Glossary and answers
The words in your contract, in plain English.
Short definition first, then what it means for you. Written by a former underwriter, checked by a litigator.
Questions owners ask
Frozen accounts
Can an MCA funder freeze my business bank account?
Only with a judgment. A confession of judgment makes that fast.
Criminal liability
Can you go to jail for not paying a merchant cash advance?
No. Default is civil. Threats of arrest are a collector tactic.
Timeline
How long does MCA debt settlement take?
Weeks to stop the debits, months to settle every position.
Cost
How much does MCA debt settlement cost?
15% to 25% of savings at reputable firms, billed on results.
Legitimacy
Is MCA debt settlement legit?
Yes. The service is legal and common; screen the firm carefully.
State law
What does my state require funders to disclose?
Six state guides on disclosure, COJ and enforcement.
Terms
Factor rate
A multiplier, usually 1.1 to 1.5, applied to an advance to get the total payback amount.
Why it matters: It hides the term. A 1.35 over four months costs roughly 118% APR; over twelve, about 60%. Always convert it.
APR (annual percentage rate)
The yearly cost of financing including fees, expressed as a percentage of the amount borrowed.
Why it matters: The only number that lets you compare an advance to a loan. Funders in New York and California must disclose one; most others don’t.
Confession of judgment (COJ)
A signed affidavit admitting the debt in advance, allowing the funder to obtain a judgment without a lawsuit or notice.
Why it matters: It turns a missed payment into a frozen account within days. New York stopped entering them against out-of-state debtors in 2019; they still bind New York businesses.
UCC-1 lien
A public filing under the Uniform Commercial Code giving the funder a security interest in your business assets.
Why it matters: It follows you to your next loan application. Confirm it is terminated after payoff or settlement.
Reconciliation
A contract clause allowing the daily payment to be adjusted down when revenue falls, so the funder takes only its agreed percentage.
Why it matters: It is the legal basis for the “purchase, not loan” structure, and funders often ignore it until you invoke it in writing.
Stacking
Taking a second, third or fourth cash advance while earlier ones are still being repaid.
Why it matters: Combined daily debits can exceed daily revenue. Most defaults, and most settlements, involve stacked positions.
Holdback / specified percentage
The share of daily receipts the funder is entitled to under the agreement.
Why it matters: In practice most advances debit a fixed daily amount instead, which is why reconciliation exists.
Personal guarantee
Your personal promise to pay if the business cannot; in MCAs usually a “performance guarantee” triggered by breach rather than simple non-payment.
Why it matters: Diverting receivables or changing bank accounts can trigger it. Simply falling short on revenue usually does not.
Judgment domestication
Registering a judgment from one state (almost always New York) in the state where your assets are, so it can be enforced there.
Why it matters: It is why a New York judgment reaches a Texas or Florida bank account within weeks.
Restraining notice
A notice served on your bank after a judgment, freezing funds up to twice the judgment amount.
Why it matters: This is the mechanism behind a “frozen account.” It requires a judgment first.
Settlement
An agreement with a funder to accept less than the payback amount as payment in full, as a lump sum or short plan.
Why it matters: Business debt settlements typically land at 35% to 70% of balance. Fees should be charged only as each one closes.
“Not a law firm”
A disclosure that a debt relief company cannot represent you in court or give legal advice, even if attorneys founded it.
Why it matters: If a lawsuit or COJ is already filed, you need a licensed attorney in the venue. Good firms say this plainly and engage counsel.
General information, not legal advice. Reviewed by Alana Reyes, Esq. · Updated September 14, 2026.