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Last Updated: June 2026

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"Before You Sign" MCA Checklist:
20 Questions to Ask Before Accepting Any Merchant Cash Advance

Quick Answer

Before signing any MCA, confirm five numbers in writing: (1) advance amount, (2) factor rate and total payback amount, (3) daily holdback percentage, (4) estimated payoff timeline, and (5) whether there is a prepayment discount. If any of these are missing from the written agreement, do not sign until they are documented.

A transparent ISO will answer every one of these questions before you sign. If they won't — or can't — that tells you something important about the offer.

MCA Pre-Signing Checklist — 20 Questions by Category
Category Questions Risk Level
Cost Transparency1–5: Factor rate, math verification, APR, broker fees, early payoffGreen — Must confirm
Repayment Structure6–9: ACH vs. split, holdback %, modification, default triggersGreen — Must confirm
Legal Provisions10–13: Confession of judgment, personal guarantee, stacking restriction, UCC-1Red — High risk clauses
ISO / Broker Transparency14–16: Commission disclosure, funder identity, rate shoppingAmber — Verify
Practical Due Diligence17–20: Funder reviews, state disclosures, renewal terms, actual ROIAmber — Verify
✓ Cost Transparency
1–5: Understanding the True Cost
  1. ①
    Is the factor rate stated explicitly in the written contract?
    The factor rate must appear as a specific number in the written agreement — not just verbally quoted. Example: "Factor rate: 1.29." If the contract does not state a specific factor rate, ask for a contract amendment before signing.
    ✓ Green flag: Factor rate clearly stated in writing (e.g., "Factor rate: 1.29")
    ✗ Red flag: Only verbally quoted, or buried in calculation rather than explicitly stated
  2. ②
    Does advance amount × factor rate = total repayment in the contract?
    Verify the math yourself. If you are receiving $50,000 with a 1.29 factor rate, total repayment should be $64,500. If the contract states a different total repayment, demand an explanation before proceeding.
    ✓ Green flag: Math checks out exactly — advance × rate = stated total
    ✗ Red flag: Numbers do not reconcile — unexplained fees inflating total repayment
  3. ③
    What is the APR equivalent of this offer?
    Calculate or request the true APR so you can compare this offer to other financing options. Use the factor rate to APR converter. A transparent ISO should be able to state this — or help you calculate it — without hesitation.
    ✓ Green flag: ISO willingly calculates or discloses APR equivalent
    ✗ Red flag: ISO deflects APR question or claims "it doesn't apply to MCA"
  4. ④
    Are there any broker fees, origination fees, or administrative fees?
    Some ISOs charge a broker commission (1–5% of advance) deducted from the funded amount. This is legal but must be disclosed upfront. If a fee is deducted, you are effectively receiving less capital than the stated advance amount. Ask: what is the exact amount you will receive in your bank account?
    ✓ Green flag: All fees disclosed before signing; funded amount matches expectation
    ✗ Red flag: Fee disclosed only at funding, or net funded amount differs from quoted advance
  5. ⑤
    Is there an early payoff discount (buyout discount)?
    In most MCA agreements, early repayment does not reduce the total owed. Some funders offer a buyout discount (e.g., 10% off if paid within 60 days). This must be explicitly stated in the contract — it is not a default right. Ask whether a discount is available and get the exact terms in writing.
    ✓ Green flag: Early payoff discount explicitly stated with terms and percentage
    ✗ Red flag: "We can work something out" — verbal only, not in contract
✓ Repayment Structure
6–10: How You Will Repay
  1. ⑥
    Is repayment a fixed daily ACH or a true revenue-based percentage?
    Most MCAs use a fixed daily ACH debit — the same dollar amount every business day regardless of your revenue. A true revenue-based "split withholding" takes a percentage of daily card processing. Fixed ACH creates more predictable repayment. Revenue-based adjusts to your cash flow — but the total owed is still fixed by the factor rate. Know which one you are signing.
    ✓ Green flag: Repayment method clearly stated; daily amount or holdback percentage explicit
    ✗ Red flag: Repayment structure described vaguely as "percentage of sales" with no clarification of whether it is true split withholding or ACH
  2. ⑦
    What is the exact daily (or weekly) payment amount?
    If repayment is via fixed ACH, the exact debit amount must be stated. Verify that this amount, multiplied by the number of payment days, equals the total repayment. A $500/day debit for 130 business days = $65,000 total. Does that match the advance × factor rate?
    ✓ Green flag: Daily amount stated explicitly; math reconciles with total repayment
    ✗ Red flag: Daily amount not stated; or math does not reconcile
  3. ⑧
    What bank account will be debited, and who authorizes the ACH?
    Confirm which account will be debited and that you have explicitly authorized the ACH. Ensure the debited account will have sufficient funds on each debit date — NSF fees are charged to you by your bank AND may trigger default provisions in the MCA agreement.
    ✓ Green flag: Specific account number stated; ACH authorization form signed separately
    ✗ Red flag: Multiple accounts listed; authorization unclear
  4. ⑨
    What constitutes a default under this agreement?
    Read the default provisions carefully. Common triggers: missed payment, insufficient funds, closing the business bank account, taking another advance without permission, or filing for bankruptcy. Understand exactly what can trigger a default event — and what the funder can do in response — before you sign.
    ✓ Green flag: Default conditions listed specifically; remedies proportionate
    ✗ Red flag: Broad or vague default language that could be triggered by normal business events
  5. ⑩
    Is there a personal guarantee?
    Most MCA agreements include a personal guarantee — you are personally liable if the business cannot repay. This is standard and expected. Understand what it means: the funder can pursue your personal assets (home, savings, car) if the business defaults. "No personal guarantee" MCA products exist but are rare and typically require strong business credit.
