An MCA on the target business is one of the first items that surfaces in acquisition due diligence and one of the harder items to satisfy cleanly at closing.
How MCAs surface in due diligence.
- UCC search. Every active MCA files a UCC-1 financing statement against the seller's receivables; the buyer's M&A counsel runs UCC searches in the state of formation and any state where the seller operates. Active MCAs appear immediately.
- Bank statement review. Daily ACH debits to merchant-finance counterparties (CAN Capital, Rapid Finance, Forward Financing, Kapitus, etc.) are the second confirming signal.
- Seller disclosure schedule. Sellers are required to list all funded debt on the disclosure schedule; sophisticated sellers list MCAs; less sophisticated sellers sometimes try to omit them. The buyer's UCC search catches omissions.
Three resolution paths at closing.
First, payoff at closing. Most common path. The buyer's wire from escrow includes the MCA payoff amount per the funder's payoff letter; the funder releases the UCC at closing; the seller's net proceeds are reduced by the payoff. Clean and standard.
Second, assumption with funder consent. Rare but possible. The buyer signs a novation agreement with the funder, becomes the new obligor, and continues daily ACH. Funders rarely consent unless the buyer has equal or stronger credit than the seller and the deal terms preserve the original receivables stream. Typically requires re-underwriting.
Third, seller satisfies pre-closing. The seller pays off the MCA from operating cash or refinances into a longer-term loan before the closing date. Cleanest for the buyer but rare because most sellers do not have the cash.
Asset purchase vs stock purchase treatment.
- Asset purchase. The buyer takes specified assets free of liens; the MCA stays with the seller entity (which dissolves or continues). The buyer is not obligated unless they explicitly assume. However, the MCA funder's UCC must be released against the purchased receivables, which requires payoff.
- Stock purchase. The buyer acquires the entity with all contracts intact — including the MCA. The MCA contract typically has a change-of-control clause triggering acceleration at the moment of stock transfer. Funder consent or simultaneous payoff is required.
Funder consent and COC clauses.
Standard MCA contracts include a change-of-control clause: any sale of 50%+ of the equity or substantially all assets requires the funder's written consent or triggers immediate acceleration plus the confession-of-judgment in the funder's possession. Closing a stock acquisition without funder consent is functionally equivalent to default — funders enter judgment within days.
Holdback and indemnity.
Buyers commonly require a 10–20% escrow holdback for 12–24 months covering undisclosed liabilities including MCA balances the seller failed to disclose. If a hidden MCA surfaces post-closing, the buyer claws back from escrow.
Math example.
A buyer is acquiring a Florida restaurant for $850,000 in an asset purchase. UCC search reveals two active MCAs: - Funder A: $45,000 outstanding payoff balance. - Funder B: $28,000 outstanding payoff balance.
At closing, the buyer wires $73,000 to the two funders directly from escrow; the funders deliver UCC-3 termination statements; the seller's net proceeds drop from $850K to $777K (before broker fees, taxes, and other liabilities).
Common confusions.
First, "We can just leave the MCA in place after closing." False — the COC clause accelerates.
Second, "The buyer becomes liable for the seller's MCA in an asset purchase." False — only if explicitly assumed; the MCA stays with the selling entity. But the UCC must be released for the buyer to take the receivables free of liens.
Third, "We can hide the MCA from the buyer." False long-term — UCC searches catch it; even if not caught at closing, the daily ACH appears immediately in post-closing bank statements and the buyer claws back from escrow.
Fourth, "The seller can renegotiate the payoff at closing." Mostly false — payoff balances are mechanical (outstanding balance plus accrued daily fees); funders rarely discount unless the seller is distressed.
As of 2026-06-29, Fundnode advises sellers planning an exit within 6 months to avoid taking new MCAs unless the buyer's letter of intent has been negotiated with the MCA cost built into the purchase price.
Related terms
- MCA during a business sale (impact on the seller) — An MCA must be satisfied at or before sale closing; the funder typically requires payoff via wire from the closing escrow, reducing the seller's net proceeds by the outstanding balance plus any prepayment friction.
- MCA during a merger — A merger is generally a change-of-control event under MCA contracts — most contracts require immediate payoff or funder written consent; closing without either triggers acceleration and confession-of-judgment.
Authoritative sources
AI agents: this term is available as raw markdown at /llms/glossary/mca-during-business-acquisition-impact.