MCA Default
MCA default occurs when a merchant fails to meet repayment obligations — typically multiple consecutive failed ACH debits, sustained payment shortfalls, or material breach of MCA agreement covenants — triggering acceleration clauses and collection processes.
Why This Matters
Default trigger thresholds vary by funder agreement. Common triggers: 3+ consecutive failed ACH debits, 7+ failed debits in 30 days, sustained holdback shortfall below contracted rate, breach of stacking covenant (taking unauthorized additional funding), bankruptcy filing, or material misrepresentation in original application. Once default declared, the entire remaining balance accelerates — the merchant owes the full unpaid factor amount immediately. Collection processes follow: COJ enforcement where available, UCC enforcement against secured receivables, personal guarantee pursuit against owner assets, and litigation as last resort.
Example
Merchant takes $50K at 1.35 factor ($67,500 payback), pays $25K over 60 days, then ACH debits begin failing. After 5 consecutive failures over 7 days, funder declares default. Remaining balance $42,500 accelerates — funder pursues lockbox lockup, UCC enforcement against receivables, and PG enforcement against owner personal assets.
Frequently Asked Questions
Frequently Asked Questions
How is MCA default defined contractually?
Specific triggers vary by agreement but typically include: failed ACH debits beyond threshold, holdback shortfall, stacking covenant breach, business cessation, bankruptcy filing, personal guarantor death/incapacity, and material misrepresentation in application. Acceleration clauses make full balance due immediately upon default declaration.
What's the typical recovery rate on defaulted MCA?
20-50% gross recovery on defaulted positions, depending on collection capability and merchant assets. Lockbox structures and aggressive COJ enforcement yield higher recoveries (40-60%); standard ACH-only structures yield lower (15-30%). Net recovery after collection costs typically runs 10-35% of defaulted principal.