A merchant cash advance (MCA) is marketed as fast, easy capital, and it can be. It is also one of the most expensive and least transparent ways a small business can raise money, and the contract is structured to look unlike a loan on purpose.
This is an observational walk through the MCA red flags to check before signing. It is general information, not advice about your agreement. The legal judgment about what to do with what you find is yours.
An MCA is typically structured as a purchase of your future receivables at a discount, not a loan. That framing is deliberate, and the practical effect is a financing product whose true cost is hard to compare to a loan.
MCAs quote a factor rate (for example, 1.3), not an interest rate. A $50,000 advance at a 1.3 factor means repaying $65,000 — regardless of how fast you repay. Confirm the factor rate and the total repayment amount, and recognize that because there is typically no benefit to early repayment, the effective annualized cost can be very high. Converting the cost to an approximate APR is the common way to compare it to a real loan.
Repayment is typically taken automatically as a fixed daily or weekly debit (or a percentage of card sales) directly from your account. Confirm the amount and frequency, because a fixed daily withdrawal can strain cash flow even in a normal month and does not fall when sales do.
Some MCA contracts include a confession of judgment — a clause where you agree in advance that, on default, the funder can obtain a court judgment against you without a normal lawsuit or a chance to defend. This is one of the most consequential clauses in the document; its availability and enforceability vary by jurisdiction. Confirm whether one is present, and treat it as a term to have reviewed.
MCAs often state they are non-recourse (you do not owe if the business simply fails through no fault), then attach a personal guarantee and broad "breach" or misrepresentation triggers that can make you personally liable anyway. Confirm whether you are personally guaranteeing, and what events flip the "non-recourse" advance into a personal obligation.
Confirm whether the contract restricts taking additional financing ("stacking"), changing your payment processor, or moving bank accounts — and what penalties apply. These operational restrictions can box in a business trying to manage cash flow.
Compare the total repayment and an approximate APR against any loan alternative (including an SBA loan — see the related guide), and mark every clause above you cannot answer from the contract. The confession of judgment, personal guarantee, and remittance terms are the ones commonly taken to an attorney before signing, because they determine what happens to you personally if the business hits a slow stretch. What you do with that information is your call.
Related: loan agreement analysis · SBA personal guarantee · promissory note: what to check.
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This article is for educational purposes only and does not constitute legal advice. LiabilityScore™ identifies potentially risky contract terms — it is not a substitute for review by a licensed attorney. Always consult qualified legal counsel for advice specific to your situation.