Before you sign a merchant cash advance agreement, you need to know what you're signing. This plain-language guide explains every material clause — written by an MCA ISO operator, not a law firm.
Who this is for: Any small business owner who has received an MCA offer or is considering one. This guide covers the standard clauses you'll find in most MCA contracts — what they mean, what they cost you, and what (if anything) you can negotiate. We're an MCA ISO. We want you to understand what you're signing.
The factor rate is the single most important number in an MCA contract. It's the multiplier applied to the advance amount to determine how much you pay back in total.
The math: Advance Amount × Factor Rate = Total Payback. A $50,000 advance at a 1.30 factor rate means you repay $65,000 total — a $15,000 cost of capital.
What factor rates mean in practice: A 1.15 factor is low cost. A 1.20-1.30 is market standard. A 1.40-1.50 indicates higher-risk profile or a predatory offer. Anything above 1.50 requires significant scrutiny.
Critical distinction: Factor rates are NOT interest rates and do NOT decrease if you repay faster. If you take a $50,000 advance at 1.30 and pay it back in 3 months instead of 6, you still owe $65,000. The factor rate is a fixed multiplier on the whole advance.
T.A.G. factor rate range: 1.15–1.45, depending on industry, credit profile, and advance amount. We disclose this in writing before you sign.
MCA contracts use specific terminology that differs from traditional lending. Understanding the difference matters.
Why MCA providers use "purchase" language: Legally, MCAs are structured as a purchase of future receivables — not as loans. This distinction matters because it means MCAs fall outside many state usury laws that cap interest rates on traditional loans. The MCA provider is "purchasing" a portion of your future revenue at a discount — not "lending" you money.
What you need to know: The Advance Amount is what goes into your bank account. The Purchased Amount is what you'll repay in total. The difference is what the MCA costs you. Don't confuse the two.
The holdback (also called the remittance rate or specified percentage) is the percentage of your daily deposits withheld as repayment. This is where MCAs differ most significantly from traditional loans.
How holdback works: If your holdback is 10% and you deposit $5,000 on Monday, the MCA provider withdraws $500 that day. If you deposit $8,000 on Tuesday, they withdraw $800. Revenue goes down (slow January), payments go down. Revenue goes up (strong December), payments go up. The holdback is a percentage of variable deposits — not a fixed payment.
Standard holdback range: 5-20% of daily deposits. Industry-standard is 10-15% for most businesses. Restaurant and retail businesses (high-frequency small deposits) typically see 8-12%. Construction and trucking (large, infrequent deposits) may see higher holdbacks.
Watch for: Contracts that specify a minimum daily ACH pull rather than a percentage. If the contract says "minimum daily remittance of $500 regardless of daily deposits," that's effectively a fixed payment — not a true revenue-based repayment. This eliminates the primary protection of the holdback structure.
Some MCA contracts collect a fixed daily or weekly amount instead of a percentage of deposits. This is an important distinction because it eliminates the revenue-aligned repayment that makes MCAs different from traditional loans.
A fixed daily amount is effectively a short-term loan with daily repayment. It doesn't adjust with your revenue. A slow revenue week doesn't reduce your payments. This matters most for businesses with seasonal revenue fluctuations.
When a fixed daily amount is presented as an MCA: If you're quoted "$X per day" rather than "X% of deposits," ask specifically whether this is revenue-based or fixed-amount. A true MCA adjusts with revenue; a fixed-payment advance does not.
A reconciliation clause allows you to request an adjustment to the daily holdback amount if your actual revenue runs lower than the holdback percentage implies. This is one of the most important protective provisions in a legitimate MCA contract.
Why it matters: If you're in a slow quarter, reconciliation lets you get your daily payments reduced to match your actual revenue. Without this clause, you may overpay relative to your true revenue performance.
How to use it: If you experience a significant revenue decline (seasonal slow period, unexpected closure, major expense), contact your MCA provider with 3 months of bank statements and request reconciliation. Reputable providers will process this within a few business days.
Red flag: If your MCA contract has no reconciliation clause, or if the reconciliation process requires 30+ days of bank statements reviewed over several weeks, this is a sign of a provider more interested in maximizing collections than revenue-aligned repayment.
MCA contracts vary significantly on how (or whether) you can pay off the advance early — and whether early payoff saves you money.
Most MCA contracts are written as a "no discount" payoff — meaning if you have $30,000 remaining on your Purchased Amount and you want to pay it off early, you pay $30,000. You do not save money relative to the original factor rate by paying faster.
Some providers offer a "prepayment discount" — typically 5-15% off the remaining balance for early payoff. These are less common but worth asking about if you anticipate having cash to pay early.
T.A.G. position: Most MCA contracts — including ours — do not have prepayment discounts. We disclose this clearly. You're not penalized for paying early, but you don't save money either. The factor rate is the cost of capital regardless of repayment speed.
Default clauses define what constitutes a breach of the MCA agreement — and what the provider can do when you breach. These clauses are among the most consequential in the contract.
What triggers default: Beyond the obvious (stopping payments), the defaults that catch merchants by surprise are (a) changing bank accounts without notice and (b) obtaining additional financing (stacking). Read the anti-stacking clause carefully — see Clause 11.
