7 Types of MCA Funder Fraud That Can Void Your Contract

Most business owners assume the MCA contract they signed is ironclad. It’s not. MCA funders commit fraud constantly, and when they do, the contract can be voided, the balance can be wiped, and in some cases, you can countersue for damages.

Short answer: If the funder lied to you, hid fees, misrepresented the product as a loan, charged usurious interest disguised as a “purchase,” forged documents, added terms you never agreed to, or used bait-and-switch tactics on the funding amount, you have real legal leverage. Most business owners never use it, because they don’t know it exists. The funders are counting on that.

Here are the seven types of fraud we see most often.

1. Disguising a loan as a purchase of receivables

This is the big one. An MCA is legally supposed to be a purchase of your future receivables, not a loan. The distinction matters, because if it’s a loan, usury laws apply, and most MCAs would be illegal under state usury caps. Funders know this. So they draft the contract to look like a purchase.

The problem: the actual economics often don’t match. If there’s no real reconciliation provision, no true risk of loss to the funder, and a fixed daily payment regardless of your actual receivables — courts have ruled these are loans in disguise. And usurious loans. New York courts in particular have been cracking down on this. If your MCA doesn’t let you reconcile payments when revenue drops, you may have a voidable contract.

2. Misrepresenting the funded amount

You signed for $100,000. You got $82,000 in the bank. Where did the other $18,000 go? The funder will tell you it’s “origination fees, underwriting fees, ACH setup fees, risk assessment fees.” Some of these were never disclosed upfront. Some were disclosed in a side document you never saw. Some are literally made up.

If the funder took fees that weren’t in the original agreement you signed, or that were buried in language designed to hide them, that’s fraud. Keep every document. The wire amount vs the contract amount is the first thing any defense attorney looks at.

3. Forged or altered bank statements

This one works in both directions. Sometimes the ISO (the broker who brought you to the funder) alters your bank statements to make revenue look higher, so you qualify for a bigger advance. Sometimes you don’t even know they did it. Then when you default, the funder turns around and accuses you of fraud for misrepresenting revenue.

If your statements were altered without your knowledge, that’s the ISO and/or funder committing fraud, not you. We’ve seen cases where the funder knew, or should’ve known, the numbers didn’t add up and funded anyway. That’s a defense.

4. Signing authority you never gave

The confession of judgment (COJ) was the classic version of this, and New York banned them for out-of-state debtors in 2019. But funders found workarounds. Some use personal guarantees that were signed electronically, where the guarantor swears they never clicked. Some use arbitration clauses the business owner never saw. Some straight up forge signatures on amendments that were never presented.

If you can prove you didn’t sign something, or that the document was altered after you signed, the whole agreement gets called into question. Not just that clause. The whole thing.

5. Bait and switch on terms

You were told the factor rate would be 1.35. The contract says 1.49. You were told daily payments of $400. They’re pulling $650. You were told it would be a 6 month term. It’s structured as 4.

The funder’s defense is always the same: “You signed the contract, the contract controls.” True, usually. But if you have texts, emails, recorded calls, or term sheets from the ISO showing different numbers, and the funder knew the ISO was making these representations — you have a fraudulent inducement claim. The contract can be voided based on what got you to sign it, not just what’s inside it.

6. Hidden stacking prohibitions and cross-default clauses

Buried in the agreement, there’s usually a clause that says you can’t take additional financing. Fine. What’s often NOT disclosed is that some funders share data with each other, and a cross-default clause means if you default on any MCA, all of them accelerate simultaneously. Some contracts don’t even make this clear. You think you’re dealing with one lender. You’re dealing with a coordinated group.

If these terms weren’t explained, weren’t conspicuous in the contract, or were contradicted by what the ISO told you — that’s a disclosure fraud claim.

7. Double-dipping after a refinance or consolidation

This happens constantly. You refinance your existing MCA with the same funder, or consolidate two MCAs into one. The old balance is supposed to be paid off, wrapped into the new deal. Then three months later, you discover the old contract was never actually closed out. They’re collecting on both. Or they claim the refinance was “additional funding” and you still owe the original.

Pull the payoff statements. Pull the UCC filings. If the original UCC-1 was never terminated, that’s a red flag. If they’re collecting on a debt they already rolled into a new agreement, that’s not just fraud, that’s theft.

What to do if any of this sounds familiar

Don’t call the funder. Don’t admit to anything. Don’t sign any amendment, forbearance, or modification they send you — these often contain language waiving your fraud claims. Get every document you have in one folder: the original contract, the wire confirmation, any texts or emails with the ISO, your bank statements from before funding, every ACH debit since.

Then talk to someone who does this work. Most business owners settle these debts for a fraction of the balance, not because the funder is generous, but because the funder knows what’s in their own contract and what a judge would do with it. You have more leverage than you think. The funders are counting on you not knowing that.