Guide · Merchant cash advances, explained
What is a confession of judgment, and should you sign one?
By Alex Makowski Published
It is a document signed at the outset in which you agree, in advance, that judgment can be entered against you without a hearing if the funder says you defaulted. You give up the right to defend yourself before there is anything to defend. New York restricted them against out-of-state businesses in 2019, but they have not disappeared.
In this guide
Submit an application- Won't affect your credit
- Free, no obligation
- Up to $500K
01
What it lets a funder do
With a signed confession of judgment, a funder that declares a default can file it with a court and obtain judgment without notifying you and without you being heard.
The practical consequence is a frozen bank account, sometimes as the first you learn of it. Unwinding that means moving to vacate the judgment, which costs money and time you are unlikely to have in that week.
It converts a commercial disagreement into an enforcement action, and it does so on the funder's say-so about whether a default occurred.
02
What changed, and what did not
New York — where a very large share of these agreements were filed, because of the volume of funders based there — amended its law in 2019 so confessions of judgment could no longer be entered against debtors located outside the state.
That closed the most abused route. It did not abolish the instrument, and agreements governed by other states' law can still include them.
Governing law is therefore worth reading. Which state's courts hear a dispute, and where you can be sued, are terms as real as the factor rate.
03
What to do if one is in front of you
Ask for it to be removed. Plenty of funders will write the deal without one, and asking tells you a great deal about who you are dealing with.
If it is not negotiable, treat that as information about the offer rather than as a formality. It is the term that determines what happens on your worst month, not your best.
Have a lawyer read it. This is the one clause in a funding agreement where an hour of legal time is unambiguously worth the cost.
Written by
Alex Makowski, Owner
Alex Makowski owns and runs Business Loans for America and has been placing funding for U.S. small businesses since 2021. Businesses he has worked with have secured $50M+ in financing across 1,200+ placements. He writes and reviews every guide on this site.
FAQ
Related questions.
- Is a confession of judgment legal?
- In many states, yes, in commercial agreements. New York restricted its use against out-of-state debtors in 2019. The rules vary by state, which is why the governing-law clause matters.
- Do all funders require one?
- No. Many write deals without one, and asking for its removal is a normal negotiation rather than an unusual request.
- What is a personal guarantee — the same thing?
- No. A guarantee makes you personally liable for the debt. A confession of judgment removes your ability to contest the claim. An agreement can contain both.
Guides
More on merchant cash advances, explained
Advance vs loan
The loan is cheaper. The question is whether you can get one.
No card sales?
Yes — most advances now underwrite bank deposits, not card settlement.
If you default
The personal guarantee and the UCC filing are what actually bite.
How repayment works
Fixed daily ACH or a share of card sales — and they behave very differently.
If your sales drop
Reconciliation is the clause that decides this, and it is often discretionary.
Taking a second advance
Legal, common, and the fastest route from a hard month to a closed business.
Sources
- Cornell LII — Confession of judgmentWhat a confession of judgment is: a clause, usually inside the contract, that lets a creditor obtain a judgment on a missed payment, often without notice or a hearing.
- Federal Trade CommissionEnforces against deceptive practices in small-business lending and marketing.
- FTC — Report FraudWhere to report advance-fee and business-funding scams.
- Consumer Financial Protection BureauFederal consumer-finance regulator. Publishes guidance on credit terms and disclosure.
One application, every lender we work with
Find out what you qualify for before you need it.
Eleven questions, about two minutes. You see offers side by side and take one, or none.
- Won't affect your credit
- Free, no obligation
- Decisions usually inside 24 hours
- Up to $500K