Signing a Merchant Cash Advance (MCA) agreement often includes a personal guarantee. This is a separate promise that you, the owner, will cover the debt if your business cannot pay. A personal guarantee makes your personal assets legally responsible for the business’s MCA debt if it defaults.
What is a personal promise in an MCA?
This guarantee bypasses the liability protection of your business entity, such as an LLC or corporation, for this specific debt. Normally, those structures protect your personal finances. The guarantee pierces that protection, giving the MCA funder a direct path to your personal bank accounts, home and other assets. It effectively turns a business obligation into a personal one. This is why many alternative small business financing options insist on it; the guarantee reduces their risk by increasing yours.
How unlimited guarantees expose your personal assets
Most MCA agreements use an “unlimited” personal guarantee. This means you are responsible for the entire debt amount, plus any legal fees and collection costs the funder incurs. There is no cap on your liability. If the business defaults, the funder can pursue collection actions against you personally, often without even trying to collect from the business first. This can include freezing your personal bank accounts or placing liens on your property.
Strategies to address an MCA personal guarantee
Facing an MCA funder over a personal guarantee can feel difficult, but you have options. Strategies to address your personal liability include:
- Reviewing the agreement for flaws in its language or execution
- Negotiating a settlement based on what you can afford, not solely on funder demands
- Challenging the agreement as a disguised high-interest loan, potentially violating state usury laws in some jurisdictions.
Pursuing these options can help you protect your assets.
Taking control of your personal liability
A personal guarantee on an MCA is a serious financial risk that puts your family’s security on the line. Understanding the contract you signed is the first step toward defending your assets from aggressive collection tactics. The rules governing these agreements are specific, and understanding them alone is difficult. An experienced attorney can review your MCA and explain your options. Seeking guidance from legal counsel familiar with merchant cash advances can help you determine the best course of action.