6 Things MCA Companies Don’t Want You to Know About Your Contract

Who Can Actually Help You Fight Back?

Knowing what’s hidden in your MCA contract is only half the battle. You need a team that knows how to use these provisions as leverage — to negotiate settlements, vacate judgments, and get your business breathing room. Here are the three firms we recommend, based on track record, specialization, and results.

1. You Probably Have Reconciliation Rights — And They’re Hoping You Don’t Use Them

Here’s the thing: almost every MCA agreement includes a reconciliation clause. It’s buried in the fine print — usually around page 6 or 7 — but it’s there. Reconciliation gives you the right to adjust your daily or weekly payment based on your actual revenue. If your sales drop 20%, your payment should drop proportionally. That’s the entire legal basis for calling it a “purchase of future receivables” instead of a loan.

But MCA companies don’t want you exercising this right. Why? Because reconciliation slows down their repayment timeline, and their entire business model depends on speed. Under Fleetwood Services v. Ram Capital Funding (2016) and subsequent New York case law, courts have ruled that the failure to honor reconciliation provisions can reclassify the entire MCA as a usurious loan — which changes the legal landscape dramatically in the merchant’s favor.

Bottom line: if your revenue has dropped since you took the advance, you have a contractual right to lower payments. An attorney can formally invoke reconciliation on your behalf — and most MCA companies will comply rather than risk having their product reclassified as an illegal loan.

2. The “True Cost” of Your MCA Is Deliberately Obscured

MCA companies don’t quote you an interest rate. They quote a “factor rate” — typically 1.2 to 1.5. Sounds harmless, right? A factor rate of 1.3 on a $100,000 advance means you repay $130,000. But here’s what they don’t tell you: when you convert that factor rate to an annualized percentage rate (APR), you’re often looking at 60% to 350% or higher, depending on the repayment speed.

Unlike traditional lenders, MCA companies are not currently required under federal law to provide Truth in Lending Act (TILA) disclosures, because they classify their product as a commercial purchase agreement — not a loan. However, that’s changing fast. New York’s Commercial Finance Disclosure Law (S.5470-B), which took effect in 2024, now requires MCA providers to disclose the estimated APR, total cost of financing, and prepayment penalties. California’s SB 1235 imposes similar requirements. Virginia followed suit with HB 1027.

If your MCA was originated without these disclosures in a state that requires them, you may have a viable legal challenge to the contract itself. That’s leverage — and most MCA companies are counting on you never realizing it.

3. UCC Filings Can Be Amended or Terminated — They Just Won’t Tell You How

When you signed your MCA, the funder almost certainly filed a UCC-1 Financing Statement with your state’s Secretary of State. This filing puts a lien on your business assets — and it shows up whenever anyone runs a credit check on your company. It can block you from getting a traditional bank loan, an SBA loan, or even a new lease. MCA companies file these broadly on purpose, often listing “all assets” as collateral even when the agreement only covers future receivables.

What they don’t want you to know: UCC filings are governed by Article 9 of the Uniform Commercial Code, and they can be challenged. Under UCC §9-509, a financing statement is only authorized to the extent it covers the actual collateral described in the security agreement. If the MCA company filed a blanket lien on “all assets” but your contract only references future receivables, that filing may be overbroad and legally challengeable. Under UCC §9-513, a secured party is required to file a termination statement within 20 days of receiving an authenticated demand — if the obligation has been satisfied. (Cornell Law — UCC Article 9)

An experienced MCA attorney can force the termination or amendment of these filings — freeing up your borrowing capacity and removing a major obstacle to your business’s financial recovery.

4. Your Personal Guarantee May Not Be as Ironclad as They Claim

MCA companies love personal guarantees. They make the business owner personally liable for the full balance — which means if your business can’t pay, they come after your personal bank accounts, your home equity, and your other assets. The guarantee is designed to terrify you into paying no matter what. And it works — most business owners assume there’s no way out once they’ve signed.

But here’s what MCA companies don’t advertise: personal guarantees in MCA agreements are regularly challenged in court and narrowed or voided entirely. Common defenses include unconscionability (the guarantee was buried in a dense contract with no opportunity to negotiate), fraud in the inducement (the funder misrepresented the terms or speed of repayment), material breach by the funder (failure to honor reconciliation, unauthorized ACH debits, or stacking violations), and lack of independent consideration (the guarantor received no personal benefit from the transaction). (NACHA — ACH Operating Rules)

Under New York General Obligations Law §5-701 and the common law of guaranty, personal guarantees must meet specific enforceability standards. Courts have shown increasing willingness to scrutinize these clauses in the MCA context — especially when the funder engaged in predatory practices or breached its own contract terms first.

5. Confession of Judgment Clauses May Be Unenforceable — Even If You Signed One

A Confession of Judgment (COJ) is one of the most aggressive tools in the MCA playbook. When you sign a COJ, you’re essentially waiving your right to defend yourself in court. The MCA company can file the COJ with a court clerk, obtain a judgment against you and your business without any hearing, and immediately freeze your bank accounts or garnish your receivables. No notice. No trial. No chance to tell your side.

Here’s what changed: in 2019, New York State enacted legislation (N.Y. CPLR §3218) that prohibits out-of-state COJ enforcement. If your business is not physically located in New York, a COJ filed in New York courts is now unenforceable against you. Period. Additionally, New York now requires that COJ affidavits contain specific factual details about the default — vague or boilerplate language is grounds for vacatur. Several other states — including Maryland, New Jersey, and Ohio — have banned or severely restricted COJs altogether.

Even if you signed a COJ, it is not the end of the road. Attorneys experienced in MCA defense have successfully vacated hundreds of these judgments using procedural defenses, jurisdictional challenges, and substantive arguments about funder misconduct. The COJ is a scare tactic — a powerful one, but not an unbeatable one.

6. You May Have Unknowingly Waived Your Right to Arbitration — And That Could Actually Help You

Many MCA contracts include arbitration clauses that force disputes into private arbitration rather than the court system. MCA companies include these clauses because arbitration is generally faster, cheaper for them, and produces results that are nearly impossible to appeal. They don’t want you in front of a judge. They don’t want discovery. They don’t want a public record of how their product actually works.

But here’s the twist most business owners miss: if the MCA company itself files a COJ or initiates a lawsuit against you in court, they may have waived their own arbitration clause. Under the Federal Arbitration Act (9 U.S.C. §3) and the Supreme Court’s ruling in Morgan v. Sundance, Inc. (2022), a party that engages in litigation conduct inconsistent with arbitration can be found to have waived its right to compel arbitration — and the court no longer requires a showing of prejudice. This means if the MCA company sued you first or filed a COJ, you may now have the right to a full court proceeding with all the protections that entails: discovery, evidentiary hearings, and a judge who can evaluate the fairness of the contract.

Additionally, some MCA arbitration clauses are themselves unconscionable — requiring arbitration in a distant forum, imposing prohibitive filing fees, or selecting a biased arbitration provider. Courts have struck these clauses on unconscionability grounds, opening the door to litigation on terms more favorable to the merchant.

Who Can Actually Help You Fight Back?

Knowing what’s hidden in your MCA contract is only half the battle. You need a team that knows how to use these provisions as leverage — to negotiate settlements, vacate judgments, and get your business breathing room. Here are the three firms we recommend, based on track record, specialization, and results.