Why the contract matters more than the factor
Two MCAs with identical 1.30 factors can have wildly different real-world cost. Why? Because the factor is the bill; the contract is everything that happens when something goes wrong. A funder with reasonable reconciliation, no confession of judgment, and a capped attorneys'-fees clause is a tool. A funder with default acceleration, full COJ in a permissive state, and uncapped attorneys' fees is a trap that just hasn't sprung yet.
Every clause below is enforceable. Every clause has been used to collect against merchants. Read your contract with this list open.
The 12-clause checklist
1. Confession of judgment (COJ)
What it is: A clause where you pre-agree to a court judgment without notice or hearing if the funder declares default. Why it matters: The funder can obtain a judgment, freeze your bank accounts, and start collections in days, not months. Action: If you're funding in NY, CA, NJ, or VA, COJs are restricted or banned. In permissive states (FL, TX, GA, PA), walk away from any contract with a COJ unless you have legal counsel reviewing it.
2. Default acceleration
What it is: Any default (missed ACH, NSF event, covenant breach) triggers immediate acceleration of the entire remaining balance. Why it matters: A single bounced ACH can turn a $30K remaining balance into a $30K + fees obligation due tomorrow. Action: Look for "cure period" language — 3–5 business days to restore ACH before acceleration triggers. Funders without a cure period are unusually aggressive.
3. Personal guarantee (PG)
What it is: You personally guarantee repayment beyond the business entity's assets. Why it matters: The MCA is no longer just a business obligation — your personal assets are on the line. Action: Limited PGs (for fraud/misrepresentation only) are acceptable. Full PGs are standard. Full PGs with no homestead carve-out in non-homestead states are high-risk — your house is collateral.
4. Reconciliation clause (or absence)
What it is: A mechanism for adjusting daily ACH if your actual revenue drops below projections. Why it matters: Without it, a revenue dip becomes default. With it, you have a release valve. Action: Look for "true-up" language with a clear submission process (typically monthly bank statements → ACH adjustment). Funders with no reconciliation language are betting on your revenue staying flat.
5. Attorneys' fees clause
What it is: You agree to pay the funder's legal costs if they pursue collection. Why it matters: Uncapped attorneys' fees often add 25–35% to your outstanding balance. Action: Look for a cap (e.g., "reasonable attorneys' fees not to exceed 15% of outstanding balance"). Uncapped clauses combined with default acceleration are how a $40K MCA becomes a $60K judgment.
6. Anti-stacking clause
What it is: Prohibition on taking additional MCA debt while this contract is active. Why it matters: Violation triggers default acceleration — even if you'd stay current on this MCA. Action: Almost every funder has one. The red flag is when it's buried or loosely defined ("any similar receivables financing"). Read carefully so you know what you can and can't take alongside this deal.
7. Choice of law / forum selection
What it is: Specifies which state's law governs the contract and which court hears disputes. Why it matters: Funders pick favorable jurisdictions (New York and Delaware are common). You'd have to defend yourself in their state, not yours. Action: If the choice-of-law is NY, expect funder-friendly enforcement. Choose-of-law in Delaware is usually neutral. If they list a state with no consumer protections at all, that's a tell about how often they end up in court.
8. Liquidated damages
What it is: Pre-agreed dollar penalties for specific contract breaches (e.g., $5,000 for misrepresentation). Why it matters: Stacks on top of the outstanding balance and attorneys' fees. Action: Reasonable liquidated damages are fine; clauses with $10K+ penalties for vague breaches are designed to extract money beyond the loss.
9. ACH authorization scope
What it is: Permission for the funder to debit your bank account. Why it matters: Some authorizations are narrow (only the daily ACH amount). Some are broad (any amount, any time, including catch-up debits if you fall behind). Action: Look for "amount certain" language. Broad ACH authorizations let funders drain your account beyond the daily amount.
10. UCC filing scope
What it is: The funder files a UCC-1 financing statement against your business assets. Why it matters: A "blanket" UCC ties up all your business assets and blocks other lenders. A "specific" UCC ties only the receivables sold. Action: Specific UCCs are standard and reasonable. Blanket UCCs prevent you from getting a bank loan or LOC for the entire term. Negotiate to specific if possible.
