How Do You Read a Merchant Cash Advance Agreement?

A merchant cash advance agreement is a dense form contract, and many owners sign one on a phone the same day the money is offered. You can still read it now, and you should, because the clauses that matter most only come into play when something goes wrong. This guide walks through those clauses in the order worth reading them. The example throughout is a real contract: a standard merchant cash advance agreement dated January 5, 2024, which became public because the company that signed it filed it with the U.S. Securities and Exchange Commission. It runs to 58 numbered sections plus a separate personal guarantee. Your contract will use different wording, so treat every example as a map of where to look, not a statement of what yours says.

What do the numbers on the first page mean?

Most MCA agreements open with a short schedule of defined amounts. They are the whole deal in four lines, and in the sample agreement they read like this:

Source: Standard Merchant Cash Advance Agreement dated January 5, 2024, filed with the U.S. Securities and Exchange Commission (sec.gov, EDGAR).

Two divisions tell you what the money costs. The purchased amount divided by the purchase price is the factor rate: $300,000 divided by $200,000 is 1.5. The purchased amount divided by the net funds is the number that stings: $300,000 divided by $190,000 is about 1.58, because the sample deducted a $10,000 fee for underwriting and the ACH debit program before the wire went out. Every dollar that arrived costs about $1.58 to deliver back, before any default fee. How that becomes an annual rate depends on how fast the money is collected, and our factor rate and APR guide shows the conversion.

Where is the payment amount, and can it change?

Look for the remittance section and the ACH authorization. An MCA is framed as a purchase of a percentage of revenue, but the debit is usually a fixed daily or weekly dollar amount estimated from past deposits. The sample’s own disclosure page says the debits may switch between a daily and a weekly basis for a proportionate amount, and that they are subject to reconciliation. Two more details sit in this part of most contracts. First, whether the ACH authorization can be withdrawn: the sample calls it irrevocable without the funder’s written consent. Second, whether all revenue must run through one designated account: the sample requires one depositing account acceptable to the funder. If your positions draft on different schedules, our guide to daily and weekly MCA payments explains how they combine.

What does the reconciliation clause require from you?

A reconciliation clause is the contract term that ties payments back to actual revenue when sales fall. Read it for three details: how to ask, what you must send, and how fast the funder must act. In the sample, a reconciliation can be requested in writing or by email, and any overcollection is credited back within seven days. The merchant must also produce the login and password for the bank account, plus every bank and merchant statement since the agreement was signed. That requirement is common and worth knowing before you need it. Our reconciliation guide walks through a written request step by step.

Which events count as a default?

This list matters more than any other section, because default is what unlocks acceleration, fees, the personal guarantee, and lawsuits. It is almost always broader than a missed payment. The sample agreement lists nineteen events of default, including:

• blocking or stopping an ACH debit, or two debits returned for insufficient funds without advance written notice;
• changing the bank account, or using more than one depository account, without the funder’s written consent;
• changing card processors or adding terminals without consent;
• selling or transferring all or substantially all of the business’s assets, or announcing a bulk sale, without consent;
• moving, interrupting, suspending, dissolving, or closing the business without consent (the sample carves a bankruptcy filing out of this item);
• failing to give updated bank login details within one business day of a change, or statements within two business days of a request.

Read your list slowly and mark every item that could happen in an ordinary bad month. Those are the ones to plan around. Our default timeline shows what each stage sets in motion.

What happens to the balance and the fees after a default?

Find the remedies section and the fee schedule, which are often in different places. In the sample, once a default is declared the full uncollected purchased amount plus fees may become due immediately, which is called acceleration. A $2,500 blocked account or default fee applies, an addendum adds a $50 fee for each rejected debit, the merchant and guarantor owe the funder’s collection costs including an attorney contingency fee of up to 40 percent of the amount claimed, and the sample sets prejudgment interest at 24 percent a year, or 16 percent for a sole proprietorship, or the maximum rate the applicable law permits if that is lower. None of those numbers are universal. Each is the kind of term that turns a payment problem into a much larger balance, so write down what yours say.

What did you personally promise?

Look for the guarantee, usually signed by the owner on its own page or in a lettered section at the end. The word to find is performance or payment. The sample is titled a personal guarantee of performance: the owner guarantees the merchant’s performance of all of its representations, warranties, and covenants. A performance guarantee is generally triggered by a breach, such as blocking a debit or closing without consent, rather than by revenue simply falling short, while a payment guarantee covers the balance itself. Read the waivers too: the sample lets the funder enforce the guarantee without first trying to collect from the business or its collateral. Our personal guarantee guide explains what that means for your own assets.

What collateral did the business pledge?

Find the security interest section. It describes the collateral and authorizes the funder to file a UCC-1 financing statement. The sample secures the merchant’s obligations with all accounts, including deposit accounts and receivables, plus chattel paper, documents, equipment, general intangibles, instruments, inventory, and all proceeds: close to everything a small business owns. It also reaches obligations under any future agreement with the same funder. Look for a power of attorney clause as well. The sample appoints the funder as the merchant’s attorney-in-fact to collect money owed to the business and to sign the merchant’s name on invoices directing customers to pay the funder. Terms like that are part of why a funder may contact your customers after a default.

Where would a dispute be decided, and what rights were waived?

The last pages hold the terms most owners never read. In the sample agreement:

• New York law governs, and the funder may choose to sue in any court in New York or Connecticut;
• both sides waive a jury trial;
• the merchant and guarantor may not bring a counterclaim in a case the funder starts;
• any claim against the funder must be brought within one year;
• class actions are waived, and either side may send a dispute to arbitration;
• the merchant waives notice and a hearing before prejudgment remedies, to the extent Connecticut law and other applicable law allow.

The sample contains no confession of judgment, but many older contracts do, so search yours for one. Whether any waiver holds up is a question for a licensed attorney in your state. Knowing the waivers exist still changes how seriously to take a demand letter, and our guide to New York MCA law explains why so many contracts point there.

Does your state require a disclosure page?

Several states now require commercial financing providers to give a written disclosure of the total cost, and California and New York require an estimated annual percentage rate for sales-based financing such as an MCA. If your business signed in a disclosure state, look for a separate disclosure form and compare its numbers with the contract. Our state-by-state guide lists which states require what, and when each rule took effect.

What should you do with what you find?

1. Get the complete set. The agreement, the guarantee, every addendum, and any state disclosure form. If a broker never sent them, ask the funder in writing.
2. Write down the numbers. Purchase price, purchased amount, net funds, specified percentage, and the debit actually leaving your account.
3. Mark the default events. Circle each one that could happen in a normal month.
4. Note the notice rules. Where written notices go, by what method, and how many days each one needs.
5. Repeat for every position. Each advance in a stack is its own contract with its own clauses.
6. Bring all of it to anyone you ask for help. A firm that quotes an outcome before reading your contracts is guessing. How to choose a firm covers what to demand.

Anchor Resolve reviews every position a business holds as part of a free consultation and explains in plain English what each agreement allows. We are not a law firm, and whether a clause is enforceable is a question for a licensed attorney in your state. How the process works sets out each step, and our disclosures set out the risks.

Common questions