Reading the Fine Print
Factor rates, holdbacks, fees & confessions of judgment
Every dollar you lose or save on a funding deal is decided in the contract — not in the cheerful phone call before it. Funders know most owners skim. The single highest-return ten minutes in this entire book is the ten minutes you spend reading the agreement before you sign. Here's exactly what to look for.
1. The factor rate (and the total payback)
Find the factor rate and multiply it by the advance to get the true total cost. $40,000 at a 1.40 factor = $56,000 payback — a $16,000 fee. Don't let "1.40" sound small; it's a 40% premium on the money. Always convert the rate into the actual dollars leaving your business, and compare that number across every offer.
2. The holdback / retrieval rate
Two flavors, and the difference matters enormously:
- Fixed daily/weekly ACH — the same dollar amount is pulled regardless of sales. Predictable, but unforgiving on slow days. A bad week can overdraw you.
- Percentage of receivables (true split) — a set percentage of card sales. It flexes with your revenue, which is safer for seasonal or lumpy businesses.
Calculate the daily/weekly hit against your worst realistic week, not your best. If the holdback would sink you in a slow stretch, negotiate it down or walk away.
3. The fees buried below the headline
The factor rate is rarely the whole cost. Hunt for:
- Origination / underwriting fee — often 2–5%, sometimes deducted from your advance so you receive less than the number you agreed to.
- ACH / processing fees — small per-pull charges that add up over hundreds of debits.
- Default and late fees — and exactly what counts as a default.
- Stacking / prepayment penalties — restrictions on taking other funding or paying early.
Ask for the net funded amount in writing — the dollars that will actually hit your account — and the all-in payback. Those two numbers, side by side, cut through every sales pitch.
4. The personal guarantee
Most MCAs require a personal guarantee, meaning if the business can't pay, you're personally on the hook. Know whether you're signing one and what it covers. This is the line that turns a business problem into a personal-finances problem — never sign it on autopilot.
5. The Confession of Judgment — the most dangerous clause in the industry
A Confession of Judgment (COJ) is a clause in which you pre-agree, in advance, that if the funder claims you defaulted, they can obtain a court judgment against you without a trial and without notifying you first. You wake up to a frozen bank account. Historically, abuse of COJs let bad actors seize merchants' funds on flimsy or false claims of default.
If a contract contains a Confession of Judgment, treat it as a flashing red light. Regulation has curtailed COJs in some states, but they still appear. Read for it. Question it. Prefer funders who don't use it.
6. Reconciliation rights
A fair MCA includes a reconciliation clause: if your sales drop, you can request that the funder adjust the holdback to match your true revenue. This is your safety valve. A contract with no reconciliation right — or one that makes it nearly impossible to invoke — is a contract that doesn't care whether a slow month destroys you. Insist on a workable reconciliation provision.
Your pre-signing checklist
- What is the net funded amount and the total payback, in dollars?
- Is the holdback fixed or a percentage, and can my worst week absorb it?
- What fees are deducted up front or charged along the way?
- Am I signing a personal guarantee?
- Is there a Confession of Judgment? (Strongly prefer none.)
- Is there a real, usable reconciliation clause?
- Are there stacking or prepayment penalties?
If a funder rushes you past these questions or won't put answers in writing, that is your answer. The reputable side of this industry — the funders and tools tracked by MCA Daily — expects an informed merchant and welcomes the questions. Get the contract reviewed; if a deal is large or the language is dense, have an attorney look before you sign.
You now know how to read a single deal. Next, we zoom out to the whole market — because the ground under this industry is constantly shifting, and surviving that shuffle is its own skill.