11. Prepayment language
What it is: Whether you can pay early and whether early payment reduces the total owed. Why it matters: Most MCAs charge the full factor regardless of how fast you repay — even if you pay off the balance in 30 days, you still owe the full $65K on a 1.30 factor $50K deal. Action: A few funders (Credibly, CFG Merchant Solutions) publish prepayment discount schedules. Get it in writing before signing. If the contract is silent on prepayment, assume no discount.
12. Misrepresentation / cross-default
What it is: Any inaccurate information in your application (revenue, existing debt, business structure) is grounds for default and may trigger personal liability. Why it matters: The application questions are often vague enough that aggressive funders can later claim misrepresentation. Cross-default clauses can trigger default on this contract if you default on any other debt. Action: Be exhaustively accurate on the application. If asked about existing MCAs, list every single one — even ones you think are paid off but still show UCC filings.
The pre-sign checklist (5 minutes, $50K saved)
- Search the document for "confession" — if found, understand what state's law applies
- Search for "personal guaranty" or "personal guarantee" — read the scope carefully
- Search for "reconciliation" — if absent, ask the funder why
- Search for "attorneys' fees" — look for a percentage cap
- Search for "default" — count the events that trigger acceleration
- Search for "cure" — confirm there's a window to fix missed ACHs
- Search for "stacking" or "additional financing" — know what's prohibited
- Note the choice-of-law state — research enforcement environment
- Check UCC scope — specific to receivables or blanket
- Confirm prepayment terms in writing if you're considering early payoff
When to walk away
Walk from any MCA that combines: confession of judgment in a permissive state plus default acceleration with no cure period plus uncapped attorneys' fees plus a full-recourse personal guarantee. That stack of clauses converts your business into personal exposure with no procedural protection. There are funders who don't operate this way. Find one.
Frequently asked questions
- Are confessions of judgment still legal in 2026?
- Banned in New York since 2019. Banned or limited in California, New Jersey, Virginia, and several other states. Still enforceable in many states including Florida, Texas, Georgia, and Pennsylvania. If your contract has a COJ clause and you're funding in a permissive state, the funder can obtain a judgment against you without a hearing if you default. Walk away from any contract with this clause unless you've consulted a lawyer.
- What's the difference between reconciliation and default?
- Reconciliation: if your revenue drops, the funder reduces your daily ACH proportionally so you stay solvent. Default: any missed ACH triggers acceleration of the full remaining balance, often with penalty fees. Strong contracts include reconciliation language with a clear mechanism (you submit bank statements, daily ACH adjusts monthly). Weak contracts skip reconciliation entirely — every revenue dip becomes a default risk.
- What does 'anti-stacking' mean and why should I care?
- Anti-stacking clauses prohibit you from taking another MCA while the current one is open. They protect both funders (avoiding overleveraged merchants) and you (forcing you to think before stacking). The red flag isn't the clause itself — it's hiding it. Some funders bury anti-stacking language deep in the contract, then trigger default acceleration the moment you take a second MCA, even if you'd otherwise stay current.
- Are personal guarantees standard on MCAs?
- Yes — almost universal. The PG turns what's nominally a sale of receivables into a personally enforceable debt. Read carefully: some PGs are limited to fraud or misrepresentation (acceptable), others are full recourse to personal assets including your home (high-risk). If your contract has a full-recourse PG and your home is in a state without homestead protection, your house is on the line for an MCA default.
- What's the most dangerous clause merchants miss?
- Default acceleration combined with attorneys' fees and confession of judgment. The three together create a trap: any missed ACH triggers immediate acceleration (you owe the entire remaining balance now), the funder's collection attorney fees get added to what you owe (often 25–35% on top), and they can obtain a judgment without a hearing. A $30K outstanding balance becomes a $45K judgment in under 30 days.
- Can I negotiate out of bad contract clauses?
- Sometimes, on bigger deals. Funders will rarely strike the personal guarantee or default acceleration, but they will often soften reconciliation language, cap attorneys' fees, or remove COJ language if you push and have a competing offer. The leverage scales with deal size: a $200K advance gives you negotiating room a $25K advance doesn't.