The MCA contract is structured to look like a sale of receivables, not a loan. That distinction is intentional — it lets the funder argue the deal is outside state usury caps. Whether that argument holds depends on the seven clauses below.
1. Specified percentage of receipts
True purchase-of-receivables agreements specify a percentage of future receivables purchased. If the contract specifies a fixed weekly debit instead, that is a red flag — fixed debits look like loan repayments, and courts increasingly recharacterize fixed-debit MCAs as loans subject to usury law.
2. Reconciliation rights
Real MCA contracts grant the merchant a right to true-up the holdback against actual receipts (good-faith reconciliation). Whether the funder honored that right when revenue dropped is one of the most powerful settlement levers we have.
3. Term length and absolute payback
An MCA without a true contingent term — i.e., one that demands repayment in 6 months no matter what — is hard to defend as a sale of receivables. We compare contract face term to the implied term at the original holdback percentage; gaps over 30% are a red flag.
4. Personal guarantee scope
Most personal guarantees in MCAs are limited to specific events — fraud, breach, account closure. Read the trigger language carefully. Many owners think they signed an unconditional guarantee when they actually signed a far narrower one.
5. Default events list
The contract enumerates default events. Most include 'change in revenue' or 'change in financial condition' clauses that funders try to use to declare default at any time. Many of these are unenforceable as a matter of common law.
6. COJ and venue clauses
If your contract has a COJ clause, the venue for the COJ filing is determinative. Cross-jurisdiction COJs are increasingly invalid. The choice-of-law clause is also relevant — funders often pick states with favorable case law, but that pick is not binding on every court.
7. Cumulative remedies and attorneys' fees
Most contracts purport to award the funder fees and costs in any enforcement action. Many states cap these. Reading these clauses tells you what the funder thinks the worst-case looks like, which tells you where their settlement number is.
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