What happens on default: The full Purchased Amount (remaining balance) becomes immediately due. The provider may initiate collection action, activate personal guarantees, execute on UCC filings, or (where applicable) use a Confession of Judgment to obtain a court judgment rapidly.
If you need to change bank accounts: Call your MCA provider before changing accounts. Give them 5+ business days to update ACH information. An account change without notice is a default event in most contracts — even if you intended to continue making payments from the new account.
A confession of judgment is one of the most controversial clauses in MCA contracts. It deserves particular attention before signing.
What this means: A COJ allows the MCA provider to obtain a court judgment against you without filing a lawsuit, serving you with legal process, or giving you a chance to dispute. The provider submits paperwork to a court clerk, and a judgment is entered. That judgment can then be used to freeze bank accounts, garnish receivables, or levy business assets.
Why it exists: MCA providers argue COJs are necessary to collect from merchants who default and stop communicating. Critics argue they eliminate due process protections for merchants who may have legitimate disputes.
Where COJs are currently enforceable: Most states still permit commercial COJs. New York significantly restricted them in 2019 — providers can no longer use NY courts for out-of-state COJs. Pennsylvania has restrictions. California prohibits them in most circumstances. Check your state's current law.
T.A.G. position on COJs: We do include COJ provisions in standard contracts for compliance with our funding partners' requirements. We disclose this in the contract summary before signing. Merchants have a right to consult an attorney before agreeing to any COJ clause.
Virtually every MCA contract includes a UCC-1 filing provision. This is standard industry practice, but it has significant implications for future financing.
What a UCC-1 does: A UCC-1 is a lien filed with your state's Secretary of State that puts other creditors on notice that the MCA provider has a security interest in your business assets. If you default and assets are liquidated, the UCC-1 holder has priority claim.
Why this matters for future financing: If you have an active UCC-1 from an MCA provider, some bank lenders and SBA lenders will require it to be subordinated or terminated before they'll approve a loan. The UCC-1 doesn't block future financing, but it can complicate it.
What happens when the MCA is paid off: The MCA provider should file a UCC-3 termination statement. In practice, not all providers file terminations promptly. After paying off your advance, ask your provider for a UCC-3 termination and confirm it's filed. You can check your state's UCC database to confirm.
How to check your UCC status: In Ohio, search the Secretary of State's UCC search at ohiosos.gov. Search by your business legal name to see all active UCC filings. Most states have free online UCC search tools.
Almost all MCA contracts include a personal guarantee from the business owner(s). This extends liability for the advance to your personal assets.
What this means: If your business cannot pay the MCA, you're personally liable. The MCA provider can pursue collection against your personal bank accounts, vehicles, real estate (in some states), and other personal assets.
Spouse's signature: If your MCA provider requires your spouse to co-sign the personal guarantee, consult an attorney before agreeing. In community property states (not Ohio, but including California, Texas, and others), this may expose marital assets to collection.
Multi-partner businesses: If your business has multiple owners and only one signs the personal guarantee, the non-signing owners are not personally liable. However, if the contract states "joint and several liability," all signatories are each 100% personally liable for the full amount.
This clause prohibits you from taking additional MCA financing or other debt while the advance is outstanding without provider approval. Violating this clause is one of the most common unintentional defaults.
Why this exists: MCA providers underwrite based on your revenue and existing debt load. If you add another advance after approval, it increases your daily payment obligations and reduces the likelihood of full repayment — effectively changing the risk profile the provider underwrote.
"Stacking" MCAs — the specific risk: Many small business owners discover that if one MCA is approved, other providers will approve secondary advances ("stacking"). This may seem like a solution to cash flow problems, but it frequently triggers default events on the original advance, increases total debt burden to unsustainable levels, and can result in multiple providers simultaneously debiting your account.
If you need more capital while carrying an existing MCA: Contact your current MCA provider first. Many will do a "refi" — paying off the existing balance and issuing a larger advance — rather than stacking. This is almost always better for you than going to a second provider.
The governing law clause specifies which state's laws govern the contract and where legal disputes must be filed. See also: MCA Laws by State 2026.
Why this matters: New York is the most common governing law jurisdiction for MCA contracts because it has a mature body of case law on commercial transactions. If you're in Ohio and your contract says New York jurisdiction, any dispute must be resolved in New York courts — which creates practical and financial barriers for small business owners who want to dispute a collection action.
What to look for: Understand where disputes would be resolved before you sign. New York, Delaware, and California are common jurisdictions. There's usually limited negotiability on this point — MCA providers standardize jurisdiction for operational efficiency — but it's information you should have before agreeing.
Legal disclaimer: This guide is written by T.A.G. Business Funding, an MCA ISO, for educational purposes. It is not legal advice. MCA contracts vary significantly by provider. Before signing any financing agreement — including any T.A.G. agreement — you have the right to have the contract reviewed by an attorney of your choosing. We recommend it.
At T.A.G., every merchant sees the factor rate, total payback, daily holdback, and all material terms in writing before we ask for a signature. No surprises.
See If You QualifyRelated guides: What Is an MCA? · MCA Pros and Cons · Factor Rate Benchmark Study · Before You Sign Checklist · MCA Calculator
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