What actually happens
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1
Bounced ACH
First missed daily debit. Notice from the funder follows quickly. Calls and emails begin, usually still polite.
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2
Demand letters
NSF fees, formal demand letter, warning of "all available remedies." Sometimes a third-party collection law firm gets involved.
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3
Legal phase
COJs filed. Bank accounts frozen, sometimes on the first business day of the month. Civil suits filed in NY/NJ. This is the danger window.
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4
Discount window
Funder accepts you can't pay full freight. Best discounts available here, before files are sold to third parties for pennies.
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5
Resolution
Lump-sum or installment settlement signed. UCC liens released. Personal guarantee released. Account closed "settled in full."
01The missed debit
The first sign is the bounced ACH. You stop paying on Monday; by Wednesday the funder has notice. Most contracts treat any missed daily as a "default event", but funders rarely act on it immediately. They call. They email. Sometimes they restructure.
What you do this week matters more than what you do later. Stay in contact, but do not sign anything yet, restructures are often consolidations that increase your effective cost. The earlier you bring counsel into the conversation, the more options you preserve.
02Demand letters and warnings
If silence sets in, you'll see a series of escalating notices: NSF fee invoices, a formal demand letter, and a warning that the funder will exercise "any and all remedies available."
The remedies they're referring to vary. Some funders will move directly to file a Confession of Judgment (COJ) if they have one. Others will sue conventionally. Some will refer to a third-party collection law firm, which usually means more letters before any litigation.
03The legal phase
This is where it gets serious. Funders with COJ leverage may freeze your operating account without warning, sometimes on the first business day of the next month to maximize damage. Funders without COJs may file a complaint in state court, typically NY, NJ, or wherever the contract specifies venue.
A bank-account freeze is not the end. The faster you call counsel, the faster the right motion can get filed to release the funds.
04The personal-guarantee question
Almost every MCA contract includes a personal guarantee. When the business defaults, the funder can come after the principal's personal assets, bank accounts, real estate, future earnings.
Defending the personal guarantee is a separate negotiation track. Sometimes the right move is to settle the business obligation while preserving guarantor defenses. Other times it's the reverse. We make that call case-by-case.
05Settlement: the realistic outcome
Most MCA defaults end in settlement, not litigation, not bankruptcy. The math just makes more sense for the funder. The question is what the settlement looks like, and that depends on how you got there.
Default is not the end. It's the start of a new negotiation. The earlier you bring counsel into that negotiation, the better the result.
If this is you, do these things this week
- Pull every MCA contract you signed and find the venue clause.
- Pull bank statements for the last 60 days and flag every daily debit.
- Stop signing anything new, restructures from your funder are usually a trap.
- Move primary banking to a new institution before any potential freeze.
- Call counsel before responding to any demand letter or lawsuit.
Frequently asked
Can I be personally sued if my LLC defaults?
Yes, almost every MCA contract includes a personal guarantee. The funder can come after the principal's personal assets. Defending the guarantee is a separate negotiation track and is often where the most leverage exists.
What's a Confession of Judgment?
A pre-signed acknowledgment of liability. If the funder has one, they can convert it into a state-court judgment without notice and freeze your bank account in days. Many COJs filed pre-2019 are vulnerable to vacatur on procedural grounds.
Will defaulting destroy my credit?
Personal credit takes a hit through the personal guarantee, most clients see normal recovery within 12–24 months after settlement. Business credit is more nuanced. Closing the accounts cleanly, not letting them age in default, is the faster path.
How long until they sue?
Funders with COJs may move within 30 days. Conventional lawsuits typically arrive 60–120 days after the first missed payment. Calling counsel before the first missed payment dramatically expands your options.
Can I just file bankruptcy?
Sometimes that is the right call, Chapter 11 reorganization can stop collections immediately and discharge stacked debt. We refer to bankruptcy counsel when the math supports it. For most cases, settlement is faster, cheaper, and less public.