Front Page › Guides › Business Funding
The advance agreement, clause by clause
A composite merchant cash advance contract, marked up the way a former broker reads one: what each clause is for, which ones are negotiable, and which one quietly cancels everything you were told on the phone.
The clauses below are composites — paraphrased, generic language of the kind that recurs across merchant cash advance agreements. They are not any one company's contract, and yours will differ. Read them as a map of where to look in the document in front of you, not as a substitute for reading yours. If the advance is large, or the guaranty is broad, pay a lawyer for an hour before you sign. It is the cheapest hour in the deal.
1. It is a purchase, not a loan
Merchant hereby sells, assigns and transfers to Funder all right, title and interest in and to a specified percentage of Merchant's future accounts and contract rights arising from the sale of goods or services, until the Purchased Amount has been delivered. This is not a loan. Funder is purchasing receivables at a discount and assumes the risk that they may not be collected.
Read this first
Everything else follows from this sentence. Structuring the transaction as a sale of future receivables rather than a loan is what keeps it outside most usury caps and lending-licence regimes. It is why there is no interest rate anywhere in the document, and why the cost is expressed as a factor rate — a multiplier — instead. The claim that the funder "assumes the risk" is the load-bearing part: if the funder is genuinely at risk of non-payment when sales fall, the sale characterisation holds up better; if the agreement is written so the funder gets paid no matter what, courts in several states have looked past the label and treated the deal as a loan. That is why the reconciliation clause below matters so much more than it looks.
Everything else follows from this sentence. Structuring the transaction as a sale of future receivables rather than a loan is what keeps it outside most usury caps and lending-licence regimes. It is why there is no interest rate anywhere in the document, and why the cost is expressed as a factor rate — a multiplier — instead. The claim that the funder "assumes the risk" is the load-bearing part: if the funder is genuinely at risk of non-payment when sales fall, the sale characterisation holds up better; if the agreement is written so the funder gets paid no matter what, courts in several states have looked past the label and treated the deal as a loan. That is why the reconciliation clause below matters so much more than it looks.
Practical consequence: you cannot compare this to a bank quote without doing the arithmetic yourself. The calculator does it.
2. The specified percentage — and whether the payment actually moves
Merchant shall remit to Funder the Specified Percentage (____%) of daily receipts. For administrative convenience, Funder shall debit a fixed daily amount of $______, which the parties agree is a good-faith estimate of the Specified Percentage.
The switch
This is the pivot most owners miss. The deal is sold as a percentage of sales — "if you have a slow week, you pay less" — and then a second sentence converts it to a fixed daily debit "for convenience." From that moment the payment does not move with your sales at all unless you affirmatively invoke reconciliation. Find both sentences in your document. If the fixed amount is there, the percentage is a description of intent, not a mechanism.
This is the pivot most owners miss. The deal is sold as a percentage of sales — "if you have a slow week, you pay less" — and then a second sentence converts it to a fixed daily debit "for convenience." From that moment the payment does not move with your sales at all unless you affirmatively invoke reconciliation. Find both sentences in your document. If the fixed amount is there, the percentage is a description of intent, not a mechanism.
3. Reconciliation — the clause the whole deal rests on
Merchant may request reconciliation by written request, accompanied by all bank statements and processor statements for the period, delivered within five (5) business days of the end of the calendar month. Funder shall, in its sole and absolute discretion, adjust the daily amount to reflect actual receipts. Merchant's failure to request reconciliation in accordance with this section constitutes a waiver.
Negotiate this one
Reconciliation is the promise that makes the product defensible: when sales fall, the payment falls. Whether that promise is real is decided entirely by the modifiers around it. Look for four things. Who initiates — you, in writing, or the funder automatically? The deadline — a five-business-day window each month is a trap for a business in trouble, and missing it can be framed as waiver. The documents required — reasonable, or a package designed to be hard to assemble? And "sole discretion" — an obligation that the funder may perform at its own discretion is not an obligation. Ask for: reconciliation on request without a monthly deadline, adjustment that is mandatory rather than discretionary, and a defined turnaround. Funders do agree to this, particularly on larger files. A funder who will not touch it is telling you what happens when your sales fall.
Reconciliation is the promise that makes the product defensible: when sales fall, the payment falls. Whether that promise is real is decided entirely by the modifiers around it. Look for four things. Who initiates — you, in writing, or the funder automatically? The deadline — a five-business-day window each month is a trap for a business in trouble, and missing it can be framed as waiver. The documents required — reasonable, or a package designed to be hard to assemble? And "sole discretion" — an obligation that the funder may perform at its own discretion is not an obligation. Ask for: reconciliation on request without a monthly deadline, adjustment that is mandatory rather than discretionary, and a defined turnaround. Funders do agree to this, particularly on larger files. A funder who will not touch it is telling you what happens when your sales fall.
