Business Funding & MCA Red Flags: A Borrower’s Checklist
A fast checklist of the clauses that most often trap a small business in a funding or MCA agreement.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Most of the risk in business funding clusters in the true cost and a handful of enforcement clauses. This checklist links the deeper guides so you can spot the issues quickly before you sign or wire anything.
It is written for the business owner taking the money.
Topics to check
A factor rate quoted instead of an APR; a high total payback relative to the amount funded; large origination, underwriting, broker, and ACH fees that shrink the cash you receive; and no discount for early payoff (you owe the full factored amount no matter how fast you repay).
Estimate the effective APR before anything else — it is usually the most important number and the one the offer hides.
A confession of judgment; a broad, full-recourse personal guaranty; a blanket UCC-1 lien on all assets; reconciliation that is discretionary rather than mandatory; and an out-of-state venue with a jury-trial waiver. Each of these expands what the funder can do to you on default.
A confession of judgment combined with a personal guaranty is the single most dangerous pairing.
Fixed daily ACH debits that do not flex with sales; a "material decline in business" or bank-account-change default trigger; anti-stacking clauses that block refinancing; and double-dipping renewal language that re-charges unearned factor cost. These keep you paying fast and locked in.
If the deal only works when business is great, the structure is fragile by design.
Key takeaways
- Cost: factor rate hiding the APR, heavy fees, and no early-payoff discount.
- Enforcement: confession of judgment, broad personal guaranty, blanket lien, sham reconciliation.
- Cash flow: fixed daily ACH, broad default triggers, anti-stacking lock-in, double-dipping renewals.
- A confession of judgment plus a personal guaranty is the most dangerous pairing.
- Estimate the true APR and fix the worst clauses before signing.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- This checklist is general issue-spotting, not jurisdiction-specific legal conclusions.
- Confession-of-judgment, usury, and disclosure rules vary sharply by state; confirm with counsel.
Frequently asked questions
What is the single biggest red flag in an MCA?
A confession of judgment — especially combined with a personal guaranty — because it lets the funder get a judgment against you and your personal assets without a hearing. A hidden triple-digit effective APR is a close second.
How do I use this checklist?
Estimate the effective APR first, then read the agreement once for enforcement clauses (confession of judgment, guaranty, lien, reconciliation) and once for cash-flow and lock-in terms (daily ACH, default triggers, anti-stacking, renewals). Flag anything on this list before signing.
Should I sign an MCA with these red flags?
Be very cautious. At minimum, estimate the true APR, demand a real reconciliation right, and try to remove the confession of judgment. If the funder will not budge on the most dangerous clauses, look for cheaper, safer financing.