The personal guarantee on your merchant cash advancewhat it reaches, and when, 2026

The guarantee: scope, ceiling, and the judgment the funder still has to get

With businesses nationwide defaulting on their merchant cash advances at unprecedented rates, owners are scrambling to get out in front of their MCA contracts and stop collections before the first default triggers a debt trap.

It is easier said than done - because the key documents driving so much of today's enforcement did not exist in plain sight. If you signed a merchant cash advance anytime in the last several years, there is a strong chance you also signed a confession of judgment ("COJ"). Most MCA funders rarely sign an agreement without one. That is how New York courts came to process more than 32,000 COJ-driven lawsuits in the past decade. If you are hearing about your own confession for the first time, you are not alone.

What is a Confession of Judgment?

A COJ is a contract term and procedural shortcut rolled into one. Instead of admitting liability for a debt in court, a merchant who signs a COJ confesses that it owes the amount stated in the agreement. That confession is part of the loan package the merchant signs at origination. Once executed, it allows a creditor to go to court and enter judgment without advance notice or the business owner ever being present at the hearing.

Traditionally, confessions were used in a narrow range of commercial disputes to resolve debts quickly. In the hands of the MCA industry, confessions became an offensive tool — one signed up front at origination that waived the company's rights to fight the judgment or have its day in court. As reported by major news outlets, many of the nation's most aggressive collectors and lenders used the confessions to secure their collection and loans. Courts entering a COJ cannot determine if the defendant merchant had notice of the process or understood the proceedings. That dynamic has triggered intervention from state regulators and federal authorities.

What is it Like to Experience a Confession of Judgment?

When you sign an MCA agreement, the COJ is generally included as a separate document for you to sign. It may be listed as a "notarized confession of judgment," a "power of attorney," an "Irrevocable Security Agreement," a "settlement and consent to entry of judgment," or a "waiver" attached as a rider. Either you know about the confession when you sign the MCA, or you do not.

If you do know, the broker you're working with has identified a funder who requires a COJ in order to approve funding. You are advised that you must sign the COJ and obtain it notarized. As you are taking out a $250,000 or $400,000 advance, the additional paperwork is seen as part of the application. The funder insists they will never file a COJ unless there is a default. You accept the additional signing and turn the paperwork in with the rest of your documents. You do not read the COJ and your broker never explains it to you in detail.

If you do not know, your broker is making an advance very quickly, the funding takes place, and you sign a "delivery" letter that includes the COJ. In some instances, the entire MCA transaction is electronic, with all of the signatures taking place digitally.

A few months later, if your business defaults, you may get a phone call from the funder demanding full repayment. By this point, your receivables might have dried up, a customer base has left, or the economy as a whole has softened, leaving your bank account with less revenue than anticipated. In either situation, you find out about the confession after a judgment has already been filed - with no advance notice. Your account is exposed before you ever have a chance to prepare or see it coming.

Personal guarantees also play a key role in collecting debts. An owner personally guarantees to repay an amount if their company defaults, and combined with a COJ, that can enable creditors to access their personal funds directly.

Can a COJ be Avoided or Reversed?

Until very recently, yes — a confession in an MCA document, once filed, could be vacated and removed with proper documentation. New York and other states still honor this process. Many merchants would request COJ documentation, only to find that it was in fact fraudulently notarized. In other situations, where COJs were signed with the correct notary and returned by mail or electronically, attorneys could quickly request the court void the judgment, returning the business to its normal state.

As part of a thorough review, a request is usually sent to the funder demanding a withdrawal of the COJ or securing written confirmation that it will not be filed. Some agreements can go into effect years after their origination. Attorneys representing small business owners must now work to challenge the confessions directly and identify fraud in their origination.

The full validity of a COJ is on shaky ground. Efforts by Congress to control the process through national law have so far failed, and state legislatures have been slow to intervene. With fewer states using these arrangements, and even the remaining states deploying controls, the enforceability of COJs is based entirely on a handful of states that continue to allow their use.

Where Are COJs Still Enforceable?

Today, COJs are still used and enforceable in several states, primarily New York, New Jersey, Florida, California, Arizona, Colorado, and Nevada. New York leads the market for enforcement, and can enforce COJs in as little as a day after filing. Several funders still issue COJ paperwork as part of their standard advance agreements, and we expect the trends to continue.

COJs are generally notarized and signed with the initial agreement or executed in advance in the form of a personal guarantee.

The traditional enforcement process works like this. The funder submits a notarized confession to a state court with a copy of the contract, and asks the court to issue a judgment for the balance of the debt due under the confession. In several states, funders hire an attorney to serve the debtor at the time the judgment is sought. With the court-issued judgment in hand, the funder serves a third party subpoena on the merchant's bank, which requires the bank to identify any of the debtor's accounts. The funder then requests a writ of execution directing the bank to levy or garnish the account identified as holding the debtor's funds. Once the funds are frozen and the garnishment processed, they are wired from the account directly to the funder. In situations where insufficient funds remain to cover the full balance of the judgment, the process begins again.

With the pace of defaults soaring, funders today are flooding the courts in these states with filings, which are entered with little notice to the business owner who signed the COJ. Once the first process occurs, your bank account has already been frozen. It is better to challenge the problem head-on before you run out of time or money in court.