If you see these trends on your bank statements, you are likely heading for a default on your MCA:
- your fixed MCA debits are increasing as a percentage of your revenue;
- your account balance regularly falls below a day’s worth of MCA debits;
- MCA debits are being returned for insufficient funds (or paid from an overdraft);
- you need another MCA to cover the debits on your existing MCAs; and
- you are falling behind on vendors or taxes to make your MCA debits.
What are the Events of Default under your MCA Agreement?
Your MCA Agreement sets out the events of default. In the Cobalt Funding MCA Agreement filed with the SEC, an Event of Default includes two consecutive or four total debits returned for insufficient funds (“NSF”) without advance written notice (one NSF for weekly remitters); changing your bank account or processor without prior written consent; holding additional bank accounts; and obtaining additional MCAs without consent (known as “stacking”). Once Cobalt declares an Event of Default, the unpaid balance becomes immediately due and Cobalt may charge a $2,500 fee to set up a blocked account, 40% liquidated damages on the undelivered amount (at least $5,000), and 16% interest.
The New York Appellate Division, in NewCo Capital Group v. SPE Trading (June 2026), found a merchant in breach for failing to request a reconciliation within one business day after NewCo’s remittance was returned by the merchant’s bank.
How much of your revenue is going to your MCA debits?
Divide your total MCA debits over a period by your revenue over the same period and compare that number to the percentage specified in your agreement. Your fixed daily debit is supposed to be an estimate of the percentage you agreed to. New York’s required disclosure under 23 NYCRR 600.6 describes the estimate as “based upon assumptions about the recipient’s income.”
In the Cobalt Funding agreement, the estimated daily debit is $1,725, which is 15% of your revenue. At $9,000 in daily revenue, that payment is 19.2%; at $8,000, it is 21.6%, when your daily debit should have been $1,200. Over 21 business days, about $11,000 is debited above the agreed 15%. This is a warning sign to request a reconciliation and consider your options before you default.
If you have more than one MCA, add up all of the debits and compare that to your revenue before paying them. In an example published by National Credit Partners, three MCAs totaling $4,300 a day against $15,000 in daily revenue means paying 29 cents on the dollar toward your MCAs. If your debits exceed what you clear each day, you are paying them from your balance, and you can estimate when it reaches $0.
How many NSFs does it take to trigger an Event of Default?
It varies by agreement. For Cobalt Funding, an Event of Default occurs after two consecutive or four total NSFs (one for weekly remitters). Each NSF carries a $50 fee unless you gave a business day’s notice. Returns typically reach the funder in about two banking days.
If a debit was paid from your overdraft, you may not know it would have been returned for NSF. Count the days each month your balance fell below a day’s MCA debits.
Are you being offered additional MCAs to renew or stack your existing MCAs?
You will regularly be offered MCAs to renew or stack, because your funder’s UCC-1 financing statement is public and priority runs from the first filing. But if you need another MCA to make the debits on your existing MCAs, that is another warning sign. Obtaining an additional MCA without consent is also an Event of Default, and you may be charged a stacking fee (e.g., 25% of the remaining balance under Cobalt, $10,000 under Pawn Funding, and not less than $25,000 under Parkview Advance). Many renewal offers come after you have paid off at least 50% of the payback amount and roll the unpaid balance into the new factoring amount.
Want to score yourself for some common Merchant Cash Advance default warning signs?
Disclaimer: these cutoffs are rules of thumb for self-checking. The terms of your contract control.
| Metric | Green | Yellow | Red |
|---|
| Effective percentage vs. specified percentage | At or below | Up to about 1.25 times | Over about 1.25 times |
| Total debits vs. cash cleared before debt service | Under 50% | 50% to all | Over 100% |
| Days with low bank balance, last 30 | 0 | 1 to 3 days | 4 or more days |
| NSFs or overdraft covered debits, last 90 days | None | 1 overdraft covered | Any NSFs |
| Stack or rollover | None | You’re getting offers | You need one to cover debits |
| Vendor and tax payments | Current on everything | Some vendors past normal terms | Deferring payroll or sales tax |
Are you paying vendor or tax payments late to stay current with your funder?
Rotating creditors and stretching payables past normal terms like 30 or 60 days is a common sign of business distress. And you can’t borrow from your payroll tax payment. If you’re the responsible person for your business and you willfully don’t pay it over, you’re personally liable for a penalty equal to the unpaid tax under 26 U.S.C. 6672(a).
Why does this matter in Pennsylvania?
Pennsylvania has no commercial financing disclosure law, so you may not know how much you’re supposed to be paying. And we allow confessions of judgment. If you’re in default, you only have 30 days from service to petition the court to strike or open the confession of judgment (Pa.R.C.P. 2959). If several items on this list are already yellow or red, you may want to read 5 moves to make before your first missed MCA payment this week.
Frequently Asked Questions
My daily payment stays the same, but my sales are down. Am I paying too much?
Possibly. The daily debit is supposed to estimate the Specified Percentage of your receipts. If deposits go down but the debit doesn’t, you’re effectively paying more than the Specified Percentage. There may be a reconciliation clause in your agreement.
I opened a new bank account to make sure I have enough money. Is that a default?
It may be. In the Cobalt contract, changing your bank account or having multiple depository accounts is an Event of Default. Moving money to avoid a creditor may be a voidable transfer under NY DCL 273.
How long do I have once I see these warning signs?
Not as long as you may think. It takes about two banking days for a debit to come back. Some contracts make the first NSF a reconciliation deadline. In Pennsylvania, a confession of judgment can be entered quickly, and you only have 30 days after service to petition the court to strike or open it.