4. The personal guaranty (of performance)
The undersigned Guarantor guarantees Merchant's performance of all representations, warranties and covenants in this Agreement. Guarantor is not guaranteeing repayment of the Purchased Amount in the event of a bona fide decline in Merchant's business, but is personally liable for any breach, including any act that impairs Funder's ability to collect.
This is personal
Read the words "performance guaranty" carefully, because they are doing something specific. The funder cannot guarantee repayment outright without undermining the "this is not a loan" structure — so instead you personally guarantee that you will not breach. The catch is how many things count as a breach. Changing your depository bank, taking another advance, closing early, blocking the debit, selling the business, or "materially altering" operations are commonly all breaches. And a breach converts the whole balance into a personal obligation. In practice, the difference between a repayment guaranty and a performance guaranty is much smaller than it sounds. Confirm who is signing, whether a spouse is being asked to, and whether the guaranty survives a sale of the business.
Read the words "performance guaranty" carefully, because they are doing something specific. The funder cannot guarantee repayment outright without undermining the "this is not a loan" structure — so instead you personally guarantee that you will not breach. The catch is how many things count as a breach. Changing your depository bank, taking another advance, closing early, blocking the debit, selling the business, or "materially altering" operations are commonly all breaches. And a breach converts the whole balance into a personal obligation. In practice, the difference between a repayment guaranty and a performance guaranty is much smaller than it sounds. Confirm who is signing, whether a spouse is being asked to, and whether the guaranty survives a sale of the business.
5. The stacking prohibition and cross-default
Merchant shall not, without Funder's prior written consent, enter into any agreement with any other party for the purchase or financing of future receivables, nor grant any lien on the Collateral. Any such agreement shall constitute an immediate event of default, and a default under any other agreement between Merchant and any funder shall constitute a default hereunder.
Cuts both ways
This clause is why the broker offering you a second position in month three is offering you a default. It is also, in fairness, the clause that stops the debt spiral this industry is famous for. Note the cross-default in the second half: a problem with a completely different funder can trigger a default here, with acceleration, without anything going wrong on this deal.
This clause is why the broker offering you a second position in month three is offering you a default. It is also, in fairness, the clause that stops the debt spiral this industry is famous for. Note the cross-default in the second half: a problem with a completely different funder can trigger a default here, with acceleration, without anything going wrong on this deal.
6. The UCC authorization
Merchant authorizes Funder to file a UCC-1 financing statement covering all assets of Merchant, including all accounts, receivables, deposit accounts, inventory, equipment, general intangibles, and proceeds thereof.
Public the day you sign
This is the sentence that makes your phone ring for the next two years — the filing is public record, and lead vendors sell it. It is also frequently broader than the deal warrants: a funder advancing against card receivables has a hard time justifying a blanket lien on your equipment and inventory, and that blanket filing is what complicates a future bank loan or an SBA application. Ask for the collateral description to be limited to the receivables purchased. The full story on UCC filings and where the calls come from.
This is the sentence that makes your phone ring for the next two years — the filing is public record, and lead vendors sell it. It is also frequently broader than the deal warrants: a funder advancing against card receivables has a hard time justifying a blanket lien on your equipment and inventory, and that blanket filing is what complicates a future bank loan or an SBA application. Ask for the collateral description to be limited to the receivables purchased. The full story on UCC filings and where the calls come from.
7. Events of default
Events of default include, without limitation: any breach of any representation; any material change in Merchant's business or operations; Merchant taking any action to impair or prevent the debits; closing or changing the Account without notice; two (2) returned or rejected debits; and Merchant's failure to provide requested information.
Wide by design
Count the triggers in yours. "Material change in operations" is undefined in most agreements, which means the funder defines it. Two returns as an automatic default is common, and returns happen to healthy businesses over a bank error. Each of these matters because of what default unlocks in the next clause.
Count the triggers in yours. "Material change in operations" is undefined in most agreements, which means the funder defines it. Two returns as an automatic default is common, and returns happen to healthy businesses over a bank error. Each of these matters because of what default unlocks in the next clause.
8. Acceleration and what default costs
Upon default, the entire uncollected Purchased Amount becomes immediately due and payable, together with a default fee of $____, NSF fees of $____ per occurrence, and all costs of collection including attorneys' fees. Funder may notify Merchant's processor and account debtors to remit directly to Funder.
