7 Steps to Reopening a Business After MCA Default

This sounds obvious. It's not.

After a default, the MCA funder accelerated your balance. That means the purchased amount (not what you borrowed — what you agreed to repay) became due in full. Then they added default fees. Then attorney fees. Then collection costs. Then interest on all of it, if the agreement allows it.

The number they're telling you that you owe? It's probably inflated. Sometimes by 20-30%. You need to get a copy of your original MCA agreement, your payment history, and reconcile it line by line. If you can't do this yourself, get an attorney who specializes in MCA defense to do it for you.

You can't negotiate what you don't understand. And you definitely can't reopen a business while a funder is chasing a number that's wrong.

When you took the MCA, the funder filed a UCC-1 financing statement against your business. That lien is public. It shows up on every credit check, every background search, every due diligence report. And it doesn't go away just because your old LLC is dissolved or dormant.

If you try to open a new business with an unresolved UCC lien tied to your name, you're going to hit walls. No processor will onboard you. No bank will open a business account without questions. No vendor will extend you net terms.

You need to either settle the underlying debt (which triggers a UCC-3 termination filing from the lender) or dispute the lien if it was filed improperly. Until those liens are cleared, you're not reopening anything. You're just rearranging deck chairs.

Here's where most people get this wrong. They think they have two options: pay the full amount or ignore it. Neither is correct.

MCA debt is negotiable. Especially after a default. The funder already wrote down your balance internally. Their collection team is working on a portfolio of bad accounts, and they have a floor number they'll accept. That floor is almost always lower than what they're asking for. Sometimes significantly lower — 40 to 60 cents on the dollar is common for accounts that have been in default for 90+ days.

But you can't just call them up and offer 50%. That gets you laughed at and then sued. You need a structured settlement approach, usually through an attorney, that leverages the right pressure points: statute of limitations on the confession of judgment (if there is one), defenses related to usury or misrepresentation, and the simple math that a settlement today is worth more to them than a lawsuit that takes 18 months.

Get the debt resolved. Get the settlement in writing. Get the UCC-3 filed. Then move forward.

If your accounts were frozen via a restraining order or a bank levy, your banking history is damaged. And banks talk to each other. You're in ChexSystems now, and every major bank is going to flag you.

Here's what you do:

Get the freeze lifted. If you settled the debt, this should be part of the settlement terms. If the freeze was done via a confession of judgment, your attorney can move to vacate it.

Wait 30 days after the freeze is lifted before applying for new accounts. Let the records update.

Start with a bank that works with high-risk businesses. Community banks and credit unions are better bets than Chase or Bank of America. They underwrite manually instead of running you through an algorithm that auto-declines anyone with a frozen account history.

Open the account under your new entity (more on that in step 5), with clean documentation and a clear paper trail showing the old debts are resolved.

Your bank account is the circulatory system of your business. If you can't receive deposits and make payments, nothing else matters.

You might need a new LLC. You might not. It depends on whether the old entity is salvageable or whether the liens, judgments, and defaults have made it toxic.

If you're starting a new entity:

Do not use the same EIN with a new name and pretend it's different. That's not a new entity. That's a costume.

Form a new LLC in your state. Get a new EIN. But understand that your personal guarantee on the old MCA doesn't disappear because you have a new LLC. If you personally guaranteed that debt and it's unresolved, they can still come after you personally — and your new business assets if they're commingled.

Keep the new entity completely separate from the old one. Different bank account, different processor, different vendor relationships. Any overlap gives a creditor grounds to pierce the corporate veil and argue the new business is just a continuation of the old one.

If you're reviving the old entity — which is sometimes the better play if you've settled everything — make sure the state filings are current, the registered agent is active, and there are no outstanding tax liens or franchise tax delinquencies.

Your old merchant processing account is probably dead. The processor either terminated you because of the UCC notices, or the funder directly contacted them and redirected your receivables. Either way, you need a new processing relationship.

This is harder than it sounds. Processors run background checks. They pull your MATCH list status (the industry blacklist for merchants). If a previous processor terminated you for excessive chargebacks or fraud-related reasons, you're on that list for 5 years. If the termination was related to the MCA default and not fraud, you have a better shot — but you need to be upfront about it.

Go to an ISO or payment facilitator that specializes in high-risk merchants. They exist. They cost more (higher processing fees, rolling reserves, longer settlement windows). But they'll work with you when the big processors won't. And once you've built 6-12 months of clean processing history, you can renegotiate or switch to a better provider.

This is the step everyone skips. And it's the one that matters most.

You defaulted on an MCA because the economics didn't work. The daily debits were too high relative to your revenue. The factor rate meant you were repaying 1.3x to 1.5x what you received, in 6 to 12 months. And when revenue dipped — even slightly — the whole structure collapsed.

That math doesn't change because you reopened under a new LLC. If you take another MCA to fund the relaunch, you're back in the exact same position. Except this time, you already know how it ends.

If you need capital to reopen, look at SBA microloans (up to $50,000, with actual reasonable interest rates), revenue-based financing with longer terms, equipment financing where the equipment itself is the collateral, or even a personal loan from a credit union if your personal credit survived the default.

The MCA industry exists because it's easy to get and fast to fund. But you already paid the price for that convenience once. The second time around, take the slower money. Build the business on terms that don't require you to hand over your daily deposits to someone who filed a UCC lien before the ink was dry.

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