Guide
How to Read an MCA Contract
Purchase price, purchased amount, specified percentage, reconciliation, and default. Six clauses decide everything.
August 14, 2024 · 9 min read
The economics live in three numbers
Purchase price is what you receive. Purchased amount is what you owe. The ratio between them is the factor rate. Specified percentage is the share of receipts collected until the purchased amount is delivered.
Everything marketed as a 'rate' should be converted back into these three numbers before you compare offers.
Reconciliation is the clause that protects you
A true advance is not a loan precisely because remittance flexes with revenue. The reconciliation clause defines how you request an adjustment when sales fall, what evidence is required, and how quickly the funder must respond.
If reconciliation is absent, discretionary, or buried behind fees, you are looking at a fixed obligation dressed as a purchase.
Events of default, guarantees, and UCC
Read what counts as default: blocked debits, changing bank accounts without notice, additional financing, closing the business. Then read the personal guarantee — most are performance guarantees covering breach, not general repayment guarantees.
Finally, expect a UCC-1 filing on business receivables. It is standard, it is public, and it affects your ability to take additional positions later.
FAQ
Questions worth answering.
Is an MCA a loan?
Legally it is a purchase of future receivables, not a loan, which is why factor rates rather than interest rates apply. Several states nonetheless require loan-style cost disclosures.