Short answer: When you default on an MCA, the funder can immediately demand the entire balance, hit your bank account with NSF and reversal fees, file UCC notices to redirect your receivables, and sue you and any personal guarantor. In states that still allow it, they can also use a confession of judgment to freeze your personal and business accounts within hours — sometimes before you even know a lawsuit was filed. There’s no 30 day grace period. There’s no federal consumer protection law to slow them down. MCA’s are commercial transactions, and they get enforced like commercial transactions.
If you’re behind, or thinking about defaulting, read this before you do anything at all.
What counts as a default on an MCA?
Most MCA agreements define default, much more broadly, than a traditional loan. You’re not in default just when you stop paying. Under a typical MCA contract you’re in default the moment you do any of the following:
- Block, reverse, or change the daily ACH without the funder’s consent
- Close your bank account, open a new one, and move deposits there
- Switch payment processors without telling the funder
- Take on additional financing (this is the stacking clause — it’s in virtually every MCA agreement, and yes, taking a second MCA is a default on the first)
- Sell the business, transfer assets, or change ownership
- Misrepresent anything in the original application — fake bank statements, misstated revenue, fake landlord info, anything
- File for bankruptcy
- Miss a reconciliation request, in some agreements
- Fall below a stated revenue threshold, in some agreements
The consequences of default vary, from funder to funder. As a business owner you probably already know — you didn’t take financing from a traditional lender. Some of these MCA companies are unsavory characters. If they even smell a default, they’ll accelerate the full balance, and force an outcome that’s on their terms, not yours.
What happens in the first 72 hours after default?
The MCA enforcement timeline is fast. Faster than people expect. Here’s what usually happens, in the order it usually happens:
1. The ACH gets redone. Then redone again.
Most funders will retry the daily debit two or three times after the first NSF. Each retry triggers an NSF fee from your bank, and a returned payment fee from the funder. A single missed week can cost over $500 in fees alone, before anyone has even called you.
2. The in-house collections team starts calling.
Many MCA funders have their own collections crews, and they’re aggressive by design. Expect calls on your business line, your cell phone, and the personal guarantor’s cell, all within a few days. Some funders will start contacting customers and vendors who appear on your bank statements. They have the right to do that. Some will threaten you in ways that feel illegal — calls late at night, threats to show up at your home, threats about your family, fake “process server” calls designed to scare you into paying. Document everything.
3. The balance gets accelerated.
The purchased amount (what you owe) becomes due immediately, in full. You no longer owe just the daily payment. You owe the entire remaining balance, plus default fees, plus attorney fees, plus interest at the default rate. A $100,000 balance can become a $130,000+ demand overnight.
4. The UCC notices go out.
When you took the MCA, the funder filed a UCC-1 financing statement against your receivables. At default, they send notices to your credit card processor, your customers, and anyone else who pays you, instructing them to redirect payments directly to the funder. Done correctly, the lockout chokes off your cash flow within a day. Your business is still generating revenue. You’re just not seeing any of it.
Can an MCA company freeze your bank account?
Yes. And this is where it gets ugly.
If your MCA agreement includes a confession of judgment (a COJ), the funder can walk into court — without notifying you, without a hearing, without giving you any chance to defend yourself — and get a judgment entered against you on day one. Then they serve that judgment on your bank, and your accounts get frozen within hours. Personal accounts. Business accounts. Any account with your name or the guarantor’s name on it.
New York banned COJs against out-of-state defendants back in 2019, which slowed this down for a lot of people. But COJs are still enforceable in many situations, and funders have gotten creative — moving cases to other jurisdictions, restructuring contracts, suing in states that still allow them.
Even without a COJ, the funder can sue you, get a default judgment in 30-60 days if you don’t fight it, and garnish accounts the same way. The COJ just compresses the timeline from weeks to hours.
Will the personal guarantor get sued?
Yes. Almost always.
Every MCA contract I’ve ever seen includes a personal guaranty signed by the owner. That guaranty isn’t decorative. It’s the whole reason the funder gave you money in the first place — they’re not really betting on the business, they’re betting that you, personally, will pay them back if the business can’t.
