The offer arrives by email: an amount, a factor rate, a daily payment. It looks straightforward. Then the contract follows, twenty or thirty pages of dense language written by the funder’s lawyers. Many business owners skim it, sign it, and move on. Months later, some discover clauses they never noticed: a personal guarantee broader than they expected, fees they did not know existed, or restrictions that block the financing they now need.
You do not need to be a lawyer to protect yourself. You need to know which clauses matter and what to look for in each. This article walks through the most important sections of a typical working capital agreement and the questions to ask before you sign. It is general information, not legal advice, and for large amounts, a review by a business attorney is money well spent.
The Purchased Amount And The Specified Percentage
A working capital advance is usually structured as a purchase of future receivables. The contract will state the purchase price, which is the amount you receive, and the purchased amount, which is the total the funder is entitled to collect. It will also state a specified percentage of your receivables that the funder is purchasing.
What to check: Confirm that the purchase price and purchased amount match the offer you were quoted. Check whether any fees are deducted from the purchase price, and calculate the net amount you will actually receive. Make sure the factor rate implied by these numbers is what you agreed to.
The Payment Amount And Frequency
Most agreements set a fixed daily or weekly payment, debited automatically from your business account. The contract describes this as an estimate of the specified percentage of your receivables.
What to check: Confirm the payment amount, the frequency, and the account it will be drawn from. Note the start date. Test the payment against your slowest recent month. If it does not work, then it does not work.
The Reconciliation Clause
Because the funder is buying a share of your future sales, a genuine agreement should allow payments to be adjusted if your revenue falls. This is the reconciliation clause, and it is one of the most important protections you have.
What to check: Find the clause and read it carefully. How do you request reconciliation? What documents are required, usually recent bank statements? How quickly must the funder respond? Is there a limit on how often you can ask? A vague or missing reconciliation process is a serious concern.
Fees
Agreements can include a range of fees: origination or underwriting fees, wire fees, ACH rejection fees, default fees, and sometimes recurring administrative charges.
What to check: List every fee, the amount, when it is charged, and how it is collected. Watch for monthly fees added on top of the agreed payment, which can significantly increase the true cost. Any fee charged before funding is a red flag. Legitimate costs are deducted from the funded amount or built into the payback.
The Personal Guarantee
Most working capital agreements require the owner to sign a personal guarantee. In many agreements, this is a guarantee of performance, meaning the owner promises the business will follow the contract’s terms, such as not diverting receivables, closing the account or selling the business without notice. Some guarantees go further.
What to check: Understand exactly what you are guaranteeing. Does the guarantee cover only breaches of the contract, or the full balance in any circumstance? Who else is signing? If the guarantee is broad, ask for clarification in writing or have an attorney review it.
Events of default
This section lists the actions that put you in default. Common examples include stopping payments without following the reconciliation process, changing bank accounts without notice, blocking the funder’s debits, taking additional financing in breach of the contract, or providing false information on the application.
What to check: Read every default event. Some are reasonable. Others may be broader than you expect. Note what happens on default: the full balance may become due immediately, default fees may apply, and the funder may pursue the guarantor. Knowing these triggers helps you avoid them.
Remedies And Collections
The remedies section explains what the funder can do if you default. This may include collecting the remaining balance, enforcing the personal guarantee, and pursuing your business assets under its security interest. It may also specify attorney fees and collection costs.
What to check: Note any clauses that waive your rights, such as the right to a jury trial, and where any legal dispute must be heard. Some states, including New York, restrict confessions of judgment in commercial financing agreements, but terms vary. If a clause concerns you, ask an attorney.
Anti-Stacking And Further Financing
Many first-position agreements prohibit you from taking additional working capital advances or loans while the contract is active.
What to check: Understand whether you can take other financing, and what kinds. Taking a second advance in breach of an anti-stacking clause can trigger default on the first. If you think you may need more capital later, discuss it before signing.
UCC Filing And Security Interest
The funder will usually file a UCC-1 financing statement, a public notice of its interest in your business assets or receivables.
What to check: Ask what assets the filing covers and confirm the funder will file a termination once the agreement is satisfied. An active UCC filing can make it harder to obtain other financing.
Prepayment And Early Payoff
Some agreements offer a discount if you pay off the balance early. Many require the full purchased amount regardless of when you pay.
What to check: Ask in writing whether an early payoff discount exists and how it is calculated. This matters if you expect a large contract payment or an SBA loan to replace the advance.
Verbal Promises And The Integration Clause
Most contracts contain an integration clause stating that the written agreement is the entire deal. That means anything a broker or sales representative promised verbally does not count unless it is in the contract.
What to check: If someone promised a lower rate on renewal, flexible payments, or any other benefit, make sure it appears in writing before you sign.
Business Information And Covenants
Most agreements include promises about how you will run the business while the contract is active. You may agree to keep the same bank account, deposit all receivables into it, notify the funder before changing ownership or moving locations, and provide updated statements on request. Some agreements give the funder ongoing access to view your account activity.
What to check: Make sure you can realistically meet every ongoing obligation. If you plan to change banks, sell part of the business, or relocate during the term, raise it before signing. Breaking one of these promises, even unintentionally, can count as default.
A Simple Pre-Signing Checklist
Before you sign, confirm that you can answer yes to each of these:
- The numbers match the offer I was quoted.
- I know the net amount I will receive.
- I can carry the payment in my slowest month.
- I understand how to request reconciliation.
- I know every fee and when it applies.
- I understand what my personal guarantee covers.
- Every verbal promise is written into the agreement.
Choosing Funders With Fair Contracts
Contracts vary from funder to funder, and reputation matters. MCA Directory lists working capital funders alongside their published criteria, and verified funders are hand-vetted and confirmed to be actively funding. Brokers review funders on underwriting honesty and merchant treatment, and every review requires a company email and supporting documents. Those reviews are a useful signal of whether a funder honors reconciliation requests and treats merchants fairly.
For evidence that a funder or broker actually completes deals, check the FundedUSA Instagram page, which posts confirmations of businesses funded through reliable lenders and brokers.
When A Contract Is Not Honored
If a funder debits more than your contract allows, ignores a valid reconciliation request, or adds fees that are not in the agreement, keep records of every transaction and communication. You can file a private report through MCA Directory’s fraud reporting form. Reports go only to its team; the company is never told who reported it, and attachments are emailed directly rather than stored on the website. For serious disputes, consult an attorney.
Join MCA Directory as a Verified Funder or Broker
MCA Directory also provides opportunities for funders and brokers to connect within the working capital industry. Funders interested in increasing their visibility and establishing credibility can apply to become a verified funder. Brokers looking to explore funding opportunities and connect with funders can sign up through the MCA Directory Marketplace.
The Bottom Line
The contract is the deal. Before you sign, confirm the numbers, find the reconciliation clause, list every fee, understand the guarantee and the default triggers, and make sure every promise is written down. Ten minutes with these clauses can save months of trouble.
Disclaimer: This article is intended for general informational and educational purposes only. The information provided should not be considered legal, financial, or professional advice. Readers are encouraged to conduct their own research and consult qualified professionals before making any decisions. The publisher assumes no responsibility for any actions taken based on the information presented.
