How to Read a Merchant Cash Advance Contract Before You Sign It
How to read a merchant cash advance contract before you sign it
A merchant cash advance can be one of the fastest, most useful tools in a business owner's arsenal — or one of the most expensive mistakes they'll ever make. The difference is almost always in the contract, not the pitch.
If you're about to sign an MCA, this is the honest field guide to what's in that document and what to look for.
First: what an MCA actually is
An MCA is not a loan. It's the purchase of your future receivables at a discount. That legal distinction matters because it changes what protections apply and how the numbers are quoted.
Instead of an APR, MCA agreements use:
- Purchase price: what the funder wires to you (e.g. $50,000).
- Purchased amount or RTR (right to receive): what you'll pay back in total (e.g. $67,500).
- Factor rate: the ratio between the two (in this example, 1.35).
- Specified percentage: the % of daily/weekly receivables the funder is buying (often expressed as a fixed daily or weekly ACH).
- Term: the expected payback window (e.g. 6 months).
The 8 things to check before you sign
1. Factor rate and total payback Multiply purchase price × factor rate = total payback. Make sure that number matches your expectation and matches the "Purchased Amount" on page 1.
2. Daily or weekly payment Confirm the exact ACH amount, frequency (daily vs. weekly), and start date. Weekly is almost always easier on cash flow than daily.
3. Term / expected turnaround Divide total payback by the ACH amount to sanity-check the term. If the numbers don't match the term the salesperson quoted, ask why.
4. Reconciliation clause This is the single most important paragraph in an MCA contract. A true-up / reconciliation clause lets you adjust the fixed payment down if your actual receivables drop. If it's missing or heavily conditional, your payment can't legally flex with your revenue — which defeats the entire "purchase of receivables" structure.
5. Personal guaranty vs. performance guaranty Almost every MCA has a guaranty of performance (you promise not to sabotage the business or block the funder's collection). That's normal. What you're looking for is whether it's also a personal guaranty of payment — which makes you personally liable for the balance if the business can't pay. Some funders offer one, the other, or both. Know which one you're signing.
6. Default provisions Read what constitutes default carefully. Common triggers include:
- Blocking or changing the bank account without notice
- Taking on stacked advances without disclosure
- Closing the business
- False statements on the application
Default typically accelerates the full balance and can hit personal guaranty language hard.
7. Confession of judgment (COJ) Historically an MCA red flag. Most states have restricted or banned COJs against out-of-state businesses, and most reputable funders no longer include them. If you see one, ask questions — and prefer a funder that doesn't require it.
8. Broker fees and origination fees Some agreements bundle a broker fee or origination fee into the purchase price. That means you may receive less than the stated purchase price in your account. Look for lines like "less origination fee" or "less broker fee" and confirm the net wire amount matches your expectation before you sign.
Red flags to walk away from
- No reconciliation language at all.
- A funder pushing you to sign the same day, before you've read the doc.
- A "guaranteed approval" pitch — no legitimate funder guarantees approval before pulling statements.
- Language that gives the funder the right to sweep 100% of a bank account.
- Any fee structure you can't clearly explain back to the salesperson.
What DADDYS BANK does differently
We're a brokerage. That means the funder pays us — but our job is to shop your file to multiple desks and put the honest side-by-side in front of you, including reconciliation language, fees, and personal guaranty structure. We don't push a single product. We flag the contract terms most brokers hide.
Bottom line
An MCA is the right tool when speed matters more than price and the use of capital will generate return quickly. It's the wrong tool when you're using it to plug a hole that isn't going to get plugged. Either way — never sign an MCA contract without reading the reconciliation, guaranty, default, and fee sections. Take the extra 20 minutes. It's the highest-ROI reading you'll do all year.
Start a deal and we'll come back with real offers plus a plain-English breakdown of every contract before anything gets signed.