For most of the merchant cash advance industry’s growth, contract language was largely an afterthought; templates got copied, updated occasionally, and rarely stress-tested until a dispute actually landed in court. That’s changing. As courts across multiple states have taken a harder look at MCA agreements in recent years, funders are going back through their own contracts and asking a more pointed question: if this clause were challenged tomorrow, would it actually hold up?

The answer, in a growing number of cases, has been no. Courts have voided or narrowed provisions that once went unquestioned, and funders who haven’t updated their agreements accordingly are discovering the gap the hard way mid-litigation, after a default has already happened.

Why Courts Are Looking Harder at MCA Agreements

Merchant cash advances are structured as a purchase of future receivables rather than a loan, which historically placed them outside the usury caps and lending regulations that govern traditional commercial credit. That structure only holds up, however, if the agreement genuinely reflects a receivables purchase, meaning repayment tied to actual business performance, not a fixed obligation dressed up in different language.

Courts in several jurisdictions have begun scrutinizing exactly that distinction. When an agreement guarantees a fixed repayment regardless of the merchant’s revenue, includes a personal guarantee that functions like a loan guarantee, or sets a repayment period that looks more like a loan term than a variable purchase.

Some courts have reclassified the transaction as a loan, reopening the door to usury challenges that MCA agreements were designed to avoid. It’s this shifting landscape that has more funders reviewing their agreements with an MCA collections attorney rather than waiting for a clause to be challenged in court.

The Clauses Funders Are Reevaluating

Reconciliation provisions

A true receivables purchase requires a mechanism allowing the daily or weekly debit amount to adjust to the merchant’s actual revenue, not just in theory, but in practice. Agreements with reconciliation clauses that exist on paper but are rarely or never honored have drawn skepticism from courts evaluating whether the deal is genuinely revenue-based. Funders are increasingly building in clearer, more usable reconciliation mechanics and documenting when they’re applied.

Confession of judgment language

COJs remain one of the most litigated provisions in MCA contracts. Since New York barred enforcement of COJs against out-of-state debtors in 2019, funders relying on COJ language drafted before that change have found the clause unenforceable in a large share of their disputes. Updated agreements now typically account for the merchant’s actual state of residence and build alternative enforcement paths: UCC lien enforcement, breach of contract claims, personal guarantee claims rather than depending on a COJ as the sole recovery mechanism.

Personal guarantee scope

Courts have drawn a meaningful distinction between a “guarantee of performance” (the merchant will operate in good faith and remit receivables as agreed) and a “guarantee of payment” (the guarantor owes the full balance regardless of what happens to the business). The latter looks considerably more like a loan guarantee and has been challenged more successfully by merchants and guarantors. Funders reevaluating their agreements are tightening this language to make clear what’s actually being guaranteed and why.

Choice of law and forum selection clauses

An agreement that designates a favorable jurisdiction on paper doesn’t guarantee that jurisdiction’s law will actually apply, particularly if the merchant has no meaningful connection to that state. Courts have increasingly looked past forum selection language when it appears chosen purely to access more favorable enforcement rules rather than reflecting any genuine relationship between the parties and the chosen forum.

UCC lien and default provisions

Precise, properly filed UCC-1 language remains one of the more reliably enforceable pieces of an MCA agreement, but only when the filing itself is accurate. Funders are reviewing collateral descriptions and debtor name accuracy more carefully, since even small filing errors have been enough to unwind a lien position during enforcement.

What This Means for Funders Right Now

The through-line across all of these clauses is the same: language that was written to sound protective doesn’t do a funder any good if it doesn’t survive judicial review. A merchant cash advance attorney reviewing a funder’s existing agreements can typically identify within a single pass which clauses were drafted for an earlier legal landscape and which have kept pace with how courts are currently ruling.

Firms that represent funders rather than merchants on both contract drafting and post-default enforcement, such as David I. Mizrahi Law P.C., often see the same pattern in the files that cross their desks: agreements never revisited after initial drafting tend to draw the most resistance during litigation, simply because the language wasn’t written with today’s case law in mind.

The Bigger Trend

MCA litigation isn’t slowing down, and the clauses that held up without challenge five years ago aren’t guaranteed to hold up today. As more states weigh in on how these agreements should be treated as receivable purchases, as loans, or as something in between, funders who treat their contract language as a living document, reviewed regularly against current rulings, are in a stronger position than those relying on a template that hasn’t changed since the industry looked very different.

For funders evaluating their own agreements, the most useful exercise isn’t asking whether a clause has worked before. It’s asking whether it would still work if challenged in court today — and increasingly, that’s a question worth answering before a dispute forces the issue.