The MCA Purchase and Sale Agreement: A Broker's Guide to What Merchants Are Signing

Every MCA deal starts with a document most brokers rarely read in full: the Purchase and Sale Agreement (PSA). This is the actual contract your merchant signs, and understanding it changes how you present deals, handle objections, and protect your own business relationships.

Most brokers treat the PSA as the funder's paperwork. The brokers who close more deals and generate more renewals treat it as a sales and service tool. This guide breaks down the PSA structure, the clauses that matter most, and how contract fluency gives you a meaningful edge.

Are you a business owner rather than a broker? See what your business qualifies for.

What Is a Purchase and Sale Agreement?

The Purchase and Sale Agreement is the legal document that governs a merchant cash advance. Unlike a loan agreement, a PSA frames the transaction as the funder purchasing a specified amount of the merchant's future receivables at a discount - not lending money at interest.

This legal distinction matters in practice. Courts in many states have upheld that properly structured MCAs are not loans and therefore not subject to usury laws. The PSA is where that structure lives on paper. Brokers who can explain it accurately to merchants avoid the confusion that kills deals at the last step.

To understand how the PSA fits into the broader terminology of alternative finance, see our MCA glossary for definitions of key terms you will encounter in these documents.

The key parties to a PSA are:

• The Funder (Buyer): Purchases the right to receive future receivables at a discount
• The Merchant (Seller): Sells a portion of future revenue in exchange for immediate capital
• The ISO/Broker: Facilitates the transaction and is named in the agreement as the introducing party

The Core Legal Structure: Why Language Matters

The defining feature of an MCA PSA is the purchase-and-sale framing. The agreement states that the merchant is selling a right to receive future revenues - not borrowing money. This creates several practical distinctions that affect how the deal behaves:

• No fixed repayment date: The purchased receivables have no maturity date as written. Payments continue until the full purchased amount is collected.
• No stated interest rate: The cost is expressed as a factor rate, not APR. The PSA contains no interest rate calculation.
• Performance-contingent payments: In theory, if revenue drops to zero, the obligation to remit does too. This is what reconciliation clauses are designed to govern in practice.

When merchants ask about the cost of their advance, help them understand total repayment in plain dollars. You can use our underwriting calculator to calculate factor rates and show exactly what a deal costs before anyone signs anything.

Key Clauses in Every MCA Funding Agreement

1. The Purchased Amount and Purchase Price

Every PSA defines two core numbers: the Purchased Amount and the Purchase Price. The Purchased Amount is what the funder will eventually collect. The Purchase Price is what the merchant receives upfront. The ratio of these two numbers is the factor rate.

Example: A merchant receives $50,000 upfront (Purchase Price) in exchange for selling $68,500 of future receivables (Purchased Amount). The factor rate is 1.37.

Brokers should verify that the Purchased Amount in the executed agreement matches what was quoted on the term sheet. Discrepancies between proposals and final documents are a documented source of merchant disputes and, in some cases, regulatory complaints.

2. The Specified Percentage

PSAs specify the percentage of daily receivables being purchased. This Specified Percentage is what legally connects the advance to the merchant's actual revenue performance. A typical clause reads: Seller shall remit 12% of daily receivables until the Purchased Amount is fully collected.

In practice, most MCAs use a fixed daily ACH amount derived from a projected daily revenue figure. The Specified Percentage stays in the agreement as the contractual backstop - it is what reconciliation is calculated against when revenue changes significantly.

Understanding this distinction helps you explain to merchants why their daily payment is fixed even though the contract describes a percentage. The fixed amount is an operational convenience, not a replacement for the underlying contractual structure.

3. Reconciliation Provisions

This is one of the most important and least-understood clauses in any PSA. Reconciliation is the mechanism that adjusts payments when actual revenue differs substantially from projected revenue.

Most well-drafted PSAs allow merchants to request reconciliation if their revenue has declined. The funder recalculates the correct daily payment based on the Specified Percentage applied to actual bank deposits, then adjusts the ACH accordingly - either up or down.

