If you’re stacked, and you can’t pay everyone, you’re going to default on someone. The only question is who, and in what order. Most business owners get this wrong. They default on whoever yells the loudest, or whoever pulls the biggest daily debit. That’s emotional triage, not strategic triage. You need to think about this the way a poker player thinks about which hand to fold.
Short answer: Default first on the MCA that has the least leverage over you. That usually means the smallest balance, the weakest UCC position, the funder with the worst litigation track record, and the one furthest from your primary operating account. Default last on the funder who can freeze your accounts within 48 hours, has a confession of judgment on file, and knows where your receivables come from.
Below is how to actually rank them.
The factors that matter, in order
Most owners rank MCAs by daily payment size. That’s the wrong starting point. Daily payment size tells you what’s bleeding you fastest, not who’s most dangerous when you stop paying.
Here’s what actually matters:
1. Does the funder have a confession of judgment (COJ) on file?
A COJ is a signed document where you already admitted you owe the money, before any dispute. If a funder has a COJ, they don’t sue you in the normal sense. They walk into court, file the COJ, get a judgment the same day, and start restraining your bank accounts within 24 to 72 hours. New York used to be the COJ capital. The 2019 reforms restricted out-of-state COJs in NY courts, but funders have moved to other jurisdictions, and many older agreements still have enforceable COJs.
If a funder has a COJ on you, they go to the back of the default list. Period. You do not default on a COJ holder first.
2. UCC-1 position and what it covers
The first funder to file a UCC-1 has first claim on your receivables. If you have three MCAs and you default on the one with the senior UCC, that funder can send notices to your processor, your customers, and your vendors, and legally redirect the money to themselves. The junior UCC holders are standing in line behind them.
Counterintuitively — this means defaulting on the senior UCC holder can sometimes be less damaging in the short term, because they already have the strongest claim and they know it. They’re more likely to negotiate. The junior UCC holder, who knows they’re getting nothing in a real fight, is often the one who panics and starts contacting your customers out of spite or desperation.
3. The funder’s actual collection behavior
This is the part nobody writes about. MCA funders are not interchangeable. Some are litigation-first. Some are negotiation-first. Some are call-and-harass-for-six-months-then-do-nothing. You need to know which is which.
A few patterns to look for:
- Litigation-first funders sue within 30 to 60 days of default. They have in-house legal or a captive law firm. If you’ve been served by them before, or you know other owners who have, assume you’ll be served too.
- Settlement-first funders want a deal. They’d rather take 50 cents on the dollar in 90 days than spend two years chasing you.
- Harassment-first funders will call you and your guarantors every day, contact customers, post on social media, and make your life miserable, but rarely actually file. They’re betting you’ll fold from the pressure.
You default on harassment-first funders before settlement-first funders, and settlement-first funders before litigation-first funders. The order is: noise, negotiation, lawsuit. Default in that order.
4. How close they are to your money
If a funder is debiting an account that holds your operating cash, your payroll cash, and your tax reserves all in one place, they are close to your money and they will hurt you fast. If a funder is debiting an account you’ve already started to drain — a separate account with two weeks of float — they are far from your money and the default will hurt less.
This is why segregating accounts before you default matters more than almost anything else you can do. (Note: moving money around to evade an MCA is itself a default trigger under most agreements, and in some cases can be argued as fraudulent transfer. Talk to a lawyer before you do it. But know that the funder closest to your operating account is the most dangerous.)
5. Personal guarantee exposure
Read the PG. Some PGs are full recourse. Some are limited to fraud or specific bad acts (“bad boy” guarantees). Some are joint and several with a co-guarantor. A funder with a weak or narrowly-drafted PG is less dangerous to you personally than a funder with an airtight one. Default on the weak PG first.
6. Balance size
Counterintuitive again — smaller balances are better defaults to take first, not worse. A funder with $18,000 left on the deal is going to do basic math on whether it’s worth suing you. A funder with $240,000 outstanding is going to fight. Smaller balances are also easier to settle later, often at 30 to 50 cents on the dollar, because the funder’s cost of recovery eats into a small balance fast.
The actual ranking framework
Score each MCA you have on these six factors. The one with the lowest total score — least dangerous, smallest balance, weakest position, furthest from your money, no COJ, weak PG, harassment-first behavior — is the one you default on first.
The one with the highest total score — COJ on file, senior UCC, litigation-first funder, debits your operating account, full recourse PG, large balance — is the one you keep paying the longest, even if it means short-changing the others.
This sounds obvious when you see it written out. It is not what most owners do. Most owners default on whoever’s daily payment is biggest, because that’s the one that feels like it’s killing them. But the daily payment is the symptom. The default consequences are the disease.
A quick example
Say you have three MCAs:
- Funder A: $45,000 balance, $850/day, senior UCC, COJ on file in a jurisdiction that still enforces them, debits your main operating account, full PG. Litigation-first.
- Funder B: $90,000 balance, $1,200/day, junior UCC, no COJ, debits a secondary account, full PG. Settlement-first.
- Funder C: $22,000 balance, $400/day, junior UCC, no COJ, debits the same secondary account as B, narrow PG. Harassment-first.
Most owners would default on B first because the daily is biggest. Wrong. You default on C first — smallest balance, weakest position, narrowest PG, harassment-first behavior, far from your operating money. You default on B second. You keep paying A as long as you possibly can, because A is the one that can put a restraining notice on your bank account next week and end your business.
What to do before you default on anyone
A few things that are non-negotiable:
- Pull every MCA agreement and read the default and PG sections. Not skim. Read.
- Pull your UCC filings on a state database to confirm filing order.
- Search the funder’s name in your state court system to see how often they actually sue. PACER for federal, state court portals for local. (NYSCEF if you’re in New York.)
- Talk to a lawyer who actually does MCA defense. Not a general business attorney. The mechanics here are specific and the wrong advice is expensive.
- Do not move money out of your operating account in the 30 days before defaulting unless a lawyer signs off. That window is where fraudulent transfer arguments live.
The thing nobody wants to say
If you’re at the point where you’re choosing which MCA to default on, you are not in a liquidity crisis. You are in a solvency crisis. Defaulting in the right order buys you time and reduces damage, but it does not fix the underlying problem. You need a restructuring plan, a settlement strategy, or a wind-down — not just a smarter default sequence. Choosing who to default on first is a tactic. It is not a strategy. Don’t confuse the two.
