5 Reasons Your Personal Guarantee Might Not Be as Enforceable as Your MCA Funder Claims

The Document They Are Counting On

Every MCA funder treats the personal guarantee as though it were self‑executing. Sign it, default on the advance, and the guarantee activates like a clause in a contract that reads itself. This is not how guarantees work. A personal guarantee is an agreement, and agreements are subject to defenses, procedural requirements, and limitations that the funder’s collections department has no incentive to mention. What follows are five reasons the guarantee you signed may not carry the weight the funder assigns to it.

The Underlying Agreement May Be Void

The first reason is foundational. A personal guarantee is only as strong as the obligation it guarantees. If the underlying MCA agreement is determined to be a loan (rather than a purchase of future receivables) and the effective interest rate exceeds the state’s usury cap, the agreement is void. A void agreement cannot support a personal guarantee. New York’s dual usury framework caps civil interest at sixteen percent and criminal interest at twenty‑five percent. When the factor rate on a typical MCA is converted to an annual percentage rate, the effective interest frequently exceeds one hundred percent. If a court classifies the MCA as a loan, the guarantee falls with the agreement.

This argument has succeeded. Courts in Westchester County and the Southern District have vacated confessions of judgment and voided MCA agreements on usury grounds, examining the funder’s actual practices rather than the contract’s characterization of itself. The contract calls itself a purchase. The math calls it something else.

The Confession of Judgment May Be Procedurally Defective

The second reason is procedural. Many personal guarantees are enforced through confessions of judgment filed in New York. Under CPLR Section 3218, the confession must meet specific requirements: it must state the sum for which judgment may be entered, identify the county where the defendant resided at signing, concisely state the facts giving rise to the debt, and demonstrate that the amount confessed is justly due. If any of these requirements is unmet, the confession is subject to vacatur.

In practice, MCA funders file confessions of judgment in volume. Volume produces errors. Missing notarizations, incorrect county designations, inflated amounts that include fees not authorized by the agreement: each deficiency is a ground for vacating the judgment. And a vacated judgment on the confession means the funder must pursue enforcement the traditional way, through a lawsuit that you can defend.

Duress and Misrepresentation at Signing

The third reason concerns the circumstances under which you signed. If the personal guarantee was presented as a nonnegotiable condition of funding, explained as a formality that is never enforced, or signed without adequate opportunity to review, defenses of duress, misrepresentation, or unconscionability may apply. These defenses are fact‑specific and require evidence, but they exist. MCA brokers are not known for inviting borrowers to take the agreement home and consult an attorney. The speed of the signing process is, in some cases, the very fact that undermines the guarantee’s enforceability.

We have addressed this before, in the context of confession of judgment clauses that borrowers did not understand they were signing. The personal guarantee operates in the same territory. A signature on a document you did not read is still a signature. But a signature obtained through misrepresentation of what the document does is a signature that a court may decline to enforce.

Scope Limitations the Funder Ignores

The fourth reason is textual. Some personal guarantees contain language that limits their scope in ways the funder’s collections department may not acknowledge. A guarantee that is limited to a stated dollar amount cannot be enforced beyond that amount, regardless of the total balance claimed. A guarantee that references specific obligations cannot be extended to cover fees, penalties, and legal costs that were not part of the guaranteed obligation. The funder will claim the maximum. The document may permit something less.

Pull the guarantee. Read it with an attorney. The difference between what the funder claims and what the document actually says is, in our experience, the most common source of negotiating leverage in personal guarantee disputes.

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The Funder May Prefer Settlement to Litigation

The fifth reason is strategic rather than legal, and it may be the most important. Enforcing a personal guarantee requires the funder to litigate. Litigation requires attorneys, court filings, service of process, and time. If the guarantor is represented by counsel and intends to raise the defenses described above, the funder faces a contested proceeding with uncertain outcome and certain cost. Most funders, when confronted with competent opposition, will accept a settlement on the personal guarantee at a significant discount to the claimed amount.

This is not compassion. It is arithmetic. A guaranteed dollar collected after eighteen months of litigation and thirty thousand dollars in legal fees is worth less than sixty cents collected next month through a negotiated resolution. The funder knows this. Your attorney knows this. The only person who does not know this, in most cases, is the guarantor sitting at home assuming the full amount is inevitable.

It is not. A consultation is where the arithmetic begins to favor you.