Key points brokers need to know about reconciliation:

• It is usually a right the merchant must exercise - not something that happens automatically
• Funders typically require recent bank statements to verify the revenue decline before making adjustments
• Reconciliation is not a hardship program or a deferral. It is a contractual adjustment based on the purchase percentage
• Most PSAs set deadlines and response windows for reconciliation requests - merchants cannot wait until they are in collections

When a struggling merchant calls you, knowing how to invoke the reconciliation clause can prevent a default and preserve a relationship. For the full process, see our detailed guide on MCA reconciliation clauses.

4. Events of Default

Default clauses in MCA PSAs are typically broader than those in traditional loan agreements. Understanding what triggers a default - especially the non-obvious triggers - helps brokers coach merchants correctly at funding.

Common default triggers include:

• Changing the merchant's primary bank account without prior written notice to the funder
• Depositing receivables into an account not disclosed at funding
• Blocking, reversing, or disputing ACH withdrawals
• Filing for bankruptcy protection
• Closing or abandoning the business without notice
• Making material misrepresentations in the application or supporting documents
• Granting a security interest in receivables that conflicts with the funder's UCC filing
• Taking on additional financing in violation of the stacking restriction

The bank account change provision is the one that catches merchants most by surprise. A merchant may switch banks for entirely legitimate reasons - a better rate, a banking relationship that closed - without thinking to notify their MCA funder. That omission can trigger a technical default even when every payment has been made on time.

Coaching merchants on this point at funding takes about thirty seconds and prevents a disproportionate number of problems. For a deeper look at what happens when defaults occur and what it means for your commission, see our guide on the MCA default and collections process.

5. Personal Guarantee Language

Most MCA PSAs include a personal guarantee from the principal business owner. This makes the individual personally liable for the purchased amount if the business cannot fulfill its obligations.

Personal guarantee sections in PSAs typically state that the guarantor's obligations are unconditional, absolute, and continuing - meaning the funder can pursue the guarantor directly without first exhausting all remedies against the business entity.

Presenting the personal guarantee proactively, before the merchant gets to the signature page, builds trust and prevents last-minute deal collapses. Merchants who discover the personal guarantee at signing without prior preparation sometimes back out entirely - costing you a funded deal. A brief explanation early in the process is a better experience for everyone.

6. Confession of Judgment Clauses

In states where permitted, some PSAs include a Confession of Judgment (COJ) provision. A COJ allows the funder to obtain a court judgment against the merchant without filing a lawsuit and without providing advance notice to the merchant.

COJ clauses are increasingly restricted. New York prohibited their use against out-of-state merchants following widely publicized abuses in the mid-2010s. Some funders have moved away from them entirely in response to regulatory pressure. If a PSA you are working with contains a COJ clause, confirm which state's law governs the agreement and what enforcement rights actually exist given current law in that jurisdiction.

UCC Filings: What the PSA Authorizes

Nearly every MCA PSA authorizes the funder to file a UCC-1 financing statement against the merchant's assets, specifically their receivables. This public filing establishes the funder's interest in the purchased receivables and puts future creditors on notice.

From a practical standpoint, UCC filings affect what future financing a merchant can access. When a merchant applies for a bank loan or a second advance, the lender will run a UCC search. Existing filings show up and influence creditworthiness assessments and position decisions.

This is one reason why helping merchants find the right funder in our directory at the start matters - placing a merchant with the right funder the first time, rather than stacking positions reactively, results in a cleaner UCC history and more options for the merchant down the line.

Governing Law and Dispute Resolution

Most PSAs specify a governing state and require that any disputes be litigated or arbitrated in that state's courts or forums. Funders typically choose states where courts have a favorable history of upholding MCA structures.

Many PSAs also include mandatory arbitration clauses that direct disputes away from court and into arbitration, often with a class action waiver. These provisions are standard and have been upheld in most commercial contexts, but merchants sometimes flag them as concerns. A straightforward explanation of why funders prefer arbitration - speed, confidentiality, lower cost - addresses most objections.

