What Does an Arbitration Clause in an MCA Mean?
An arbitration clause means disputes under the contract go to a private arbitrator instead of a court. It usually covers both sides, often limits class actions and sets rules for where and how the case is heard, so read it before you sign.
How does arbitration work?
In arbitration, a neutral arbitrator hears both sides and makes a decision, called an award, that's generally binding. It's usually faster and more private than a court case, with fewer procedural steps. Organizations like the American Arbitration Association run the process under their own rules. The Federal Arbitration Act makes written arbitration agreements in commercial contracts generally enforceable, which is why these clauses are common in business financing.
What does an MCA arbitration clause say?
- Which disputes it covers, often any claim about the contract or the relationship.
- Which organization runs the arbitration and whose rules apply.
- Where hearings happen, sometimes in the funder's home state.
- Whether you give up the right to join a class action.
- Whether small claims court is still available.
- Who pays the arbitration fees.
Why does it matter to you?
Arbitration changes how any dispute plays out. If you believe a funder overcharged you or broke the contract, your claim goes to arbitration rather than court. That's not automatically good or bad, but it's different, and you should know it going in.
What should you ask about the clause?
Ask whether the clause lets either side choose court for small claims. Ask who pays the filing fees. Ask where the hearing would happen. Answers to these tell you a lot about how practical a dispute would be.
Is this legal advice?
This is general information, not legal advice. How an arbitration clause applies depends on the exact wording and your state. If a dispute comes up or the clause worries you, talk to a business attorney.
Can you still use small claims court?
Many arbitration clauses carve out small claims court, which lets either side bring a small dispute before a local judge instead. If your clause includes that carve out, a modest disagreement over fees or a payment can often be handled close to home. If it doesn't, even a small dispute follows the arbitration process.
What is a class action waiver?
A class action waiver means you can't join other merchants in a single case against the funder. Each dispute is handled one at a time. These waivers are common alongside arbitration clauses, and courts generally enforce them in business contracts.
Why keep records either way?
Whatever the forum, the side with the better records usually does better. Keep your contract, statements and every email with the funder.
Who picks the arbitrator?
Many clauses name a specific arbitration company and its rules, and those rules explain how the arbitrator is chosen and who pays the filing costs. Some contracts split the costs, and others put most of them on the funder for small claims. Read the named rules before you assume arbitration is cheaper or faster for you. The rules are usually posted on the arbitration company's own site.
How can Afterfirst help with this?
If you're comparing offers and one has an arbitration clause the others don't, call 877-FUND-654. We'll point out the differences so you can weigh them along with the price.
What else do owners ask about this?
- What is a venue or forum clause in an MCA contract?
- What does a jury trial waiver in an MCA mean?
- Should my accountant review my MCA contract?
More short answers on this topic are on the offers and contracts FAQ, and the MCA offer comparison runs the numbers for your own file.
Where do these facts come from?
Have a question we didn't answer?
Ask us on the call. 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.