Covenant: Meaning in a Merchant Cash Advance
A covenant is a promise in a contract to do or not do something while the agreement is active. MCA agreements include covenants like keeping your bank account open, not stacking without consent and notifying the funder of major changes.
What does covenant mean?
Representations are about facts at signing. Covenants are about behavior going forward. You promise to keep sales flowing into the account the funder debits, to tell it before you move or sell the business, to send statements when asked and to avoid certain new financing.
Why does covenant matter to your business?
Breaking a covenant is one of the most common ways merchants default, often without realizing it. Switching banks without notice, taking a second advance or changing processors can each breach a covenant even if payments never stopped. Knowing your covenants lets you plan changes the right way.
What if a covenant gets in the way?
If a covenant blocks something your business needs, ask the funder for written consent before you act. Many will agree when you explain.
Which covenants show up in MCA contracts?
Keep the bank account open and in good standing. Deposit all receivables into it. Don't sell, transfer or close the business without notice. Don't take on other receivables financing without consent. Provide statements when asked. Keep your business insured where required. Each one is short, and each one matters.
How do you track your covenants?
Keep a list of your covenants with the contract so you can check it before making big changes.
Where will you see it?
In the covenants or merchant obligations section of the agreement, and in anti-stacking and notice clauses.
Is this legal advice?
This is general information, not legal advice.
Which terms are related to covenant?
The full list is in the glossary. Owners ask about this in What's the difference between an MCA approval and an offer?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.