With MCA funders pumping millions into business bank accounts, the majority of business owners may be unclear on how the contract verbiage works, what it means for their contractual obligations, and what to do when they encounter trouble holding up their end of the agreement. Here is a breakdown of the common things to understand as a business owner.
Unlike traditional loans, MCA agreements use different language because the transaction is structured as a purchase of future receivables rather than a loan. If an MCA were a true loan, the contract would reference the 'borrower' or 'guarantor.'
Purchase Price = The amount of money the funding company provides to your business (what you receive).
Example: Purchase Price: 0,000 — this is deposited into your business account.
Purchased Amount = The total amount of future receivables the MCA company purchases from your business.
Example: Purchased Amount: 5,000 — the funder expects to collect 5,000 from your future sales.
The Factor Rate is simply the ratio between the Purchased Amount and the Purchase Price — the price of the advance. In the example above, the factor rate is 1.30. Unlike an interest rate, the factor rate does not decrease if you pay faster (unless previously negotiated).
The Specified Percentage is the portion of your future revenue the MCA funder is contractually entitled to collect until the Purchased Amount is paid in full. For example, if a business generates 70,000 in average monthly sales and the funder sets a 12% Specified Percentage, then 12% of 70,000 (0,400) is expected to be paid back monthly — either daily (,020) or weekly (,100). This fixed ACH withdrawal is established at the beginning of the agreement and remains unchanged unless the seller requests a reconciliation.
In theory, weekly or daily payments should adjust each month based on actual sales. If monthly receivables drop from the contractual average, the merchant has the right to request a reconciliation — reducing the payment amount to reflect actual revenue. This is a contractual right in most MCA agreements. Conversely, most agreements allow the funder to request a reconciliation as well if revenues have increased, though this is rarely exercised in practice.
One of the most confusing aspects of MCAs is that they are marketed as a purchase of future receivables — yet the vast majority of MCA agreements still require a personal guarantee from the business owner.
Most MCA companies argue that the personal guarantee does not guarantee payment of the Purchased Amount itself. Instead, it guarantees that the business owner will not interfere with the funder's ability to collect. Common events that may trigger personal liability include:
When a business falls behind, funders often claim a default occurred because the merchant violated one of the agreement's covenants — and the personal guarantee becomes a tool of leverage for pursuing the owner's personal assets.
MCA agreements contain an 'Events of Default' section outlining actions that allow the funding company to declare the agreement in default. The most common default triggers include:
Once a funder declares a default, consequences can escalate quickly — including acceleration of the entire Purchased Amount and enforcement of the personal guarantee.
MCA agreements require the business to grant the funding company a security interest in its assets and receivables. To make that claim public, the MCA company files a UCC-1 Financing Statement — a public notice that the funder claims an interest in the business's assets, future receivables, or both.
A UCC filing will make it more difficult to obtain additional financing because potential lenders will see the existing lien during due diligence. In many cases, a new lender will require the MCA company's lien to be subordinated or removed before approving funding.
MCA contracts are architected to protect the funder's interests and are certainly one-sided. Before signing, understand the remittance terms, the conditions for default, and the scope of the personal guarantee. Just because an MCA is not technically structured as a loan does not mean the business owner is insulated from personal liability.