The real cost of a bounced debit
Acceleration means the full remaining amount, not a prorated one — so a default in month two on a six-month deal can cost the same as running it to term. The last sentence is the one people do not see coming: the funder can go directly to your card processor, and in some structures to your customers, and redirect the money. That is not a threat about a future lawsuit; it is a same-week operational event. If a debit is about to bounce, read what to do when you are behind before it does.
Acceleration means the full remaining amount, not a prorated one — so a default in month two on a six-month deal can cost the same as running it to term. The last sentence is the one people do not see coming: the funder can go directly to your card processor, and in some structures to your customers, and redirect the money. That is not a threat about a future lawsuit; it is a same-week operational event. If a debit is about to bounce, read what to do when you are behind before it does.
9. Venue, jury waiver, arbitration — and confession of judgment
The parties consent to exclusive jurisdiction and venue in ______ County, New York, waive trial by jury, and waive the right to assert any counterclaim. Merchant and Guarantor authorize entry of judgment by confession in favour of Funder upon default, in the amount then outstanding, without prior notice or hearing.
Ask directly whether a COJ is in yours
A confession of judgment is a document signed at closing in which you agree in advance that judgment may be entered against you, without a hearing, if the funder says you defaulted. It was the industry's most notorious instrument, and it has been meaningfully curtailed — New York, where much of this paper is written, amended its law in 2019 so its courts would not accept confessions of judgment against debtors located outside New York, and there has been federal legislative interest since. But "curtailed" is not "gone", and treatment varies by state. Search your document for "confession", "judgment by confession" and "cognovit" before signing, and ask the broker directly, in writing. Also look at the venue clause on its own terms: a small business in Arizona litigating in a New York county is a practical bar to defending anything.
A confession of judgment is a document signed at closing in which you agree in advance that judgment may be entered against you, without a hearing, if the funder says you defaulted. It was the industry's most notorious instrument, and it has been meaningfully curtailed — New York, where much of this paper is written, amended its law in 2019 so its courts would not accept confessions of judgment against debtors located outside New York, and there has been federal legislative interest since. But "curtailed" is not "gone", and treatment varies by state. Search your document for "confession", "judgment by confession" and "cognovit" before signing, and ask the broker directly, in writing. Also look at the venue clause on its own terms: a small business in Arizona litigating in a New York county is a practical bar to defending anything.
10. The integration clause — where the phone call goes to die
This Agreement constitutes the entire agreement between the parties and supersedes all prior representations, oral or written. Merchant acknowledges that it has not relied on any representation not contained herein, and that no broker or agent is authorized to modify these terms.
Everything you were told, cancelled
Whatever the broker promised on the phone — "we'll reconcile, don't worry", "you can pay it off early at a discount", "this is a bridge to a term loan in 90 days" — this clause is the funder's answer. If a promise matters to your decision, it has to be in the document, initialled. It is not rude to ask for that. It is the entire purpose of the sentence you just read. The promises to watch for, in the order they arrive.
Whatever the broker promised on the phone — "we'll reconcile, don't worry", "you can pay it off early at a discount", "this is a bridge to a term loan in 90 days" — this clause is the funder's answer. If a promise matters to your decision, it has to be in the document, initialled. It is not rude to ask for that. It is the entire purpose of the sentence you just read. The promises to watch for, in the order they arrive.
The five-minute version
- Search the document for: reconciliation, confession, guaranty, default, UCC, sole discretion.
- Find the fixed daily amount and the specified percentage. Note which one actually governs.
- Read the reconciliation clause twice, and ask for the deadline and the "sole discretion" to come out.
- Count the events of default. Ask what "material change" means, in writing.
- Get the total repayment, the payoff terms, and any early-payoff discount in the document — not in an email from the broker.
- Run the numbers before you sign, not after. Calculator.
Sources
- Uniform Commercial Code, Article 9 — Cornell LII
- New York CPLR § 3218 (affidavit of confession of judgment; 2019 amendment limiting entry against non-residents)
- FTC — merchant cash advance enforcement and business guidance
- New York Department of Financial Services — commercial financing disclosure
Laws and agency pages in this area move. If something here is out of date, tell us at info@mcafax.com and we will fix it. MCAFax is not a law firm and this is not legal advice.
The reporting is open. The network isn't — yet.
MCAFax is being built to do the thing you can't do from inside the room: make the phone stop. Members will check any broker against a shared, member-built database and send cease & desist letters from their own Gmail, with delivery proof on every one. Some laws, like the TCPA, put statutory damages on illegal calls — whether they apply to yours depends on your situation, and business lines get less protection than home ones. We're not a law firm. Sign-ups aren't open yet; the newsroom is, and it's free to read.