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Common red flags in MCA contract terms, explained clause by clause

Most owners sign an MCA agreement in under a day, often under cash pressure, and discover what the terms actually mean months later. These are the clauses that do the damage, what each one means in plain English, and what to check before you sign or before you negotiate your way out.

Confession of Judgment (COJ)

A COJ is a signed admission that you owe the money, filed away until the funder needs it. If you default, the funder can enter a judgment against you almost immediately, without a lawsuit, without a hearing, and in some states without notice. It converts a contract dispute into an enforceable judgment overnight.

New York banned COJs against out-of-state debtors in 2019, but they persist in other jurisdictions and in older agreements. If your contract contains one, treat any default as a legal emergency rather than a negotiation opening, and get representation involved before you miss a payment, not after.

Blanket UCC liens

Most MCA agreements file a UCC-1 lien against all business assets, not just receivables. The practical damage: the lien blocks bank loans, SBA refinancing, and inventory financing until it is released, and an aggressive funder can send UCC notices to your customers instructing them to redirect payments.

Check how many UCC filings are already against your business (your state's Secretary of State site lists them free). Every settlement you negotiate should include a written lien release, and no resolution is complete until the filings are actually terminated.

No reconciliation clause, or one that requires you to ask

A reconciliation clause lets the daily pull be adjusted to your actual revenue. Its presence is also what legally distinguishes a receivables purchase from a disguised loan. Contracts without one, or with a version that puts the burden entirely on you to request and document, are the ones that break businesses in a slow month.

If your contract has a reconciliation clause you have never used, that is often the fastest legitimate payment relief available. See our reconciliation guide for how to invoke it.

Personal guarantees and spousal signatures

A personal guarantee means the funder can pursue your personal assets when the business cannot pay. Watch especially for guarantee language buried in performance covenants, and for requests that a spouse co-sign, which extends exposure to household assets that have nothing to do with the business.

Default triggers that have nothing to do with missing payments

Many agreements define default to include things owners do routinely: changing banks, adding another financing, dipping below a minimum daily balance, or even declining revenue itself. Broad triggers let a funder call default, and use COJ or lien remedies, while you are still technically paying.

Changing bank accounts without funder consent
Taking any additional financing (anti-stacking clauses)
Minimum balance or minimum deposit covenants
Blocked or rerouted card processing

Fees that survive the advance

Origination fees, ACH fees, default fees, attorney fee shifting, and prepayment terms that make early payoff cost the same as full term. On a stacked file these fees compound. Any settlement conversation should start from a full accounting of what was advanced, what has been repaid, and what the fees actually were.

Common questions

What is the single worst clause to find in an MCA contract?

A Confession of Judgment. It removes your right to defend yourself in court before a judgment is entered, which turns any default into an immediate legal emergency. Contracts with COJs need professional handling before a missed payment, not after.

Are MCA contracts even legal?

Generally yes, because they are structured as purchases of future receivables rather than loans, which exempts them from usury caps in most states. Courts occasionally recharacterize an MCA as a loan when it lacks true reconciliation and recourse features, which is one of the legal levers settlement attorneys use.

Can I get out of an MCA contract I already signed?

You cannot simply cancel it, but the balance, payment schedule, and liens are all negotiable, especially when the funder's realistic alternative is a default they would have to chase. That negotiation is what MCA settlement is. See our guide to how settlement works.

Takeaway

Read for the COJ, the lien scope, the reconciliation clause, the guarantee, and the default triggers. Those five clauses decide how bad a bad month becomes.