Validity Guarantee: Meaning in a Merchant Cash Advance
A validity guarantee is the owner's personal promise that the business will follow the contract's rules: keep sales in the named account, not block the debit, and tell the truth in its paperwork. It's a kind of performance guarantee. Usually it doesn't promise that the balance gets paid if sales simply fall, but it makes you personally liable if a covenant is broken.
Where does it show up?
In the guarantee section at the end of the contract, often signed separately. It is sometimes titled guaranty of performance or validity guaranty.
What breaks a validity guarantee?
Actions, not slow sales. Moving deposits to another account, closing the business without notice or giving false information when you apply are the usual triggers. A slowdown reported honestly doesn't break it, which is the main difference from a payment guarantee.
What does it look like in practice?
An owner reconciles after a slow month: the guarantee isn't triggered. The same owner opens a new account and moves card deposits there without telling the funder: the guarantee is triggered, and the funder can pursue the owner for the balance. See the personal guarantee guide.
Which owner question goes with this term?
Can an MCA company sue me? Answers to the questions owners ask about this term, with what to ask the funder.
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.