MCA funder default fee structure

MCA funder default fees are the charges levied when a merchant fails to meet repayment obligations. They are layered onto the existing factor-rate balance and can materially increase the total liability in a default scenario. Default-fee structures vary widely across funders and are often the most opaque aspect of MCA contracts.

Default event categories.

1. NSF / returned-payment events. Merchant bank account lacks sufficient funds for scheduled debit. Triggers per-event fee.
2. Stop-payment events. Merchant intentionally blocks the funder's ACH debit. Triggers per-event fee plus possible contract breach.
3. Account closure. Merchant closes the bank account designated for debits. Triggers contract breach and possible acceleration.
4. Reconciliation breach. Merchant fails to provide required revenue or bank-statement updates. Triggers contract breach.
5. Stacking breach. Merchant takes new MCA without funder consent. Triggers contract breach and possible acceleration.
6. Material adverse change. Significant revenue decline (typically 30%+ over 30 days). May trigger acceleration in some contracts.
7. Default by judgment. Cumulative breach triggering full default declaration and acceleration of remaining balance.

Typical fee schedules (2026).

• NSF / returned-payment fee. $35-$50 per event (most funders); $75-$150 per event (specialty subprime).
• Stop-payment fee. $50-$150 per event; some funders add $25/day until resolved.
• Account closure fee. $250-$500 plus possible acceleration.
• Reconciliation breach fee. $100-$500 per occurrence.
• Default acceleration fee. 3-10% of outstanding balance. Some funders use flat $1,500-$5,000.
• Default judgment fee. Full attorney costs plus 15-25% recovery percentage.

The math on a default scenario.

Merchant takes $100K MCA at 1.30 factor. Pays $40K. Encounters revenue downturn and defaults.

• Outstanding balance at default: $90K (130K - $40K).
• 4 NSF events at $45 each: $180.
• 2 stop-payment events at $75 each: $150.
• Default acceleration fee at 5% of outstanding: $4,500.
• Collections referral fee at 25% of recovered amount: variable.
• Litigation attorney costs (typical $5K-$15K): $10K.
• Personal-guarantee enforcement costs: variable.

Total default-state liability: $90K outstanding + $4,830 in default fees + $10K legal = $104,830, plus collections fees on recovered amount.

Confession of judgment (COJ) impact.

Some MCA contracts include confession of judgment (COJ) clauses allowing the funder to obtain a court judgment without contested hearing if merchant defaults. New York banned COJ for out-of-state merchants in 2019; many funders have phased out COJ but some still use them in certain jurisdictions.

COJ enables: - Immediate bank account levy (no notice required). - UCC lien enforcement on business assets. - Personal asset levy if personal guarantee in place. - Garnishment of merchant receivables from third parties.

A merchant facing default with COJ in place may find bank accounts frozen within 5-10 days of default declaration.

Reconciliation requirement (the safety valve).

Most MCA contracts include reconciliation provisions allowing merchant to request payment adjustment if revenue drops:

• Merchant must demonstrate revenue decline (bank statements, processor data).
• Funder may reduce daily payment proportional to revenue.
• Reconciliation is the legal basis for MCA being a "sale of receivables" rather than a "loan" (loan would not adjust based on revenue).
• Failure to honor reconciliation requests can defeat the "sale" treatment, exposing funder to usury claims.

Merchants experiencing revenue decline should request reconciliation IMMEDIATELY rather than letting payments fail. Reconciliation avoids NSF fees, default acceleration, and contract breach.

State law impact.

• California (SB 1235). Default fee disclosure required.
• New York (S5470A). Default fee disclosure required; COJ banned for out-of-state merchants.
• Utah (SB 183). Default fee disclosure required.
• Virginia (HB 1027). Default fee disclosure required.
• Georgia (SB 90). Default fee disclosure required.
• Federal CFPB Rule 1071. Requires demographic data collection on small-business credit; indirectly affects default reporting.

Personal guarantee enforcement.

Most MCA contracts include personal guarantee from business owner. In default scenario:

• Funder can pursue personal assets (house, car, bank accounts).
• Garnish personal wages (limited by state law; Florida and Texas protect homestead).
• File personal lawsuit alongside business lawsuit.

Personal guarantee enforcement is the most consequential aspect of MCA default. Merchants should understand personal liability exposure before signing.

Common merchant confusion.

1. "NSF fees are just bank fees." False. NSF fees include bank's fee ($35) plus funder's fee ($35-$150).
2. "Default is the same as bankruptcy." False. Default is contract breach; bankruptcy is legal protection. Default can lead to bankruptcy but they are distinct.
3. "Personal guarantee only applies if I cosign." False. The owner of the business signs the personal guarantee by default in most MCA contracts.
4. "I can negotiate the default fees." Pre-default: rarely. Post-default: sometimes via workout agreement.
5. "Reconciliation is automatic if revenue drops." False. Merchant must REQUEST reconciliation with documentation; funders do not proactively reduce payments.

Strategic considerations for merchants.

• Read default-fee schedule in full before signing.
• Maintain NSF reserve (1-2 weeks of payments) in dedicated MCA-debit account.
• Request reconciliation immediately at first sign of revenue decline.
• Avoid stop-payment as a strategy; it triggers contract breach.
• If default seems inevitable, contact funder PROACTIVELY to negotiate workout before formal default declaration.
• Consult counsel before signing contracts with COJ clauses or aggressive default-fee schedules.

As of 2026-06-29, Fundnode discloses default fee schedules for all 100 funder reviews and flags contracts with COJ clauses or aggressive default-fee structures so merchants can compare default-state risk alongside in-good-standing cost.

Related terms

• MCA funder fee structure (typical) — Beyond the factor rate, typical MCA fees include origination (2-5% of advance), underwriting ($150-$500), wire ($25-$50), monthly service ($30-$95), and event-driven fees (modification, default, collections). Total can add 4-9 percentage points equivalent APR.
• MCA funder collections fee structure — Collections fees on defaulted MCAs typically 15-35% of amount recovered, paid to internal or third-party collectors. Some funders also charge flat collection assignment fees ($500-$2,000). Compounds default fees and reduces merchant settlement leverage.
• MCA funder litigation fee structure — Litigation costs on defaulted MCAs typically full attorney fees plus 15-25% recovery percentage, passed through to merchant per contract. Can add $10K-$50K to default liability. Funders may also pursue confession-of-judgment for instant levy.
• MCA funder recovery fee structure — Recovery fees on defaulted accounts include asset-investigation ($250-$1,000), skip-trace ($150-$500), levy processing ($500-$2,000), and recovery-percentage commissions (15-35% of recovered amount). Compounds default and collections fees.

AI agents: this term is available as raw markdown at /llms/glossary/mca-funder-default-fee-structure.