Confession of Judgment in a Merchant Cash Advance: Overview

A confession of judgment (COJ) in a merchant cash advance is a document the business owner signs in advance, agreeing that if the agreement is breached, the funding partner can get a court judgment without a normal lawsuit. That judgment may let the funding partner move quickly to collect, for example by seeking to freeze bank accounts. COJs are restricted in some places, notably New York since 2019, and the rules vary by state and change over time.

This article is a general overview, not legal advice. If you are reviewing a contract with a COJ, or one has been used against your business, talk to a licensed attorney in your state.

What a confession of judgment is

A confession of judgment, sometimes called a cognovit, is a written statement in which a person or business agrees ahead of time to a judgment against them if certain events happen. In a merchant cash advance, it is typically signed at the same time as the funding agreement, often by the business and the owner who signs a personal guarantee.

In plain terms, it works like this:

1. The business signs the MCA agreement and a separate COJ affidavit.
2. If the funding partner believes the agreement has been breached, it files the COJ with a court.
3. The court clerk may enter a judgment based on the signed document, without a trial and often without advance notice to the business.
4. With a judgment, the funding partner may pursue collection tools allowed in that state, such as bank levies or liens.

The business may learn about the judgment only when a bank account is frozen. Challenging a judgment after the fact is possible in some cases, but it is usually harder and more expensive than defending a lawsuit before judgment.

COJ vs. a standard collection lawsuit

Step	Standard lawsuit	Confession of judgment
Notice before judgment	Usually served with a complaint	Often little or none
Chance to respond	Yes, before judgment	Mainly after judgment
Trial or hearing	Possible	Generally not required
Speed to judgment	Weeks to months, or longer	Can be very fast
Burden on the business	Defend the claim	May need to move to vacate or challenge the judgment

This difference in timing is why COJs drew so much attention in the small-business funding world.

Why COJs became controversial in MCA funding

For years, some MCA agreements included COJs that were filed in New York courts, even when the business and owner lived in other states. Business owners described learning about judgments only after their accounts were frozen. Media reports, lawsuits, and regulatory actions followed, and some state and federal enforcement actions involving MCA companies have included allegations about how COJs were used.

Critics argued that COJs removed basic protections, such as notice and a chance to dispute whether a breach actually happened. Supporters argued they lower risk for funding partners in a product that is often unsecured, which can make funding available to businesses that would not otherwise qualify. Both points come up in policy debates today.

New York’s 2019 change

In 2019, New York amended its law on confessions of judgment. In general terms, the change provides that a COJ can be entered only against a defendant who lives in New York, and generally only in the New York county where that person lives. In practice, this largely stopped the filing of COJs against out-of-state businesses in New York courts.

A few points to keep in mind:

• The change focused on where and against whom a COJ can be entered. It did not ban COJs for New York residents outright.
• Judgments entered before the change may be treated differently, and courts have addressed many related disputes since.
• Some funding partners responded by changing their agreements, and practices across the industry have shifted.

Because the details matter and courts continue to interpret these rules, an attorney is the right source for how they apply to a particular situation.

The broader legal picture

Other states. Some states restrict or do not recognize confessions of judgment, some allow them with procedural requirements, and the rules can differ for consumer and commercial transactions. A COJ that is enforceable in one state may not be in another. Rules change, so check your state’s current law with a professional.

Federal level. A long-standing Federal Trade Commission rule generally prohibits confessions of judgment in many consumer credit contracts. That rule is aimed at consumer credit, not commercial financing such as an MCA. Over the years, federal bills have been proposed in Congress that would restrict COJs in small-business financing. As of this writing, you should check the current status of any such proposal rather than assume it is law.

Disclosure and registration laws. Several states, including California, New York, Utah, Virginia, Georgia, and Florida, have commercial financing disclosure laws, and Texas added registration rules in 2025 for some commercial sales-based financing providers and brokers. These laws generally focus on cost disclosure and registration rather than COJs specifically, but they are part of a broader trend toward more oversight. Our overview of merchant cash advance regulation by state has more context.

Loan vs. purchase. Courts in some cases have looked at whether a particular MCA is truly a purchase of receivables or functions like a loan, often by examining features such as reconciliation and whether repayment is absolute. That question can affect how an agreement is treated. For background, see is a merchant cash advance a loan?.

How to spot a COJ in your paperwork

A COJ is often a separate document in the closing package. Look for:

• A document titled “Affidavit of Confession of Judgment,” “Confession of Judgment,” or “Cognovit”
• Language saying you “authorize entry of judgment” or “confess judgment” for a sum
• A notarization requirement on a separate page
• References to a specific court or county where judgment may be entered

If you see anything like this and are not sure what it means, stop and ask before signing.

Checklist: questions to ask before signing

• Does this agreement, or any document in the package, include a confession of judgment?
• If so, can it be removed? Is there an offer without one?
• Who signs it: the business, the owner personally, or both?
• In what state and court could it be filed?
• What specific events count as a default that could trigger it?
• Is there a reconciliation process if sales drop, and how do I request it? (See merchant cash advance reconciliation.)
• Is there a notice or cure period before any default remedy is used?
• Has an attorney reviewed the full package?

If you are already facing a COJ

• Contact an attorney right away. Deadlines may apply, and options depend on where the judgment was filed and the facts.
• Gather your documents: the agreement, all signed pages, remittance records, bank statements, and any communication with the funding partner.
• Do not ignore notices from your bank or a court.
• Communicate in writing with the funding partner where possible, and keep copies.

Our guide on what to do if you can’t pay a merchant cash advance covers steps you can take before a dispute escalates.

How Tnufa approaches this

Tnufa is an independent funding advisor. Tnufa’s funding partners set their own contract terms and decide on approval. We encourage every business owner to read the full agreement, ask about any COJ or similar clause, and get legal advice when something is unclear. When multiple offers are available, contract terms like these are worth comparing alongside price. Our guide on how to choose a merchant cash advance provider lists more questions, and you can learn about the product on our merchant cash advance page.

The bottom line

A confession of judgment in a merchant cash advance lets a funding partner seek a judgment quickly if the agreement is breached, often without a lawsuit first. New York sharply limited out-of-state COJs in 2019, other states have their own rules, and federal proposals have come and gone. Read every document, ask whether a COJ can be removed, and have an attorney review anything you are unsure about.

Want to see what you qualify for? Check your options. Applying with Tnufa doesn’t affect your personal credit score.

Quick answers

What is a confession of judgment in a merchant cash advance?

It is a signed document in which the business owner agrees in advance that, if the agreement is breached, the funding partner can obtain a court judgment without a traditional lawsuit or trial. It can allow collection actions to begin quickly.

Are confessions of judgment legal?

It depends on the state and the type of transaction. They are restricted or not recognized in some states and settings, and federal rules bar them in many consumer credit contracts. Rules for commercial deals vary, so ask an attorney about your situation.

What changed in New York in 2019?

In 2019, New York changed its law so that confessions of judgment generally can be entered only against people who live in New York, in the county where they reside. That largely ended the practice of filing COJs against out-of-state businesses in New York courts.

Do all merchant cash advances require a confession of judgment?

No. Many MCA agreements do not include one, and practices have shifted since 2019. If an offer includes a COJ, you can ask whether it can be removed or whether other offers are available.

What should I do if a confession of judgment was filed against my business?

Contact a licensed attorney promptly. There may be deadlines and options, such as challenging the judgment, that depend on where it was filed and the facts of your case.

This article is for general educational purposes only and is not legal, tax or financial advice. Terms, pricing and eligibility are set by funding partners and vary by business and state. Tnufa Finance is not a lender.