Merchant Cash Advance Agreements: What Business Owners Need to Know
January 15, 2026
As a business owner, access to fast capital can feel like a lifeline, especially during periods of tight cash flow, seasonal downturns, or unexpected expenses. Merchant Cash Advance (“MCA”) companies aggressively market themselves as a quick, flexible alternative to traditional business loans. Unfortunately, many of these agreements carry significant risks that can jeopardize the financial stability, and even the survival, of your business.
We have seen firsthand how MCAs, often signed at a point when a business was desperate for an influx of cash, can spiral out of control. Before signing an MCA agreement, it is critical to understand the risk involved, and if you are already locked into an agreement, the good news is you have some legal remedies to consider.
What Is a Merchant Cash Advance?
With an MCA, the company “purchases” a portion of your future receivables at a steep discount and collects repayment through daily or weekly withdrawals from your bank account.
By structuring the MCA as a purchase rather than a loan, these companies claim they are not subject to traditional lending regulations.
An MCA may feel like a loan, and can often be presented that way, but there are significant differences between an MCA and a traditional loan.
What are the Biggest Risks?
- Extremely High Cost of Capital
MCA agreements commonly use “factor rates” rather than interest rates, making it difficult for many business owners to understand the true cost. A factor rate of 1.4 may sound manageable, but when repaid over a short term, it can translate into a crushing APR that far exceeds conventional financing. - Daily or Weekly Withdrawals
Unlike traditional loans with monthly payments, MCAs typically withdraw funds daily or weekly directly from your business account. This can severely disrupt cash flow, making it difficult to cover payroll, rent, taxes, and operating expenses. - Personal Guarantees and Confessions of Judgment
Many MCA contracts include personal guarantees, exposing business owners’ personal assets. Some agreements also include confession of judgment clauses. This allows the MCA company to obtain an immediate judgment against you without notice or hearing if they allege a default. - Default Traps and Cross-Defaults
MCA agreements are often written to make default almost inevitable. Missing a single payment, changing banks, or experiencing a temporary revenue dip may trigger default. - Stacking and Debt Spirals
When cash flow tightens, business owners often take out additional MCAs to cover existing obligations. This practice, known as “stacking,” can drive a business owner who is already struggling, into a deeper hole.
MCA contracts are frequently long, complex, and intentionally difficult to understand. Key terms may be buried in fine print, and sales representatives often downplay the risks while emphasizing speed and ease of approval. For a business owner in an immediate financial cash flow crisis, that can be the dangerously tempting hook that draws them in. In reality, these agreements can be improperly structured, misleading, or even unlawful under applicable state law.
Do Not Panic
If your business has already entered into an MCA agreement, you still have options. Depending on the facts and the specific contract terms, our team here at Gross Shuman has several alternativess to explore and see what best suits your individual circumstances:
- Contract Review and Enforcement Defense
We carefully analyze the agreement to determine whether it is truly a receivables purchase or a loan disguised as one. If the deal functions like a loan with guaranteed repayment, it may violate lending laws. - Negotiation and Debt Restructuring
If we find that the agreement is valid, we can negotiate directly with MCA companies in an effort to reduce balances, modify payment terms, or reach a settlement that allows your business to continue operating. - Litigation and Affirmative Claims
In certain cases, you may have the option to pursue claims for fraud, deceptive practices, breach of contract, or to challenge the validity of the loan. We will thoroughly review your agreement(s) at the outset to lay out all your options. - Business Bankruptcy
In certain cases, a business can seek protection by filing bankruptcy and seek to restructure the terms of the MCA. We assist clients with both Chapter 7 (liquidation of the business) and Chapter 11 (reorganization). Once we understand your individual circumstances, we can advise you on whether either of these options is worth exploring and then represent you through the process.
Merchant Cash Advances may promise fast money with an approval process that is easier than a traditional lender, but there is a reason for that. These agreements often come at an extraordinarily high cost. If you have already signed an MCA and are struggling or in danger of default, experienced legal counsel can make a critical difference.
At Gross Shuman, we are dedicated to protecting business and helping them regain control of their businesses. Our experienced attorneys work closely with businesses of varying sizes across a wide range of industries.
We understand no two businesses are the same, so we get to know you and your unique situation, then advise you on the best course of action. If you have signed an MCA and have questions or concerns, please give us a call. The sooner you act, the more options may be available to protect your business and your livelihood.
Kevin R. Lelonek is a shareholder attorney with Gross Shuman P.C. He focuses his practice in the areas of and business bankruptcy and reorganization, business and corporate law, and corporate litigation. He can be reached via email at [email protected] or at 716-854-4300 ext. 297.