    ✓ Green flag: Personal guarantee clearly identified and explained
    ✗ Red flag: Personal guarantee buried in fine print without explanation
⚠ Legal Protections
11–15: Contract Clauses That Could Hurt You
  1. ⑪
    Does this contract contain a confession of judgment (COJ) clause?
    A COJ clause allows the funder to obtain a court judgment against you without a trial or prior notice — simply by filing the MCA agreement with a court. If you default, they can immediately freeze bank accounts and seize assets with no opportunity for you to respond. COJ clauses are banned in some states for out-of-state businesses (New York in 2019) but remain legal elsewhere.
    ✓ Green flag: No COJ clause; or ISO explains the clause and your rights clearly
    ✗ Red flag: COJ clause present and not disclosed or explained before signing
  2. ⑫
    Is there a UCC-1 filing, and which assets does it cover?
    Virtually all MCAs include a UCC-1 lien filing against your business assets. This is standard. The concern is blanket UCC liens that cover "all assets" — which can interfere with future equipment financing, SBA loans, or any lender requiring a first-lien position. Ask what assets are covered and whether a future payoff releases the lien.
    ✓ Green flag: UCC filing disclosed; specific assets identified; lien released on payoff
    ✗ Red flag: Blanket "all assets" UCC lien not disclosed before signing
  3. ⑬
    Where is the governing jurisdiction for disputes?
    Many MCA contracts specify a jurisdiction far from your business (e.g., New York or Utah) for any legal disputes. If a dispute arises, you may need to travel and retain local counsel in that state. This is a meaningful cost that effectively reduces your ability to challenge the funder in court.
    ✓ Green flag: Dispute jurisdiction disclosed and reasonable
    ✗ Red flag: Foreign jurisdiction buried in boilerplate with no explanation
  4. ⑭
    Are there any stacking restrictions or notification requirements?
    Most MCA contracts prohibit taking additional advances (stacking) while the current advance is outstanding, or require the funder's permission. Violating this clause can trigger immediate default. If you think you may need additional capital before this advance is paid off, understand exactly what the contract permits.
    ✓ Green flag: Stacking restrictions clearly stated; conditions for additional funding explained
    ✗ Red flag: Stacking restriction not disclosed; ISO encourages you to "just get another one" without mentioning the restriction
  5. ⑮
    Is there a di-recto clause or automatic renewal provision?
    Some agreements include automatic renewal or refinancing provisions that can extend the repayment obligation without your active consent. Read any section titled "Renewal," "Refinancing," or "Additional Advances" carefully. You should never be enrolled in a renewal without a new signed agreement.
    ✓ Green flag: No automatic renewal; renewals require explicit new agreement
    ✗ Red flag: Automatic renewal language present; renewal triggered by failure to opt out
✓ ISO Transparency
16–20: Evaluating Your ISO
  1. ⑯
    Did the ISO present you with multiple funding offers for comparison?
    A broker-model ISO submits your file to multiple funders and returns competing offers. A captive ISO works with a single funder and can only present one offer. Knowing which you are working with tells you whether you are seeing the market or a single price. A transparent ISO identifies which funders they submitted to and which made offers.
    ✓ Green flag: Multiple offers presented with factor rates side-by-side
    ✗ Red flag: "We have one offer for you" with no explanation of why
  2. ⑰
    Did the ISO ask about your ability to afford the daily payment?
    A responsible ISO will calculate whether your daily revenue can support the daily payment before recommending an advance size. Rule of thumb: daily MCA payment should not exceed 15-20% of average daily revenue. If the ISO never asked about your daily revenue or cash flow, they may be more focused on their commission than your sustainability.
    ✓ Green flag: ISO asked about daily revenue and modeled payment-to-revenue ratio
    ✗ Red flag: ISO never asked about cash flow; only asked how much you needed
  3. ⑱
    Did the ISO mention any lower-cost alternatives before presenting the MCA?
    A transparent ISO will ask about your urgency, credit, and use of funds — and tell you if a CDFI loan, SBA product, equipment financing, or invoice factoring would serve you better at lower cost. If the ISO immediately jumped to MCA without asking about alternatives, ask them directly: "Am I a candidate for anything cheaper?"
    ✓ Green flag: ISO discussed alternatives and explained why MCA fits your specific situation
    ✗ Red flag: MCA presented as the only or obvious option with no mention of alternatives
  4. ⑲
    Is the ISO registered, identifiable, and reachable by phone and email?
    Verify that your ISO has a registered business, a physical address or clear online presence, a working phone number, and an email from a business domain (not a free Gmail account). Check Google reviews and the Better Business Bureau. Legitimate ISOs stand behind their reputation.
    ✓ Green flag: ISO has verifiable business presence, reviews, and a professional contact
    ✗ Red flag: ISO only reachable by cell phone; no web presence; Gmail-only contact
  5. ⑳
    Were you given time to read the full contract — and encouraged to do so?
    You should never be pressured to sign immediately. Legitimate funders give you at least 24 hours to review. "The offer expires tonight" is a high-pressure tactic, not a genuine condition of approval. If the offer is real, it will exist tomorrow. Take the time to read the full contract — or have an attorney or accountant review it.
    ✓ Green flag: ISO encouraged you to read the full contract; offer valid for 24-72 hours
    ✗ Red flag: Pressure to sign immediately; "offer expires at midnight" urgency
The 6 Biggest MCA Red Flags
If you encounter any of these, walk away or get a second opinion before signing.
Upfront Fee Required