How Contract Knowledge Closes More Deals

PSA fluency is not just a compliance tool. It is a practical selling skill. Here is how brokers use it:

Handling the Is-This-a-Loan Objection

When a merchant asks if this is a loan, you can accurately explain the purchase-and-sale structure. The funder is buying future revenue at a discount - not lending at interest. This is not a technicality. It is the legal and operational structure of the transaction and the reason MCAs are available to businesses that cannot qualify for bank financing.

Walking Through the Payment Math

Merchants who understand how their daily payment is calculated - factor rate applied to advance amount, divided into a daily figure based on their revenue - are less likely to be surprised, block ACH, or panic when they see debits. Walk through the numbers before signing. A merchant who understands the math is a merchant who renews.

Proactive Coaching at Funding

A two-minute coaching call at or immediately after funding, covering three points, prevents most problems brokers deal with post-funding:

• Do not change your bank account without notifying the funder first in writing
• If your monthly revenue drops significantly, contact the funder proactively about reconciliation before payments become a problem
• Keep your contact information current with both the funder and our office

Merchants who receive this briefing generate fewer defaults, fewer commission clawbacks, and more referrals. The investment is two minutes.

State Disclosure Requirements and the PSA

In states with commercial financing disclosure laws - New York, California, Utah, Virginia, Georgia, and a growing list of others - funders are required to provide merchants with standardized cost disclosures alongside the PSA. These disclosures present the cost of the advance in a standardized format including estimated APR and total dollar cost.

Brokers in these states should understand what these disclosures contain and how they relate to the PSA terms they have already walked the merchant through. A merchant who receives a disclosure showing a high APR figure without context may pump the brakes at the last moment. Having the explanation ready - what APR means for a short-term performance-contingent advance - keeps deals moving. For state-specific requirements, see our multi-state disclosure compliance guide.

Red Flags in Funding Agreements

Not all PSAs are drafted with the same care. When working with a funder new to your panel, reviewing their standard PSA before sending merchants to sign is due diligence. Watch for:

• No reconciliation provision: A PSA without reconciliation creates real risk for merchants in volatile revenue industries. Variable-revenue businesses - restaurants, construction contractors, seasonal retailers - should always be placed with funders whose PSAs include clear reconciliation rights.
• Vague material adverse change language: Clauses that allow funders to accelerate collections based on subjective assessments of the merchant's financial health can be weaponized in ways not anticipated at signing.
• Overly broad stacking restrictions: Most PSAs restrict additional MCAs without consent. Some define additional financing so broadly that routine business financing - a supplier credit line, an equipment lease - could trigger the restriction.
• No cure period before default remedies: Better PSAs give merchants a window to cure technical defaults before remedies are triggered. Agreements that allow immediate action on technical defaults with no cure period are high-risk for merchants.

Broker Representations and Your Exposure

Your ISO agreement with each funder requires you to represent that submitted merchants meet certain criteria. The PSA and your ISO agreement work together. If a merchant you submitted misrepresented their revenue or position count, the funder may have recourse against you under the buyback or clawback provisions of your ISO agreement.

Pre-qualification and documentation discipline protect you here. Running a consistent merchant checklist before every submission and keeping records of what you reviewed is the practical defense against being held liable for a merchant's misrepresentation. For a detailed look at how broker liability and commissions intersect, see our guide on MCA clawbacks and commission protection.

Brokers who want access to funders with transparent program terms and ISO agreements worth reading should create a free broker account on MCA Directory to connect with verified funders directly.

Practical Takeaway

The Purchase and Sale Agreement sits at the center of every MCA transaction, but most brokers have never read one from start to finish. That gap is an opportunity. Brokers who understand PSA structure - the purchased amount framing, reconciliation rights, default triggers, personal guarantee scope, and UCC implications - are meaningfully better at every stage of the deal cycle: presenting, closing, post-funding coaching, and renewal.

Start by requesting a sample PSA from every funder currently on your panel. Read them in parallel. The differences in reconciliation language, default definitions, and personal guarantee scope will tell you more about each funder's merchant philosophy than any pitch deck they have ever sent you.

That knowledge compounds. The broker who can walk a hesitant merchant through their contract with confidence - and tell them exactly what their rights are and what to do if revenue drops - is the broker that merchant calls first when they need funding again.