12 Clauses in Your MCA Contract That Decide Your Leverage

Your Agreement Is the Only Document That Matters Right Now

Every argument about getting out of a merchant cash advance eventually comes back to the paper. The agreement you signed governs what the funder can do to you next week, which defenses exist at all, whether a court treats the advance as a purchase of receivables or a loan wearing a costume, and how far the balance can realistically be pushed down. Most owners have never read past the second page, which is understandable, because these documents are built to be skimmed and signed in a hurry and the paragraphs that do the most damage are drafted to look like housekeeping.

So go get it. The signed agreement with every exhibit, the guaranty rider, any confession of judgment affidavit, the ACH authorization, the state disclosure sheet if you received one, and 90 days of statements for every account the debits touched. Then work the twelve clauses below in order. Each entry tells you where the clause lives, what it does to your position, and the wording that costs the funder something. Several of them feed the same case law, because the sale-or-loan question is answered by the reconciliation language, the term, the collateral grant, the guarantee, and the default list operating together.

One warning before you start marking up your copy. Reading the contract closely is worth doing; acting on what you find without counsel is how a survivable file becomes a lawsuit. Blocking the debit, opening a fresh depository account, or writing to the funder to announce that its product is usurious are express or implied defaults in most of these agreements, and each hands the other side a reason to accelerate. Write down the paragraph numbers and let a lawyer decide what to do with them.

1. The Reconciliation Provision

Look for the heading that reads Reconciliation, or Adjustments to the Specified Percentage, or in plenty of agreements the unlabeled sentences tucked inside the paragraph defining your daily payment. Then read the verb. There is an enormous distance between “Purchaser shall adjust the Daily Amount upon Seller’s request and delivery of the required documentation” and “Purchaser may, at its sole discretion and as it deems appropriate, adjust the amount of any payment due.” The first is enforceable. The second is a courtesy the funder may decline every month for a year without breaching anything, and it is drafted that way on purpose.

That verb is the first of three factors New York courts weigh in deciding whether an advance is a purchase or a disguised loan. LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (N.Y. App. Div. 2d Dep’t 2020) asks whether a reconciliation provision exists, whether the agreement runs for a finite term, and whether the funder keeps recourse if the merchant declares bankruptcy. In LG Funding the reconciliation language let the funder adjust at its sole discretion, and the court held that wording could leave the discretion entirely with the funder, which left triable issues of fact on whether the advance was really a criminally usurious loan. The court did not find that the funder had taken no risk; it declined to resolve the question and modified the order only to dismiss the merchant’s usury counterclaim, because in New York usury is a defense rather than a counterclaim.

Mandatory wording does not settle it either. In Guttman v. EBF Holdings, LLC (In re Global Energy Services) (Bankr. D. Md. Mar. 31, 2025) a “shall adjust” provision survived partly because nobody had alleged that the funder made impossible document demands or that the merchant ever actually asked. Your position rests on the file more than the clause: written requests, the statements you attached, and the answer you got or did not get. If you asked three times and heard nothing, that correspondence is the case. Denial patterns are covered in what to do when your funder never reconciled.

2. The Specified Percentage and the Daily Holdback

The specified percentage is the number the salesperson quoted: 10%, 15%, sometimes 25% of gross receipts. It lives in the definitions block on the first page, a line or two from Purchase Price and Purchased Amount. Now find the sentence that converts it into money, which usually says your daily or weekly payment is a fixed dollar figure calculated to reflect that percentage of average monthly sales, drawn from the three or four months of bank statements you handed over during underwriting. Those two numbers are not the same number, and the space between them is where most of the harm accumulates.

From the funder’s side of the table the fixed debit is the whole product. A genuine percentage of each day’s receipts would produce unpredictable cash flow, no clean way to price the deal, and nothing a syndicator would buy a participation in. A flat daily figure produces a schedule the funder can model, and a schedule is exactly the trait courts associate with lending rather than purchasing. In the March 2025 Maryland case the funder bought $290,000 of future receipts for a $200,000 purchase price and had pulled roughly $145,000 in daily payments by the time the company filed.

So check the arithmetic yourself. Pull 60 to 90 days of statements, total every debit that funder took, and divide by total deposits across the same window. If the effective take runs well above the percentage written into your contract and revenue has slid since funding, you have the numbers that support a reconciliation demand and, where the clause is discretionary, the beginnings of a recharacterization argument. Run it separately for each position you carry, because four funders at 12% apiece are pulling close to half your gross.

