The arbitration clause in your MCA agreement, paragraph by paragraph

Most merchants never read the dispute resolution paragraph. It sits near the end, in the same font as everything else, usually after the section about what happens if you change processors. Then a dispute happens and that paragraph decides where you fight, who decides, what it costs, and whether anyone else ever hears about it.

Arbitration clauses appear in a large share of merchant cash advance agreements. Some are neutral. Many are not. The difference is in details that take ten minutes to check.

Read this as general background on how these clauses function. It is not legal advice, and the enforceability of any particular clause depends on its exact wording and on your governing law. Have a licensed attorney read yours before you act on it.

Six things to check in your own clause

Pull the agreement and find the paragraph. Then work through this list.

Who can elect arbitration. Some clauses are mutual. Others give the funder the sole option to choose arbitration or court, sometimes phrased as arbitration "at the election of the purchaser." A one sided election is common and it means the funder picks whichever forum suits its position after the dispute arises.

Who decides arbitrability. Look for language delegating questions about the scope or validity of the arbitration agreement to the arbitrator. The Supreme Court enforced a delegation provision in Rent-A-Center, West, Inc. v. Jackson, and in Henry Schein, Inc. v. Archer & White Sales, Inc. it held that a court cannot override a valid delegation even when the argument for arbitration looks weak. With a delegation clause in place, you may not get a judge to weigh in at all.

The class action waiver. Nearly every clause has one. The Supreme Court upheld class waivers in AT&T Mobility LLC v. Concepcion and again in American Express Co. v. Italian Colors Restaurant. For an individual merchant this rarely changes much, but it forecloses joining others with similar contracts.

The administrator and the rules. AAA and JAMS are the usual choices, and each has its own commercial fee schedule. The named rules control discovery scope, hearing format, and how the arbitrator is selected.

The seat. Many clauses name New York County or another location convenient to the funder. An in person hearing 1,200 miles away is a real cost, though most administrators now allow virtual proceedings.

Fee allocation. Who pays filing fees, administrative fees, and the arbitrator's time. Some clauses assign all of it to the losing party. Some assign it to the merchant regardless of outcome, and provisions like that are among the most frequently challenged.

Why the Federal Arbitration Act makes these hard to dodge

The Federal Arbitration Act, 9 U.S.C. sections 1 through 16, makes written arbitration agreements in contracts involving interstate commerce valid and enforceable, and it directs courts to compel arbitration where an agreement covers the dispute. Decades of Supreme Court decisions have reinforced a strong policy favoring enforcement.

Challenges do exist. Section 2 preserves defenses that would invalidate any contract, so unconscionability, fraud in the inducement of the arbitration clause specifically, and lack of assent remain available. Courts have refused to enforce clauses with prohibitive cost shifting or wholly one sided terms. But these are uphill arguments, and a delegation clause may send even the unconscionability question to the arbitrator.

When arbitration works in a merchant's favor

It is not automatically bad news.

If your agreement selects New York courts and your business is in Arizona, arbitration with a virtual hearing may be less burdensome than defending a case in Kings County. Arbitration is private, so a judgment does not become a public record that your bank, your bonding company, or your landlord can pull. Timelines are often shorter, which matters when the alternative is two years of accruing fees.

There is a subtler point too. Arbitrators are often experienced commercial practitioners. In a dispute that turns on whether a funder honored a reconciliation obligation, a decision maker who understands commercial finance is not obviously worse than a generalist judge with a crowded calendar.

When it works against you

The costs are real. A commercial arbitration can involve initial filing and administrative fees plus arbitrator compensation billed hourly or daily, which can total several thousand dollars before anyone reaches the merits. Compare that to a court filing fee measured in hundreds.

Discovery is narrower. If your defense depends on proving the funder systematically ignored reconciliation requests across its book, limited discovery makes that much harder to establish than it would be in court.

Appeal rights are minimal. Grounds for vacating an award under section 10 of the FAA are narrow: corruption, evident partiality, misconduct, or an arbitrator exceeding their powers. A legal error alone is generally not enough. An award confirmed under section 9 becomes a judgment with the same enforcement power as any other.

Clauses can be waived by conduct

If the funder filed a lawsuit against you, litigated for months, and only invoked arbitration after a ruling went badly, waiver becomes a live issue. In Morgan v. Sundance, Inc., decided in 2022, the Supreme Court held that federal courts may not condition a finding of waiver on a showing of prejudice, which made waiver arguments more accessible than they had been.

This cuts both ways. If you want arbitration, raising it early matters. If the funder wants it, its own delay may have cost it the right.

How an arbitration actually runs

If your dispute lands in arbitration, the shape of it is predictable.

The demand. One party files a demand with the named administrator, pays the initial filing fee, and serves the other side. The claim amount usually determines which fee tier applies.

Arbitrator selection. The administrator sends a list of candidates with disclosures. Each side strikes names and ranks the rest. Larger claims sometimes call for a three arbitrator panel, which multiplies the cost.

Preliminary hearing. Usually a conference call within the first month or two, where the arbitrator sets a schedule for document exchange, any depositions allowed, motions, and the hearing date.

Exchange. Narrower than court discovery. Document requests are common, interrogatories less so, and depositions are often limited or eliminated entirely.

Hearing. Testimony and argument, frequently conducted virtually. A commercial matter of this size might take one to three days.

Award. The arbitrator issues a decision, sometimes reasoned and sometimes not, depending on what the rules and the parties require.

Start to finish, a commercial arbitration of this scale commonly runs six to twelve months, which is often faster than a crowded court docket. Settlement remains available at every stage, and most of these matters resolve before a hearing ever happens.

What to do with your agreement this week

Find the paragraph and answer four questions in writing: who can elect arbitration, who decides arbitrability, where the seat is, and who pays. Those four answers tell counsel most of what they need to know about the forum you are heading toward.

Then keep the practical picture in view. The forum question decides where a dispute gets resolved, not whether the underlying balance is correct or whether a workable resolution exists. In most files, the more productive path runs through reconciling what has actually been collected and negotiating from there.

That negotiation is the work we do, alongside experienced MCA defense counsel who handles anything filed in court or in arbitration. If you have an agreement in front of you and cannot tell which way the clause cuts, that is a good reason to have someone read it before a dispute forces the question.