When the funder sues, they sue the business and the guarantor in the same complaint. A judgment against the guarantor follows you personally. They can:
- Garnish personal bank accounts
- Put a lien on your home
- Garnish wages from any other job or income source
- Pull credit reports and chase any other assets they find
- Examine you under oath about your personal finances
If you signed it, you owe it. The fact that the business closed, or got dissolved, or filed bankruptcy, doesn’t release the guarantor.
Can you go to jail for defaulting on an MCA?
No. Not for the default itself.
But — and this matters — if the funder believes you committed fraud in your application (fake bank statements, fabricated revenue, lying about other MCAs you already had), they can refer the case for criminal prosecution. Bank fraud, wire fraud, and false statements to a financial institution are all federal crimes. People go to prison for this. Not many, but it happens, and it’s happening more often as MCA funders get more sophisticated about catching application fraud.
If you submitted a clean, accurate application and you just couldn’t pay, you’re in a civil dispute. Bad, but not criminal.
What happens to the daily ACH after you default?
The funder will keep trying to pull. Even after acceleration. Even after they’ve sued you. They’ll keep hitting your account until you close it, or until they’re court-ordered to stop.
If you close the account they’re pulling from, that’s a default trigger on its own (which doesn’t matter much if you’re already in default), and it’s also evidence the funder will use against you in court — they’ll argue you intentionally evaded the ACH. Don’t do this without a plan.
Can you settle a defaulted MCA?
Yes. Most defaulted MCAs settle.
Funders know what their defaulted paper is actually worth, and it’s not face value. A funder holding a $200,000 defaulted balance, on a business that’s already in trouble, with no realistic path to full collection, will often take 35-50 cents on the dollar to close it out. Sometimes less. Sometimes much less.
But you don’t get those numbers by calling the funder yourself and offering to settle. You get them by:
- Knowing which funders settle aggressively, and which ones drag everything to judgment
- Knowing what the real settlement floor is for that specific funder, this quarter
- Negotiating multiple MCAs at once if you’re stacked, so no single funder can pick you off
- Having credible bankruptcy leverage — funders settle harder when they believe Chapter 11 or 7 is actually on the table
This is what we do at Delancey Street. Over $100M in settled commercial debt. We know the funders, we know their lawyers, we know the floors.
What you should do if you’re about to default — or already have
Don’t wait. The window where you actually have options is short. Once a COJ is entered, once the UCC notices are out, once your customers are getting calls — your leverage drops fast.
Don’t talk to the funder yourself. Anything you say can, and will, be used in court. “I can’t pay” is an admission. “The business is failing” is an admission. Funders record calls.
Don’t close accounts or move money without a plan. Fraudulent transfer claims are real, and judgments can claw money back from where you moved it.
Don’t take another MCA to pay off the first one. Stacking is the single fastest way to turn a manageable problem into a catastrophic one. It triggers default on every existing MCA, it accelerates everything at once, and it leaves you with two, or three, or five funders all trying to seize the same receivables.
Get a real assessment. Before you do anything, find out what your actual exposure is — total balances, COJ status, guaranty terms, UCC positions, lawsuit timelines — and what the realistic outcomes look like. Then decide.
Frequently Asked Questions
How long do I have before the MCA funder sues me?
Sometimes hours, if there’s a COJ. Sometimes 30-60 days if there isn’t. There’s no required waiting period and no statutory grace period. The funder can move the moment you trigger a default.
Will defaulting on an MCA hurt my personal credit?
Not directly — MCAs aren’t reported to consumer credit bureaus. But the lawsuit and any resulting judgment will appear in public records, and judgments do affect personal credit. Lenders, landlords, and partners pulling commercial credit reports will see it.
Can I just file bankruptcy and wipe out the MCA?
Sometimes. Chapter 7 and Chapter 11 can both discharge or restructure MCA debt, but the personal guaranty complicates it, and some MCA funders will fight the dischargeability of the debt by alleging fraud. Bankruptcy is a tool, not a magic eraser. Talk to a bankruptcy attorney before assuming it solves everything.
What if the MCA funder is calling my customers?
They probably have the right to, under the UCC-1 they filed. You should still document every call and ask the funder, in writing, to communicate only with you or your attorney. If they cross into harassment, threats, or false statements, you may have claims back against them.
How much does it cost to settle an MCA?
It varies. Settlements typically range from 35-50% of the balance, sometimes less. The funder, the age of the default, the number of stacked MCAs, and your bankruptcy leverage all move the number.
