Every MCA defense case starts with the contract. The terms inside that agreement — often buried in dense legal language — determine what defenses you have, how strong your case is, and how much leverage you hold in negotiations.

Here are the 10 things our attorneys review in every MCA agreement, and why each one matters for your defense.

1. Governing Law and Forum Selection

What to look for: Which state's law governs? Where must disputes be heard?

Why it matters: Most MCA contracts choose New York law with a New York forum. This is deliberate — the funder wants to litigate on home turf. But this choice can backfire:

Defense angle: If you can get the case heard in Texas, you fight on favorable ground. If New York law applies, use it against them on usury.

2. Fixed Payments vs. Revenue-Based Payments

What to look for: Are payments a fixed dollar amount daily or weekly? Or are they truly a percentage of actual revenue?

Why it matters: A fixed daily ACH debit of $500 regardless of whether you had $10,000 or $100 in sales that day is not a revenue-based purchase — it is a loan payment. This is the single strongest indicator for recharacterization.

Defense angle: Fixed payments support the argument that the MCA is a disguised loan subject to usury laws. Document that payments never varied with actual revenue.

3. Reconciliation Clause

What to look for: Does the contract allow you to request lower payments when revenue drops? What are the conditions?

Why it matters: A genuine reconciliation right is one of the three factors that make an MCA a true sale. But many MCA contracts include a reconciliation clause that is practically useless: - Requires you to submit months of bank statements within a 3-day window - Subject to the funder's sole discretion - Requires such burdensome paperwork that no merchant ever exercises it

Defense angle: An illusory reconciliation clause is as good as no clause at all. If you ever requested reconciliation and were denied or ignored, document it — it proves the funder never intended to share the business risk.

4. Repayment Term / End Date

What to look for: Does the contract project a specific term ("estimated 6 months") or trigger default if not paid by a certain date?

Why it matters: A true receivables purchase has no end date — the funder collects until the purchased amount is received, however long that takes. If the contract has a fixed term or an implicit deadline, it looks like a loan.

Defense angle: Calculate the implied repayment period. If you can determine a definite payoff date from the contract terms, that supports recharacterization as a loan with a fixed term.

5. The Factor Rate and Effective APR

What to look for: What is the total amount you must repay vs. what you received? (e.g., receive $100K, repay $135K = 1.35 factor rate)

Why it matters: The factor rate translates directly to an interest rate when the MCA is recharacterized as a loan. A 1.35 factor over 6 months is roughly 70% APR. A 1.40 factor over 4 months is approximately 120% APR. These rates are criminally usurious in every state.

Defense angle: Have your attorney or forensic accountant calculate the precise APR. Present it to the court and in settlement negotiations. Nothing shocks a judge — or scares a funder — like seeing "120% annual interest rate" in black and white.

6. Security Interest and UCC Filing

What to look for: Does the contract include a security agreement? Has the funder filed a UCC-1 against your business?

Why it matters: Most MCA agreements include a blanket security interest in all business assets — despite calling themselves "purchasers," not "lenders." This is telling: a buyer of receivables does not typically need a blanket lien on equipment, inventory, and general intangibles.

Defense angle: The security interest is evidence that the funder is acting as a lender, not a factor. Under HB 700, ACH debits are only permitted if the funder holds a first-priority lien — check whether the UCC filing is first in priority or junior to existing creditors.

7. Personal Guarantee

What to look for: Did the business owner sign a personal guarantee? What does it actually guarantee?

Why it matters: A personal guarantee gives the funder recourse beyond the business — they can pursue the owner's personal assets, bank accounts, and property. This is another loan indicator: a true purchaser of receivables takes the risk that receivables may not materialize. A lender demands a personal guarantee to ensure repayment.

Defense angle: Read the guaranty language carefully. Many guarantees are limited to specific covenants (truthfulness, cooperation) rather than the full purchased amount. If the funder is demanding the full balance from the guarantor, they are treating it as a loan — triggering usury. Also, as an individual guarantor, you may have access to civil usury protections that the corporate borrower does not.

8. Confession of Judgment

What to look for: Search the contract for "confess," "judgment," "warrant of attorney," "cognovit," or check for a separate affidavit.

Why it matters: A COJ is the funder's fast-track to seizing your money — judgment without a lawsuit, without notice, without your chance to defend. It is the most dangerous clause in any MCA contract.

Defense angle: COJ clauses are void under Texas HB 700 for post-2025 contracts. New York banned COJs against out-of-state defendants in 2019. Any judgment entered via COJ is subject to challenge on due process grounds. If a COJ clause exists, it is also evidence of the one-sided, oppressive nature of the deal — supporting unconscionability arguments.

9. Default Triggers

What to look for: What constitutes "default"? Is it just missed payments, or does default include things like taking additional financing, any adverse change in the business, or even seeking legal counsel?

Why it matters: Broad default triggers that are unrelated to actual receivable performance show that the funder cares about general credit risk — which is what a lender cares about, not a purchaser of future receivables.

Defense angle: If default was triggered by something unrelated to your actual revenue (like taking a second MCA from another funder, or a change in your bank account), argue that the "default" is illegitimate. Some contracts even say that disputing the agreement or seeking legal help constitutes default — which is unconscionable and potentially a violation of public policy.

10. Jury Trial Waiver and Arbitration

What to look for: Did you waive your right to a jury trial? Is there an arbitration clause?

Why it matters: A jury waiver means any trial is decided by a judge alone. While judges can be sympathetic, juries — especially Texas juries — tend to side with local business owners against out-of-state financial predators. Losing the jury option weakens your leverage.

Defense angle: Jury waivers can be challenged as unconscionable if obtained without genuine bargaining. If there is an arbitration clause, evaluate whether arbitration might actually be favorable (some arbitrators scrutinize fairness more carefully than courts). If you want to stay in court, be prepared to argue that the arbitration clause is unconscionable or was waived by the funder's conduct.

What to Do After Reviewing Your Contract

After going through this checklist, you will know:

Document each finding. Every red flag is both a legal defense and a negotiation chip. The more structural flaws in the contract, the less likely the funder is to litigate — and the more likely they are to settle for a fraction of the claimed balance.

This article is part of the MCA Defense Guide. Call (469) 607-8552 for a free consultation.