3. The Purchased Amount and the Factor Rate

Two numbers on the first page price everything else: the Purchase Price, which is what landed in your account, and the Purchased Amount, which is what the funder claims the right to collect. Divide the second by the first and you have the factor rate. A $200,000 advance repaying $290,000 is a 1.45. What you will not find anywhere in the document is an interest rate, an APR, or a maturity date, and most agreements say so in terms, with a sentence along the lines of “there is no interest rate or payment schedule and no time period during which the Purchased Amount must be collected.”

That sentence is doing legal work. Usury statutes reach loans and forbearances, so no term means no annualized rate, and no rate means nothing for a cap to bite on. New York sets criminal usury at 25% under N.Y. Penal Law §190.40, and Florida caps simple interest at 18% for transactions under $500,000 under Fla. Stat. §687.03. Courts read past the labeling anyway. Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320 (2021) restated the principle that substance rather than form decides what a transaction is, and the merchant advance decisions cite it constantly.

So hunt for anything that pins a term onto the deal. An estimated number of payments, a projected completion date, an amortization exhibit, or a broker email describing “a six month deal” all cut against the purchase characterization. Since August 1, 2023, New York’s Commercial Finance Disclosure Law (N.Y. Financial Services Law §§801 to 812, implemented at 23 NYCRR Part 600) has required providers of sales-based financing of $2.5 million or less to disclose an estimated annual percentage rate and a total repayment amount. If you got that form, the funder annualized its own deal in writing.

4. The Events of Default You Never Read

Turn to the section headed Events of Default and count the subclauses. Fifteen to thirty is ordinary, and only two or three of them are about missing a payment. The rest cover changing your depository bank or the account the debits hit, placing a stop payment or a block on the ACH, taking additional financing, selling or transferring assets, changing ownership, relocating, failing to keep a minimum balance in the account, any material adverse change in your financial condition, and any inaccuracy anywhere in the application you signed months ago and have not looked at since.

Some of those clauses hand you a weapon. In In re GMI Group, Inc., 606 B.R. 467 (Bankr. N.D. Ga. 2019) the agreement required the merchant to keep at least twice the daily payment sitting in its account and made any shortfall an event of default that triggered full unconditional liability for the entire balance. The court held that this arrangement rendered the funder’s risk of nonpayment illusory and treated the advance as a loan. A funder that drafted away every route to a shortfall also drafted away its own defense, and the argument is built entirely out of its own paperwork.

The first clause to find is whether your bankruptcy or insolvency is listed as a default or a breach, since that is the third LG Funding factor. Newer agreements say the reverse deliberately: “Seller going bankrupt or going out of business, in and of itself, does not constitute a breach of this Agreement.” That one sentence carried the funder’s risk-transfer argument in the March 2025 Maryland decision. If your contract still treats a filing as a default, or gives the funder recourse when the company closes, note the paragraph number before you call anybody.

5. The Personal Guarantee and Its Carve-Outs

The guarantee is usually a separate page at the back headed Guaranty of Performance, Personal Guaranty, or Individual Guaranty. Read what is guaranteed rather than who signed. A guaranty of performance covers the company’s covenants: do not change bank accounts, do not take another position, deliver the statements, keep the processor in place. A guaranty of payment covers the money, which means the funder can sue you individually for the outstanding balance the day the company stops remitting. Some documents contain both in adjacent sentences, which is a good reason to read the page twice with a pen.

That distinction has decided real cases in both directions. In the March 2025 Maryland decision the guaranty reached things the company had to do or refrain from doing but did not guarantee payment on default, so the court found it shifted no risk and did not convert the advance into a loan. In CapCall, LLC v. Foster (In re Shoot the Moon, LLC) (Bankr. D. Mont. 2021) the principal signed an absolute guaranty and the funder took a security interest in essentially everything the debtor owned; the court called the deal a loan, applied Montana usury law, and entered a $1,216,685 judgment against the funder.

A performance-only guaranty is therefore unhelpful to your recharacterization theory and very helpful to your personal balance sheet, and an absolute guaranty runs the other way entirely. Either way, note whether the guarantor waived notice and defenses, whether liability is capped, whether a spouse or a second owner signed, and whether the obligation survives a sale of the company. Those four answers put a floor under any settlement, because a funder holding a payment guarantee from a solvent individual is negotiating against your house rather than your revenue. See fighting an MCA personal guarantee for the defenses.

