7 Things to Do Before Your MCA Funder Sends a Default Notice

The notice is a formality. The preparation it announces began weeks ago.

A default notice from an MCA funder is not the beginning of the enforcement process. It is the public-facing marker of a process that began the first time your ACH withdrawal failed. By the time the notice arrives (if it arrives at all; many funders proceed to enforcement without formal notification), the funder has already flagged your account, evaluated its enforcement options, and prepared the documentation for legal action.

The actions that matter most are the ones taken before the notice arrives. Here are seven.

Read Your Contract

The number of business owners who receive a default notice without ever having read the default provisions of their agreement is, in our experience, the majority. The contract specifies what constitutes default, what remedies the funder may pursue, what notice (if any) the funder is required to provide, and what rights you retain.

You cannot defend against provisions you have not read. An attorney can read the contract in hours and identify the specific vulnerabilities and defenses it contains.

Document Your Revenue Decline

If your revenue has declined since the advance was originated, compile the evidence: bank statements, processor reports, monthly profit-and-loss statements, tax filings. This documentation serves multiple purposes. It supports a reconciliation request. It establishes the basis for a usury challenge if the agreement is reclassifiable. And it provides the factual foundation for any settlement negotiation.

Submit a Reconciliation Request

Before default, not after. The timing of the reconciliation request determines its legal weight. A request submitted before default demonstrates good faith. A request submitted after default is retrospective and carries less force. File today.

Preserve All Communications with the Funder

Every email, text message, voicemail, and letter from the funder or its representatives is potential evidence. If the funder made oral representations about the advance that differ from the written terms, those representations may support a fraud-in-the-inducement defense. If the funder engaged in collection tactics that violate state law, the communications document it.

Do not delete anything. Do not respond to communications without legal guidance. And do not agree to anything on the phone.

Open a Parallel Bank Account

If the default triggers a judgment and a bank freeze, every dollar in the authorized account is exposed. A parallel account at a different institution preserves operating funds while the legal process unfolds. This step, taken before the default, is preventive. Taken after, it is reactive and more difficult.

Assess Your Personal Exposure

If you signed a personal guarantee (you almost certainly did), the MCA obligation does not end with the business. Your personal assets, savings, home equity, other accounts, are reachable through the guarantee. Understanding the scope of your personal exposure before the funder enforces it allows you to take protective steps that may not be available later.

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Retain an Attorney

Not next week. Not after the default notice arrives. Before.

An attorney retained before default can shape the response: file reconciliation preemptively, challenge the agreement proactively, and negotiate from a position that deteriorates with every passing day. An attorney retained after default is managing consequences. An attorney retained before default is preventing them.

The consultation takes an hour. The agreement has been sitting in a drawer for months. The funder is preparing its enforcement strategy right now. The only question is whether you will have a strategy of your own before the notice arrives.