12 Questions That Test an MCA Sales Pitch Against the Agreement

The argument here is simple: what the salesperson tells you on the phone is not the deal. The signed merchant cash advance agreement is the deal. The only way to know the actual terms of the contract is to read it. The agreement will outline the true payback amount and how often a payment will be withdrawn from the merchant’s bank account. Here are 12 questions that will reveal what the MCA contract says compared to what was said.

Advance Amount

The term that vendors may emphasize during a sales call is their advance amount. The amount you actually get can be less than what you “signed up” for. Find the ”Advance Amount” in the contract. Compare it to the amount you were told over the phone. Yellowstone Capital, LLC settled charges in 2021 that it had misled business owners about how much funding they would get after fees, according to the Federal Trade Commission. Yellowstone surrendered $9,837,000 as part of the agreement with the FTC, the agency announced.

In the FTC’s RCG case, salespeople said there were no personal guarantees or upfront fees. The contracts said otherwise. Two defendants named in the RCG case paid a total of $675,000 and were banned from the industry.

Next, look at the total payback, which includes fees and charges. It can add up to much more than the amount of the original MCA. Ask the salesperson, “How much in total must be paid back, and over what time period?” Get the total of payments and payment period in writing. In New York, a price quote is required in writing, disclosing the estimated APR, total repayment and payment schedule, according to Financial Services Law 803. California requires disclosures as well. Check to see if these details are in there.

A Fixed Payment Every Day

Vendors may emphasize paying back an agreed percentage of sales. But the contract can also include a fixed payment every day, regardless of sales. Ask if there is a daily payment and if it is a fixed amount that is the same every day. Is it a percentage of daily sales? Will the amount vary? The fixed payment amount requires that the merchant cough up the same amount every single day, even when there is no cash available.

A salesperson may suggest they will lower the daily payment to help merchants meet their obligations. The ability to modify, or adjust, a payment, however, is spelled out in the contract. The fine print of the contract may state that the vendor determines if sales are down enough to make changes. If the reconciliation clause makes adjustment subject to the “sole discretion” of the funder, this might suggest that the funder takes no risk that sales will fall short. You don’t want to be at the vendor’s mercy on whether a payment can be deferred temporarily.

What if cash is tight at the end of a slow month? Will the advance payments be made even if cash is already short? The language may suggest the funder has the right to withdraw payments regardless of the merchant’s cash position. In one case, known as Fleetwood, the funder would not pause fixed daily debits, saying that would mean default. The vendor kept debiting.

What constitutes a default? Could a default happen if payments were just late? Review the “Event of Default” section to see what could trigger a default. Some contracts state that daily payments are to be paid even if sales are falling short, and failure to comply is considered a default.

When do withdrawals stop? If the funders promise to stop when the balance is zero, check the contract. RCG Advances was accused in one case of debiting more than they disclosed, and Yellowstone debited customers after the balance was paid off, the FTC alleged. If the total amount debited by the vendor exceeds the payback amount, then the merchant is paying for something that has already been paid for.

Did the salesperson say all you need to pledge for a merchant advance is future sales? Does the contract state that the MCA is secured by more than sales, or even by something that has nothing to do with daily sales? If there is a personal guarantee, or if the merchant pledges other collateral besides sales, the contract would refer to that. If it does, get a detailed explanation and make sure you understand what is being pledged.

An Advance Against Sales or a Loan

A New York appeals court in 2020 said courts look at how the advance works to decide if it’s just an advance against sales or a loan. There is no one-size-fits-all approach to spotting trouble in MCA agreements, but judges are known to zero in on the reconciliation clause, if there is one, whether the term is finite and how the contract provides for bankruptcy. Will payments stop by a certain date? Ask if the contract states that bankruptcy does not stop the right to collect. If so, that could support the argument that it is a loan.

Also look for a confession of judgment clause, which allows the funder to get a judgment and then go after personal assets to satisfy it. Under the heading ”Confession of Judgment” the contract may say if you default on the agreement, a judgment can be entered against you without being heard by a court. The FTC said confessions of judgment were “weaponized” in its RCG case. And since Sept. 1, 2025, they are void in MCAs sold in Texas.

On the loan question, the test for courts is who takes the risk. If the merchant takes the risk, the advance can be a loan, whatever it is called. Courts also may look at the parties’ conduct to see if they acted as if the advance was a loan, and not as a purchase of receivables. The law in New York puts criminal usury at over 25% a year. Courts have found rates of 278.5% in one case.

Take time to look for the answers to these questions in the contract and compare the terms to what was promised over the phone. Don’t settle for vague answers. If the written agreement doesn’t say what the salesperson says over the phone, get an explanation in writing. It might be a sign that the salesperson is misrepresenting something.