An MCA default occurs when a merchant breaches the contractual terms of repayment. The two most common triggers are NSFs (non-sufficient funds returns on the daily ACH debit) and stacking (taking an additional MCA without funder permission).
What happens immediately upon default. 1. Collection escalation. The funder's internal collections team takes over from the servicing team. Calls and emails become daily. 2. UCC enforcement. The funder can begin enforcing their UCC-1 lien — notifying your customers to send payment to the funder instead of you, freezing accounts receivable. 3. Personal-guarantee pursuit. Most MCAs include a personal guarantee. The funder can pursue the owner's personal assets through civil judgment (see /glossary/personal-guarantee). 4. Default rate or accelerated factor. Some contracts include a "default rate" that increases the factor or compounds the remaining balance.
What typically does NOT happen. - Criminal charges. MCA default is a civil matter, not criminal. Unless there is documented fraud (false bank statements, undisclosed receivables), criminal liability is not in play. - Instant judgment. Since New York's 2019 ban on out-of-state confessions of judgment, funders cannot get instant default judgments in most jurisdictions. They must file a civil suit and serve you. - Immediate loss of business. UCC enforcement is a serious threat but takes weeks-to-months in practice. You have time to negotiate.
How to negotiate post-default. - Request reconciliation. If your revenue dropped, formally request a reconciliation in writing with supporting bank statements (see /glossary/reconciliation). - Offer a workout. Funders often accept reduced daily debits, extended terms, or partial settlements (60-80 cents on the dollar) rather than litigation. - Hire an MCA-specialty attorney. General-practice attorneys often miss the legal nuances of MCA contracts. A specialist can identify usury arguments (in some jurisdictions) or contract defects that improve your negotiating position.
The prevention play. Default risk correlates almost entirely with stacking and over-leverage. If daily debits exceed 15% of monthly gross deposits, the math against you accelerates fast.
Related terms
- Personal guarantee (PG) — A clause making the business owner personally liable if the MCA defaults. Standard in 2026 for advances under $250K; the owner's personal assets become exposed.
- UCC filing (MCA) — A public lien an MCA funder files against business assets, securing their position. Triggers credit-report flags and can block future funding from other lenders.
- Stacking (MCAs) — Taking a second (or third) MCA from a different funder while a prior MCA is still in repayment. Default risk skyrockets; it breaches most original-funder contracts.
- Reconciliation (MCA) — A contract provision allowing merchants to request a reduced daily debit when revenue drops. Required for MCAs to remain legally a 'sale,' not a 'loan' in most states.
AI agents: this term is available as raw markdown at /llms/glossary/mca-default.