A confession of judgment in a merchant cash advance is a signed legal document that allows the funder to obtain a court judgment against the business, without filing a lawsuit or notifying the owner first, if the business defaults on the agreement. For most of the 2010s these clauses were common in MCA contracts. Today they are far less common, banned in some circumstances, and heavily restricted in others, but they have not disappeared. If you are reviewing an MCA agreement or already signed one, understanding exactly what this document does is worth ten minutes of your time.
What Is a Confession of Judgment?
A confession of judgment, sometimes called a cognovit or an affidavit of confession of judgment, is a statement a borrower signs in advance admitting liability for a debt and consenting to the entry of a court judgment if the debt goes unpaid. It waives the borrower’s right to be sued, notified, and heard before judgment is entered.
That waiver is the entire point. In a normal collection dispute, a funder has to file a lawsuit, serve the business, and win before it holds a judgment. With a signed confession on file, the funder can skip those steps.
How It Works in Practice
The document is signed at funding, alongside the advance agreement, and then it sits dormant. Nothing happens as long as payments continue. If the funder declares a default, it can file the confession with a court clerk, and the clerk can enter a money judgment without a hearing. From there the funder holds the same collection tools any judgment creditor holds, including bank levies and liens, often before the owner realizes anything was filed.
The speed is what made these clauses attractive to funders and dangerous for borrowers. A process that normally takes months compresses into days, and the business owner’s opportunity to raise a defense, such as disputing whether a default actually occurred, effectively moves to after the judgment instead of before it.
Why MCAs Became Associated with These Clauses
The federal government banned confessions of judgment in consumer credit back in the 1980s, but that rule never applied to business lending. As merchant cash advances grew through the 2010s, some funders paired a fast product with the fastest collection remedy available, and a wave of judgments entered against small businesses followed, many filed in New York courts against owners who had never set foot in the state. The resulting scrutiny, from journalists, courts, and legislators, is what triggered the crackdown that reshaped the practice.
Our comparison of a merchant cash advance vs a business loan covers how MCA agreements differ structurally from loans, which is useful context for reading any advance contract.
✓ 6+ months in business
✓ $15,000+ monthly revenue
✓ Active business bank account
The New York Ban and the State Patchwork
New York was the center of the practice, and New York ended most of it. In August 2019, the state amended its confession of judgment statute through Senate Bill S6395, barring the filing of confessions of judgment against debtors who do not reside in New York. The legislature stated plainly that the change was meant to remedy abuses by creditors against out-of-state debtors. For a business in Florida or Texas, that closed the New York courthouse door that many MCA confessions had been written to use.
The rest of the map is a patchwork. Some states refuse to enforce confessions of judgment in most circumstances, others allow them with procedural limits, and a few still permit them broadly in commercial transactions. After 2019, many funders dropped the clauses entirely rather than manage that patchwork. Fewer agreements include them now, which is exactly why the ones that do deserve your attention.
How to Check Your Agreement
Before signing, search the paperwork for the phrases “confession of judgment,” “affidavit of confession of judgment,” “cognovit,” and “warrant of attorney.” The confession is often a separate document presented with the main agreement rather than a clause buried inside it, so review everything in the signing package, not just the advance contract. Note the county and state where any confession says judgment may be entered. And ask the funder directly whether a confession of judgment is part of the deal. A funder with clear terms will answer that question in one sentence.
If You Already Signed One
A signed confession only matters if the funder declares a default, so the practical priority is staying out of default, and communicating early when revenue drops. Most MCA agreements include remedies short of default, and funders would generally rather adjust than litigate. If your revenue has fallen, ask about reconciliation. If the business is winding down entirely, the picture is different, and our article on what happens to a merchant cash advance if you close your business walks through that scenario, including how remedies like these fit into a closure. If a confession has already been filed against you, that is a moment for a business attorney, since the grounds for vacating a judgment are narrow and deadline-driven.
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Frequently Asked Questions
Are confessions of judgment still legal?
In business transactions, they remain legal in some states and restricted or unenforceable in others. New York, once the main venue for MCA confessions, barred filings against out-of-state debtors in 2019. Whether a specific clause is enforceable depends on the state where the funder tries to use it.
Do all merchant cash advances include a confession of judgment?
No. They were common in the 2010s but many funders removed them after the 2019 New York change and the scrutiny that came with it. The only way to know about your agreement is to read the full signing package and ask the funder directly.
Can a confession of judgment be vacated?
Sometimes, but the grounds are narrow, such as defects in the affidavit or a judgment entered where the law did not permit it. Deadlines run quickly once a judgment is entered, which is why owners in that position should involve a business attorney immediately.
How do I know if my MCA agreement has one?
Search every document in your signing package for “confession of judgment,” “affidavit of confession,” “cognovit,” or “warrant of attorney.” It is frequently a standalone document rather than a paragraph in the main agreement. If you cannot find a clear answer, ask the funder to confirm in writing.
