In recent years, many small business owners have unknowingly fallen victim to the legal mechanism known as a Merchant Cash Advance COJ (Confession of Judgment). On the surface, it may seem like a routine part of a financing agreement. In reality, however, this tool can allow funders to bypass legal due process and aggressively collect funds—often putting businesses on the brink of collapse before they have a chance to respond.
Understanding how Confessions of Judgment work—and how they’re used in the Merchant Cash Advance (MCA) industry—is crucial for protecting your business from sudden bank freezes, aggressive lawsuits, and financial ruin.
What Is a Confession of Judgment?
A Confession of Judgment is a legal clause that allows one party (typically the lender or MCA funder) to obtain a court judgment against the borrower without giving them a chance to present a defense. When a business signs an MCA agreement with a COJ clause, it’s essentially pre-authorizing the funder to go to court and win a case—even without notifying the business first.
While these agreements may appear harmless in a pile of legal documents, they carry serious consequences. If your business misses even one payment, the funder can trigger the COJ, file it with the court, and get a Merchant Cash Advance judgment without ever alerting you.
Why MCA Funders Use COJs
MCA funders rely heavily on COJs because they allow them to enforce payment quickly and with minimal resistance. This tool gives them the upper hand by skipping the usual litigation process and heading straight to enforcement actions.
Some of the tactics used by funders include:
- Freezing Bank Accounts: Once a COJ is entered in court, the funder can garnish business accounts or freeze them altogether.
- Seizing Business Assets: In some cases, sheriffs are authorized to seize equipment, vehicles, or cash on hand.
- Damaging Credit: A judgment can show up on business and even personal credit reports, making future borrowing nearly impossible.
Unfortunately, many business owners are not fully informed about the legal implications of a COJ clause when they sign. Some funders even bury the clause in fine print or present it under confusing language.
The Legal Risks and Lack of Oversight
In many jurisdictions, especially those where COJs are still permitted for out-of-state parties, the courts may not thoroughly review the fairness of the agreement. Funders file the judgment in friendly courts—typically in New York—regardless of where the business operates.
This creates a “legal trap” where businesses operating in other states are subjected to foreign judgments they weren’t even aware of. Even when state laws prohibit COJs for consumer loans, business-to-business MCA agreements often fall through loopholes.
How Businesses Can Protect Themselves
If you’re considering a Merchant Cash Advance or have already signed one, it’s critical to:
- Read the Fine Print: Look specifically for terms like “Confession of Judgment” or any waiver of your right to notice or a hearing.
- Consult a Legal Expert: An experienced attorney can help you identify harmful clauses and negotiate better terms.
- Act Fast if a COJ Is Filed: Once a judgment is entered, time is limited. Immediate legal intervention is necessary to potentially vacate or contest the judgment.
Conclusion
Falling into the trap of a Confession of Judgment can devastate a business—but understanding how these mechanisms work is the first step toward protecting your company. For business owners facing the harsh realities of Merchant Cash Advance judgment enforcement, experienced legal help is essential.
Grant Phillips Law specializes in defending small and medium-sized businesses from predatory MCA practices, including COJs and aggressive funder tactics. With a deep understanding of the MCA industry and a strong track record in courtroom advocacy, the firm provides the legal firepower needed to fight back, safeguard your assets, and restore financial stability.
