How to Read a Merchant Cash Advance Contract, Clause by Clause

The offer sheet is one page. The contract is fifteen to thirty, and the contract is the one that counts. If the two disagree, the contract wins. This guide goes through an MCA agreement in the order most are written, with what each section means and the one thing to check in it. It is a reading guide, not legal advice; for a large advance, an hour with a business attorney is money well spent. If you want a second set of eyes on the numbers, our free MCA offer checker reads the offer against your statements.

The ten sections that matter

The money sections

Purchase price, purchased amount, and specified percentage

The purchase price is the advance. The purchased amount (sometimes "receipts purchased amount" or RTR) is the total the funder is buying, which is the advance multiplied by the factor rate. The specified percentage is the share of your future receipts being sold, and the remittance is the fixed daily or weekly ACH that stands in for that percentage. Check all four against the offer sheet. Then divide the purchased amount by the remittance to get the number of payments. If the result is shorter than the term you were quoted, the contract is the truth and the pitch was not. Our fairness check walks through the arithmetic.

The fee schedule

Usually an appendix near the back. Expect an origination or underwriting fee and an ACH or wire fee. Look also for fees that apply later: a charge for each rejected debit, a fee for changing bank accounts, a default fee, a UCC termination fee, and a charge for a payoff letter. The fees at funding reduce what you receive while the payback stays the same, so they belong in your cost calculation. The fees that apply later tell you what a bad month will cost.

The section that makes it an advance and not a loan

Reconciliation

The legal theory behind an MCA is that the funder bought a share of your revenue and carries some of the risk that revenue falls. Reconciliation is where that theory becomes a right you can use: if receipts drop, you can ask for the payment to be adjusted to the specified percentage of what you actually took in. Read how the request is made, what documents are required, how fast the funder must respond, and whether the adjustment is mandatory or "at the funder's sole discretion." A clause you could realistically use during a bad month is worth more than a point off the factor rate. Our guide to renegotiating an advance you already have covers how to invoke it.

The sections that decide what a bad month costs

Representations and warranties

These are statements you sign as true: the business is solvent, you are not planning a bankruptcy filing, the bank statements you supplied are accurate, and, very often, that you have no other advances and will not take one without consent. That last one is the anti-stacking clause. If you already have a position the funder does not know about, you are in breach the moment you sign. Disclose it before the contract is drawn, not after.

Events of default and remedies

Read the list of defaults slowly. A missed payment is on every list. So, in many contracts, are changing your bank account, blocking a debit, taking other financing, selling the business, or any misstatement in the application. Then read what follows a default: commonly the full remaining balance becomes due at once, a default fee is added, and you owe the funder's collection and attorney costs. Look for a cure period, meaning a number of days to fix the problem before it counts. Our red flags guide lists the triggers that catch merchants by accident.

Security interest and the UCC filing

Most agreements grant the funder a security interest in your receivables and often in all business assets, and allow it to file a UCC-1 financing statement, a public notice of that lien. The filing matters after the advance too: other lenders see it when they pull your business records, and an open lien can block a bank loan or an equipment lease. Ask what the lien covers, and get a written commitment that a termination will be filed promptly once the advance is paid.

Personal guaranty

A performance guaranty has you personally promise that the business will keep its promises: no diverting receipts, no false statements, no blocking the debit. A repayment guaranty has you personally promise the money back whatever happens to the business. The first is standard. The second turns the advance into personal debt. The heading will usually just say "Guaranty," so read what is actually being guaranteed.

Governing law, venue, and dispute terms

This section sets which state's law applies and where a dispute is heard, frequently the funder's home state rather than yours. It often includes a jury trial waiver, a class action waiver, and sometimes mandatory arbitration. It is also where a confession of judgment appears if there is one, a document that lets the funder obtain a judgment without a hearing. Ask for a confession of judgment to be removed. Funders frequently agree.

How to read it in thirty minutes

1. Put the offer sheet next to page one. Advance, purchased amount, payment, and frequency must match exactly.
2. Go to the fee appendix. Add up everything deducted at funding and write down the net amount you will receive.
3. Find the reconciliation clause. Note the process and deadlines in one sentence. If you cannot, it is not usable.
4. Read the events of default and circle anything you could trip without meaning to.
5. Read the guaranty and decide which kind it is.
6. Search the document for "confession," "sole discretion," "accelerate," and "additional financing."
7. Ask for changes in writing. A revised contract, not a text message from the rep. Our negotiation guide covers which requests usually succeed.

How this guide was produced. Written by the team that built our statement-reading underwriting engine. Cost figures are computed from cash-flow math (IRR on the actual payment schedule), not quoted from marketing pages. Nothing here is legal or financial advice.