6. The Confession of Judgment

A confession of judgment is a separate affidavit you signed at closing, admitting the debt in advance and consenting to judgment without a lawsuit, without service, and without any chance to answer. The funder fills in an amount, walks it to a county clerk, and holds something enforceable within days. It is why so many owners first learn they have a real problem when the bank calls to say the operating account is restrained and Friday’s payroll will not clear. Find it by title, usually Affidavit of Confession of Judgment, and check whether a notary stamp is on it.

Where the device still functions has narrowed a great deal. New York rewrote N.Y. C.P.L.R. §3218 effective August 30, 2019, and the version in force now ties the affidavit to a New York county the defendant actually lived in and permits filing only there, which is why an affidavit signed in 2026 by a trucking company in Georgia has essentially nowhere to go. New Jersey went further and prohibits the clause outright in business financing extended to a New Jersey business under N.J.S.A. 2A:16-9.1. Several other states restrict it; a number of them still allow it.

Three things to check on your own copy. The execution date, because an affidavit signed before the New York amendment gets analyzed under the older rule. The county named in it, if a county appears at all. And whether the funder has already filed, which the clerk in that county can confirm and which also surfaces in a judgment search under both your name and the company’s. Once something is entered, this stops being contract interpretation and becomes a motion on a schedule.

7. The Security Interest and UCC-1 Authorization

Somewhere in the agreement is a paragraph granting the funder a security interest, and near it a sentence in which you authorize the filing of financing statements. You never signed a UCC-1 and you never had to: under U.C.C. §9-509(b), authenticating a security agreement authorizes the filing of a financing statement covering the collateral that agreement describes. The description in your contract is therefore the outer boundary of what the funder was permitted to file, and the filing itself is a public record you can pull from your Secretary of State in about ten minutes for a few dollars.

Scope is the whole fight. In the March 2025 Maryland decision the security interest reached only the merchant’s future sales, and the court said that narrow grant did not point toward a loan. In Fleetwood Services, LLC v. Ram Capital Funding, LLC (S.D.N.Y. June 6, 2022), affirmed by the Second Circuit in June 2023, the interest covered all accounts, chattel paper, documents, equipment, general intangibles, instruments, and inventory, and that blanket grab supported the conclusion that the advance was a disguised loan. A funder that took everything has effectively conceded to a court that it was lending money.

Put three documents next to each other: the collateral description in your agreement, the description on the filed UCC-1, and the list of what the funder is claiming today. Overbroad filings do damage well past the advance itself, since your bank will not renew a line sitting behind a blanket lien and your equipment lender will not fund behind one either. Bankruptcy adds a limit worth knowing while you plan: under 11 U.S.C. §552(a), property acquired after a case is filed is not subject to a lien created by a pre-petition security agreement.

8. The Account Debtor Notification Clause

Find the clause where you “irrevocably authorize” the funder to tell your customers that your receivables have been sold and that payment now goes to the funder, usually alongside a sentence appointing the funder your attorney-in-fact to send the letters for you. It sits under headings like Sale of Future Receipts, Additional Rights, or Protections Against Default, and it almost never uses the word customer; the term of art is account debtor. If you invoice other businesses, this is the most dangerous paragraph in your document, and hardly anyone has read it before it gets used.

The clause has machinery behind it. U.C.C. §9-406(a) makes a notified customer’s payment to you stop counting, so the only way that customer discharges its obligation is by paying the assignee. U.C.C. §9-607(a) lets a secured party notify account debtors after default, collect from them, and exercise the rights you would have had. A general contractor or a shipper who gets one of those letters does not adjudicate anything; the accounts payable clerk holds the check and escalates. The sequence that follows is mapped out in the week after a UCC lien notification.

Read your clause for three boundaries: whether notification requires an event of default first or is available whenever the funder likes, whether the funder owes you notice before it writes to anyone, and whether the authorization ends on payoff. That third one is where settlements go wrong. A release of the debt that says nothing about this paragraph and nothing about terminating the financing statement leaves the funder holding the two instruments that did the damage, so the release language has to reach both before money moves.

9. Choice of Law and Venue

Near the back of the agreement, in the paragraph everybody skims, are two sentences: one choosing the governing law and one choosing where a dispute gets heard. New York law and a New York county are the industry default, and they appear in agreements signed by merchants who have never set foot in the state. Note whether venue is exclusive or permissive, whether a specific county is named, and whether a separate paragraph consents to personal jurisdiction and to service by mail, which is how default judgments happen to people who never saw a summons.

Funders pick New York for concrete reasons: the deepest body of merchant advance case law anywhere, and a stated presumption against usury findings that New York courts describe as a predisposition in this state against declaring that contracts are usurious. N.Y. General Obligations Law §5-1401 also lets parties to a transaction covering at least $250,000 in the aggregate choose New York law whether or not the deal touches New York in any other way. Below that dollar threshold the clause gets tested under ordinary conflict-of-laws principles, which is a live argument on a smaller advance.

