwork addresses them before any payment goes out. Get a free review of your MCA debt.
Frequently asked questions
Does settling an MCA release my personal guarantee?
Not automatically. The settlement agreement should name and release every guarantor. If it only releases the business, the funder may argue it can still pursue you personally.
What if I miss a payment on an MCA settlement?
It depends on the agreement. Some let the funder reinstate the full original balance after a missed payment. Check for a grace period and notice requirements before you sign.
Will the funder remove its UCC lien after a settlement?
It should, but get it in writing. The settlement agreement should require the funder to file a UCC-3 termination statement within a set time after your final payment.
Is forgiven MCA debt taxable?
It can be. The tax treatment depends on how the MCA is structured and your situation, so talk to a tax professional about how to report a settlement.