MCA secured by deposits is a contractual structure in which the funder gains direct control over the merchant's incoming bank deposits, either by routing receivables through a funder-controlled account or by executing a Deposit Account Control Agreement (DACA) on the merchant's existing account. It is one of the most aggressive collateral structures in MCA finance and materially changes the merchant's cash-flow risk.
The two primary structures.
1. Deposit Account Control Agreement (DACA). A tripartite agreement between the merchant, the merchant's bank, and the funder. Under the DACA, the bank acknowledges the funder's security interest in the deposit account and agrees to comply with the funder's instructions (often called "blocking instructions" or "control instructions") on default. Mechanics: - Account remains in merchant's name and merchant retains operating control during normal performance. - Upon default notice from funder, bank freezes account and follows funder's payment instructions. - Funder can sweep all deposits to satisfy outstanding obligation.
DACAs are common in factoring and asset-based lending; less common but growing in larger ($250K+) MCA deals.
2. Funder-controlled clearing account. The merchant agrees to route all (or a defined percentage of) incoming revenue through a designated bank account controlled by the funder. Mechanics: - Customer payments deposit into the controlled account. - Funder retains the contractual holdback (e.g., 12%) and forwards remainder to merchant's operating account. - Merchant has no direct access to incoming deposits until after funder has taken its cut.
This structure is common in card-batch holdback MCAs (where the card processor routes receivables directly to the funder) and in some traditional MCA structures involving specialized payment processors.
Why funders use deposit control. 1. Eliminates "sweep" or "redirect" risk. Without deposit control, a merchant in distress can route receivables to a different bank account, leaving the funder with no income source. Deposit control prevents this. 2. Faster default response. Funder can freeze account within hours of default; without control, funder must obtain UCC remedies, judgment, or COJ before any account access. 3. Stacking protection. If multiple MCAs are stacked, deposit control gives the senior funder priority access to receivables before junior funders can collect. 4. Higher recovery on default. Funders with deposit control recover materially more on default than those without.
Why merchants resist deposit control. 1. Cash-flow stranglehold. When funder controls the account, even modest disputes can produce account freezes that paralyze operations. 2. No flexibility on payment timing. Daily ACH from an operating account is easier to manage than a controlled account where the funder takes its share first. 3. Bank relationship strain. DACAs require bank cooperation; many community banks decline to participate, narrowing merchant banking options. 4. Trust required. The merchant must trust the funder not to abuse control rights.
When funders insist on deposit control. 1. Large advances ($250K+). Risk justifies the additional structure. 2. High-stacking exposure. When multiple MCAs are layered. 3. B/C-paper deals with elevated default risk. 4. Renewals after a payment crisis. Funder may convert a problem deal to controlled-account structure. 5. Industry-specific. Trucking (factoring receivables), staffing (invoice factoring), construction (project receivables) often have controlled-account structures.
DACA vs UCC-only structure — recovery economics. - UCC-only. Funder has security interest but no automatic account access; recovery requires obtaining judgment, levying account, securing court orders. Typical recovery time: 30–90 days. Recovery rate: 20–50% on defaulted deals. - DACA. Funder has immediate account access on default; can freeze and sweep within 24 hours. Recovery rate: 60–90% on defaulted deals.
The gap is large enough that funders willing to invest in DACA infrastructure (legal, bank relationships, ops) materially outperform on net default loss.
Practical signals of deposit-secured structures. 1. Contract references a Deposit Account Control Agreement as an exhibit or required document. 2. Contract requires merchant to designate a specific bank account and prohibits changing the account without funder consent. 3. Contract requires routing receivables through a third-party payment processor controlled by the funder. 4. Contract gives funder unilateral right to issue payment instructions to merchant's bank.
Variant: Card-batch holdback with merchant-processing-account redirection. Some funders require merchants to use a specific card processor (Square, Stripe, Worldpay variant, or funder-affiliated processor) that automatically remits the holdback percentage to the funder before forwarding remainder to merchant. This is functionally deposit control without requiring a DACA.
Common confusion. First, "DACA is a freeze on my account" — under normal performance, account operates normally; freeze triggers only on default. Second, "I can move my account to escape DACA" — depending on contract, moving accounts may itself be an event of default. Third, "deposit control is illegal" — it is contractually permitted under UCC Article 9 and is standard in factoring, ABL, and increasingly in larger MCA deals.
Related terms
- 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.
- Daily ACH debit (MCA) — A fixed-dollar daily withdrawal from the merchant's bank account during MCA repayment. The most common MCA repayment structure in 2026, distinct from card-sale split (holdback) structures.
- Holdback percentage — The fraction of daily card-sale revenue a funder takes during MCA repayment, typically 8–20%. Lower is safer for the merchant's cash flow.
- MCA default — Breach of MCA repayment terms — usually triggered by missed daily ACH debits, NSFs, or unauthorized stacking. Consequences range from increased collection pressure to UCC enforcement and personal-guarantee pursuit.
- Merchant cash advance (MCA) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
Authoritative sources
AI agents: this term is available as raw markdown at /llms/glossary/mca-secured-by-deposits.