The clause cuts your way in places too. New York’s recharacterization law is the most developed in the country, so a New York choice of law can hand you the LG Funding framework rather than whatever your home state has never decided. The cost is practical: defending a case in Kings County from Phoenix means local counsel, travel, and a calendar somebody else controls. Look for a severability clause, since a funder arguing that one bad provision drops out is conceding the document reads in pieces.

10. The Arbitration Clause or Jury Waiver

Most agreements carry one of two things and some carry both: a provision routing disputes to arbitration before a named forum, or a waiver of your right to a jury. A class action waiver usually rides along with either one. Find the forum by name, then find who pays the filing fee, then find whether the funder carved its own collection claims out of the clause so that it can sue you in court while you are confined to arbitration. That asymmetry shows up regularly in this paper and it belongs at the top of your notes.

The clause itself is usually not the soft spot, because 9 U.S.C. §2 makes a written arbitration provision “valid, irrevocable, and enforceable.” The forum can be the soft spot. The New York Attorney General’s June 2026 complaint against Rapid Ruling puts numbers on it: across roughly 3,000 cases handled by the platform, the state alleges the small business never appeared 97% of the time, and the platform ruled for the merchant advance company in nearly all of them. Those are allegations rather than findings, and they are still a reason to read the rules of whatever forum your clause names.

Jury waivers turn on where you are. California will not enforce a pre-dispute waiver at all: Grafton Partners L.P. v. Superior Court, 36 Cal. 4th 944 (2005) held that only the waiver methods the legislature authorized are permissible, and signing away a jury before any dispute exists is not one of them. Other states enforce a waiver that was knowing and voluntary. So look at whether a New York choice-of-law clause is importing a waiver your own courts would refuse, and whether the waiver is conspicuous or buried in an unbroken block of type.

11. The Attorney Fee Shifting Clause

Nearly every merchant advance agreement makes you pay the funder’s costs of collection and attorney fees, and many state the amount as a flat percentage of the outstanding balance rather than as fees actually incurred. Clustered around that clause is a schedule of charges: default fees, NSF fees, blocked-account fees, UCC filing fees, and in some documents a per-day charge for as long as the debits are interrupted. Total them against your own statements before you accept any payoff figure, because they are frequently a real slice of the number the funder is calling your balance.

The clause exists to make litigation cheap on one side and expensive on the other, and it does that job well. Two counterweights are worth carrying. In In re Shoot the Moon the fee provision ran both ways in practice, and the court awarded the debtor its attorney fees as prevailing party under the funder’s own contract. And in California, Cal. Civ. Code §1717(a) makes a contractual fee clause in an action on the contract run to whichever side prevails, whether or not that side is the one the contract named. A one-way clause in a California deal is a two-way clause by operation of law.

So read for reciprocity, for a cap, and for whether the fees have to be reasonable or merely asserted. Read whether the clause reaches the guarantee as well as the company, because a fee award against an empty entity collects nothing from anyone. And when the payoff letter arrives, ask for the itemization sitting behind the number. A funder that cannot document how its fee accrual was built has just made that piece of your settlement negotiable in a way the principal never was.

12. The Anti-Stacking Covenant

The anti-stacking covenant is your promise not to accept additional financing secured by your receivables, or in the broader drafting any additional financing at all, without the funder’s written consent. It usually travels with a cross-default clause, so a second advance becomes an immediate event of default under the first agreement and accelerates the full Purchased Amount. Look under Covenants, Additional Financing, or Seller’s Obligations, and check the representations section too, where the same restriction sometimes appears dressed up as a statement of fact rather than a promise.

What the funder is protecting is its place in line, since priority in receivables follows filing order and a consent requirement is how position one polices that order. The clause has a second use nobody mentions at closing. Once you accepted a second advance, the first funder acquired a breach it can assert on any morning it chooses, whether or not a single debit has ever bounced, and so did each funder that came after. That is why a merchant who has never missed a payment can still receive an acceleration letter the week after the newest deal funds.

Two things to look for. Whether consent was actually obtained, because brokers papered a great many of these deals and an approval email or a signed consent letter may be sitting in the file somebody sent you at closing. And whether the funder kept accepting your daily payments after it learned about the other positions, since a party that goes on performing with knowledge of a breach has a harder time arguing later that the breach was material. Both questions are answered from documents rather than memory.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.