What Default May Mean
"Default" under an MCA agreement may be triggered by more than just missing a payment. Depending on the specific agreement, default may be defined to include:
- A returned ACH payment due to insufficient funds (even a single NSF)
- Changing the business bank account without notifying the MCA provider
- A significant drop in daily revenue below the amount projected in the agreement
- Taking additional financing without the MCA provider's approval (a "stacking" clause)
- Filing for bankruptcy
- Closing the business or relocating without notice
Default triggers vary by agreement. Review your specific contract to understand what events may constitute default.
Potential Consequences After Default
Acceleration
Many agreements include an acceleration clause, meaning the full remaining balance may become immediately due and payable upon default.
Lawsuit or COJ
The creditor may file a lawsuit or execute a Confession of Judgment (if one was signed) to obtain a court judgment.
Bank Account Freeze
With a judgment, the creditor may be able to freeze or garnish business bank accounts.
UCC Lien Enforcement
The creditor may enforce UCC lien rights against business assets and receivables.
What to Understand
- Contracts and state law vary. What constitutes default and what remedies are available depend on the specific agreement and applicable law.
- An acceleration clause may make the full balance due immediately—not just the missed payment.
- A Confession of Judgment (COJ), if signed, may allow the creditor to obtain a judgment without filing a lawsuit first. Several states have restricted the use of COJs.
- A personal guarantee, if signed, may expose personal assets to collection—not just business assets.
- Default may affect the business's ability to obtain future financing.
- Default does not mean there are no options—but the available options may change.
Important Tradeoffs & Considerations
- Default may trigger acceleration, collection, or legal action. The consequences depend on the agreement and applicable law.
- This page provides general information, not legal advice. Contracts and state law vary significantly.
- Businesses facing active litigation, court deadlines, or other legal issues should consider obtaining advice from qualified legal counsel.
- Defaulting intentionally is not recommended. If you are struggling with payments, explore alternatives such as modification or restructuring before default occurs.
Options That May Be Relevant After Default
After default, different options may be relevant depending on the situation:
Contracts and applicable law vary. Businesses facing litigation, court deadlines, or other legal issues should consider obtaining advice from qualified legal counsel. MyMCAOptions is not a law firm and does not provide legal advice.
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