Originally published in ABF Journal. I’ve written extensively about MCA-related issues for lenders and borrowers over the past several years. At the recent IFA conference in Nashville, I was struck by the need for more robust conversations around actionable MCA solutions for the factoring industry. Because they exist, yet still aren’t a part of every factor’s knowledge base and tool kit. Beyond conventional approaches centered primarily on negotiation or legal process, there are two restructuring pathways which can resolve MCA liabilities off the balance sheet entirely, in a commercially relevant time frame – so factors can get into, or out of deals, previously mired in stacked MCA obligations. With an understanding of Article 9 restructuring or alternatively, ‘credit rehabilitation’ restructuring, factors are not at the mercy of MCAs when it comes to business development or exiting strained credits. With the proliferation and ever-increasing presence of these vehicles, secured lenders must proactively utilize these tools to control collateral outcomes and protect lending relationships. Overview: Two MCA Solution Frameworks Defined Article 9 Restructuring: This refers to an out of court, non-bankruptcy process which removes all liens and liabilites from assets under commercial law, in approximately 4-6 weeks. This form of restructuring involves a current senior lender’s secured party sale of assets to a new operating entity, wherein a clean new balance sheet allows for factors to take a clean first position lien on accounts receivable. Credit Rehabilitation Restructuring: This refers to a stepped process whereby first, MCA payment obligations are reamortized –  pegged to an acceptable debt service coverage ratio (DSCR). This allows the business to stabilize, rebuild its cash and collateral position over 4-8 months, and postion the business for a secured finance take-out, which was not previously possible when the collateral base did not meet the MCA pay off obligation. Where Conventional Wisdom Fails The truth is, most of what factors have been told about dealing with MCAs is incomplete and, as a result, not particularly useful for business development or for working through distressed credits. The common approaches – calling MCA providers, negotiating reduced payoffs, sending cease and desist orders – do not consistently produce commercially relevant outcomes within the timeframes that matter. In my personal experience, year after year, at conference after conference, the response to MCA exposure is usually straightforward: if there is enough eligible accounts receivable to take out the MCA positions, the deal can be done. If not, the factor cannot step into a clean first-priority position, and the deal is declined. That constraint is real, but it is not the whole story. “I’ve closed multiple deals that were otherwise not financeable because of MCAs. An Article 9 balance sheet restructuring is a great option when the collateral just isn’t there to finance them out. As a secured lender, I fund into a clean balance sheet and a healthier business,” Curt Powell, nFusion The circumstances are familiar. By the time many of these prospects reach a factor, they have already taken on multiple MCA positions that exceed the available collateral. The business may still be operating. Customers may still be paying. The AR is attractive, but the opportunity has reached the factor at a point where MCA encumbrance means the numbers don’t support a takeout. A large portion of the advice in the market, whether for originations or portfolio situations, focuses on trying to work within that existing structure. Call the MCA providers. Negotiate a payoff. Send legal notices when UCC 9-406 payment interference becomes an issue. On the surface, those approaches seem pragmatic. The issue is how they perform against how MCA positions are actually structured and incentivized – because much of the conventional guidance loses real-world relevance when viewed through that lens. In truth, this is why most factors simply pass when the MCA stack exceeds the borrowing base: the conventional remediation tools are often viewed as commercially impractical, fragmented, or insufficient to reliably create a financeable outcome. To understand why conventional ‘negotiation’ approaches are often insufficient on their own, it’s useful to understand that MCA providers are not focused primarily on principal recovery. Their economics are based on yield. Furthermore, their agreements give them strong collection leverage. As such, they are not incentivized to exit positions early or to cram down obligations that facilitate a refinancing. Most of the approaches commonly discussed – calling MCA providers, negotiating payoffs, pursuing legal remediesl – attempt to work within that structure. In practice, they tend to run into the same constraints created by those incentives. “Negotiation alone rarely produces meaningful relief because the agreements the