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.