When you took the MCA, you signed away your receivables. You probably didn’t read that part. Most people don’t. The receivables are the collateral, and the moment you default, the funder has a legal pathway to walk in and take them.
Short answer: MCA funders seize your receivables by enforcing the UCC-1 they filed when you funded, sending notices to your customers and processors that redirect payments to them, and in many cases, getting a court order that freezes everything before you even know it’s happening. The whole sequence can be done within 24 to 72 hours. By the time you find out, the money is already gone.
If you’re behind on payments, or thinking about defaulting, this is what’s coming. Read every step.
Step 1: They pull the UCC-1 they filed at funding
When you signed the MCA agreement, the funder filed a UCC-1 financing statement with your state. This is public record. It puts the world on notice that the funder has a security interest in your receivables, your deposit accounts, and in many cases, all business assets.
You probably didn’t notice it. Most business owners don’t. But it’s there, and it’s the legal foundation for everything that follows.
At default, the funder’s attorney pulls the UCC-1, confirms the description of collateral (it’s almost always written as broadly as possible — “all accounts, accounts receivable, deposit accounts, payment intangibles, and proceeds”), and uses it as the basis for every notice that goes out next.
Step 2: They send notices to your customers
This is the one that destroys businesses.
Under Article 9 of the UCC, a secured creditor can notify your account debtors — the customers who owe you money — and instruct them to pay the funder directly instead of you. The notice is short. It’s on letterhead. It cites the UCC-1, the default, and the legal authority. Your customer’s AP department reads it, forwards it to legal, and legal tells them: pay the funder, not the vendor.
Your customer is now legally protected if they pay the funder. They are not protected if they pay you. That’s the leverage. Your customer doesn’t want to pay twice, so they pay the funder. You get nothing.
Some funders send these notices to every customer on your bank statements. The bank statements you submitted with the original application — that’s where they got the list. They don’t have to guess who your customers are. You handed them the roadmap at funding.
Step 3: They hit your credit card processor
If you process card payments, your processor is the easiest target. The funder sends a UCC notice to the processor, and the processor — who has zero interest in litigating this on your behalf — redirects the daily batch to the funder’s account.
This happens within 24 hours of the notice in most cases. Your morning deposit doesn’t show up. You call the processor. They tell you they received a UCC notice and they’re complying. You ask how to stop it. They tell you to talk to a lawyer.
Some funders have standing relationships with the major processors (Stripe, Square, Fiserv, Worldpay, etc.) and the notices get processed almost automatically. They’ve done it hundreds of times. The processor has a workflow for it.
Step 4: They file for a Confession of Judgment, or a TRO
If the MCA agreement was signed before 2019 and includes a Confession of Judgment (COJ) — many older agreements do, even now — the funder can walk into a New York court (most COJs were governed by NY law specifically because of how easy it was), file the COJ, and obtain a judgment without notice to you, without a hearing, without you being able to defend yourself.
NY changed the law in 2019 to limit COJs against out-of-state defendants, but plenty of agreements still have enforceable COJs depending on the structure. And funders have adapted. They now file for Temporary Restraining Orders (TROs) that freeze your accounts ex parte — meaning without notifying you — pending a hearing.
The result is the same. Your accounts are frozen. You find out when your debit card declines at lunch.
Step 5: They subpoena your bank and processor records
Once they have a judgment or a TRO, they go wider. They subpoena:
- Your business bank — to identify every account, every deposit, every transfer
- Your personal bank — if you signed a personal guarantee, which you did
- Your processors — to confirm volume and identify any other processors you’re using
- Any new bank you opened after default — they will find it, because the subpoena to your old bank shows the wire to the new one
This is the phase where business owners who tried to “move banks” learn that moving banks doesn’t work. The trail is in the statements. The statements are subpoenable. The funder’s attorney has done this hundreds of times and they know exactly what to look for.
Step 6: They enforce against the personal guarantor
Almost every MCA includes a personal guarantee — sometimes called a “performance guarantee” to dodge the usury argument, but functionally a personal guarantee. When the business defaults, the funder pivots to you, personally.
They go after:
- Your personal bank accounts — frozen by the same TRO or a follow-up restraining notice
- Your home — they file a judgment lien against any real property in your name
- Your wages — if you draw a salary from another entity, they garnish it
- Your spouse’s accounts — if joint, they’re frozen too
By this point, the receivables are gone, the business accounts are frozen, the customers are paying the funder, and the personal guarantor is locked out of his own checking account. The whole thing, start to finish, can take less than two weeks.
What to do before any of this starts
If you’re current and panicking, don’t default to “fix” the problem. Defaulting accelerates everything in this article. The leverage you have is highest before you miss a payment, not after.
If you’re already in default, the window to negotiate is small but it exists — the funder would rather settle for a reduced lump sum or a restructured payment plan than litigate against an empty business. But you have to move before the UCC notices go out, because once your customers are paying the funder, you have no cash flow to negotiate with.