Legitimate MCA funders never charge a fee before disbursing funds. Any upfront payment request is a major fraud indicator.

Pressure to Sign Tonight

Real offers don't expire in hours. "Sign now or lose the offer" is a manipulation tactic, not a funding condition.

Undisclosed COJ Clause

A confession of judgment that was not explained before signing strips your right to dispute the debt in court.

ISO Encourages Stacking

Suggesting you take a second or third advance while on a first is a red flag — it often triggers default provisions and cash flow collapse.

No Written Offer Before Contract

You should receive a written offer sheet showing factor rate, advance amount, and total repayment before a full contract is generated.

Math Doesn't Reconcile

If advance × factor rate does not equal the stated total repayment, there are hidden fees or errors. Do not sign until it reconciles.

How T.A.G. Handles These 20 Points

T.A.G. Business Funding answers every question on this checklist before you sign. We present competing offers from multiple funders, calculate the APR equivalent on every offer, model the daily payment-to-revenue ratio for your specific business, and explain any COJ clauses or UCC filings in plain English. We recommend alternatives to MCA when they are a better fit. We never charge upfront fees. We never pressure you to sign under a time deadline that we created.

Frequently Asked Questions
What is a confession of judgment clause in an MCA?
A COJ allows the funder to get a court judgment against you without a trial or notification — just by filing the contract with a court. They can then freeze your bank account or seize assets immediately. New York banned COJ clauses for out-of-state businesses in 2019, but they remain legal in most states. Always ask about COJ before signing.
What is MCA stacking and why is it dangerous?
Stacking is taking a second or third MCA while still repaying the first. Multiple daily ACH debits from the same account can collectively consume 30–50%+ of daily revenue, leaving too little for operating expenses. Most contracts prohibit stacking — violating this can trigger immediate default. Never stack without reading both contracts.
Are there any upfront fees for an MCA?
Legitimate funders do not charge upfront fees — cost is built into the factor rate. Some ISOs charge a disclosed broker fee (1–5%) deducted at funding. If anyone asks for payment before funds are disbursed, stop immediately — this is a common advance-fee fraud pattern.
Can I pay off an MCA early?
In most agreements, early payoff does not reduce the total owed — the factor rate is fixed. Some contracts include a buyout discount clause (e.g., 10% off if paid within 60 days). Ask for this in writing before signing. If it isn't in the contract, assume you owe the full amount regardless of when you pay.

Apply Through a Transparent ISO

T.A.G. Business Funding will answer every question on this checklist — before you sign anything. We present multiple competing offers and recommend lower-cost alternatives when you qualify.

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MCA Learning Guide

→ What Is a Merchant Cash Advance? → MCA Pros and Cons → How to Qualify for an MCA → How MCA Repayment Works

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