Key Provisions in Every MCA Contract
MCA contracts are deliberately complex, using commercial legal language designed to maximize the funder’s rights while minimizing yours. Understanding critical provisions before signing is essential.
The Purchased Amount and Factor Rate
The purchased amount is the total the funder will collect. The advance amount is what you receive. The factor rate connects the two. Verify that the advance amount matches what was promised. Undisclosed fees, broker commissions, and origination charges can reduce the net amount by 5 to 15 percent below the stated advance.
The Reconciliation Clause
Arguably the most important provision. It allows payment adjustment when revenue decreases. Look for how the process works, what documentation is required, the response timeframe, and any minimum payment floor. A weak or missing reconciliation clause is a red flag.
Personal Guarantee
Almost every MCA includes a guarantee making you personally liable. Review the scope: does it cover just the purchased amount, or also legal fees, collection costs, and penalties? Is there a cap? Can it be released upon payoff?
Confession of Judgment
A COJ allows the funder to obtain a judgment without trial. New York banned COJs against out-of-state borrowers in 2019, but some contracts still include them. If yours does, understand the implications.
Default Provisions
Review every event constituting default. These often go beyond missed payments to include changing your bank account, taking additional debt, experiencing material business changes, or failing to maintain revenue levels.
Forum Selection and Governing Law
Most contracts specify New York law and courts. Any dispute will be litigated there regardless of your location, creating logistical challenges for out-of-state borrowers.
What to Do Before Signing
Have an attorney review the contract. The cost is typically $500 to $1,500. The cost of litigating a bad contract later is tens of thousands. This is the single most cost-effective step you can take.