What Is MCA Debt, and Why Are Confessions of Judgment Clauses So Dangerous?

Merchant Cash Advances (MCAs) are a quick source of funding for small businesses, especially those with steady credit card sales. In an MCA agreement, you receive a lump sum of cash upfront and repay it through a fixed percentage of your daily credit card revenue. It’s not a traditional loan—it’s technically a sale of future receivables.

While convenient, MCA debt is often expensive. Instead of a standard interest rate, providers use a “factor rate,” which means you might end up repaying 1.2 to 1.5 times the amount borrowed. That steep cost, paired with daily repayment pressure, can strain cash flow—especially if sales dip.

But the real danger often lies in a lesser-known legal trap: the Confession of Judgment (COJ) clause. When you sign a contract with a COJ, you waive your right to defend yourself in court. If the MCA provider claims you’ve defaulted—even if it’s disputed—they can go straight to court, file the confession, and secure a judgment against you without notice or trial.

This can result in your business accounts being frozen, assets seized, and liens placed on property, sometimes without you realizing what’s happening. Worse, a judgment can stay on your credit report for up to seven years and may include added legal fees and interest.

Are these clauses legal? That depends on the state. Some states ban or heavily restrict them, while others allow them with minimal safeguards. Even where legal, courts may overturn them—but often only after the damage is done.

To protect yourself, carefully read MCA agreements and look for red flags like “waiver of defenses” or “confess judgment.” If you spot one, negotiate it out or walk away. Safer financing options—like small business loans or lines of credit—don’t usually include COJ clauses.

Before you sign anything, consult a qualified business debt attorney. A quick review could save your business from devastating consequences.

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