A performance guaranty is not an unconditional personal guaranty of repayment. Yet owners routinely confuse the two, particularly after a merchant cash advance (MCA) has become difficult to carry.
That misunderstanding can produce a remarkably counterproductive result. An owner who believes business failure will make the remaining purchased amount personally due has a strong incentive to keep the MCA current at almost any cost. When operating cash no longer supports the withdrawals, another advance can look like a way to postpone the personal consequences of default. If that additional financing violates an antistacking obligation covered by the performance guaranty, the effort to avoid personal exposure can become the act that creates it.
A Purchase, Not a Loan
The distinction follows from the nature of the transaction. A genuine MCA is a purchase of future receipts rather than a conventional loan. Because the purchased asset is a stream of receipts that has not yet been generated, the purchaser bears the risk that the merchant will generate fewer receipts than expected or cease operations before the entire purchased amount comes into existence. If the agreement instead requires the purchased amount to be repaid in all events, even when the future receipts are never generated, the transaction begins to look less like a contingent purchase and more like a loan.
New York courts have wrestled with that distinction for years. In IBIS Capital Group v. Four Paws Orlando, the agreement specifically contemplated the possibility that the merchant could fail, cease generating sufficient revenue or enter bankruptcy without owing the ungenerated receipts, provided it had otherwise complied with the agreement. The court emphasized that neither the merchant nor the guarantor would be liable merely because the business failed and the receipts never materialized.
What the Guaranty Covers
The performance guaranty protects something else. The owner may guarantee that the merchant will comply with specified obligations: remit receipts actually generated, maintain required accounts, provide information, refrain from diverting collections or obtain consent before taking additional financing.
Those promises are consequential. Breaching them can create personal liability. They do not amount to a promise that the owner will personally make good on every dollar of future receipts that the business ultimately fails to produce.
How Fear Takes Hold
Distressed owners often hear only the word “guaranty.”
We regularly encounter borrowers who say, “I personally guaranteed it,” when what they signed was a performance guaranty. From there, the assumption is usually that if the MCA stops being paid, the funder can immediately pursue the house, personal savings or whatever else the owner has accumulated.
Collection pressure can harden that belief. Owners routinely recount calls containing some version of “we’ll take your house,” “we’ll come after everything you own” or “you personally guaranteed this.” It is difficult to know precisely what was said in any particular collection call, and an asserted collection position is hardly a legal determination of the guarantor’s exposure. But its influence on a frightened owner can be very real.
If missing tomorrow’s debit means losing the house, finding tomorrow’s debit becomes the priority.
That is where stacking can take on a character that is easy to miss from the outside. The next MCA may not be viewed by the owner as another financing decision at all. It is a way to keep the existing advances current and push off the personal event the owner believes default will trigger.
When Stacking Becomes the Breach
A 2026 Sale of Future Receipts Agreement filed with the SEC provides an unusually clean illustration. It says expressly that the purchaser assumes the risk that receipts may arrive more slowly than projected and may never be fully generated because the merchant’s business fails. The same agreement prohibits the merchant from taking another MCA or loan affecting future receipts without the purchaser’s prior written consent. The owner’s performance guaranty specifically covers that prohibition.
The purchaser has accepted legitimate business failure as part of the economic risk of buying future receipts. What it has not accepted is every action the merchant might take while trying to avoid that failure.
An owner who misunderstands the guaranty can end up reversing those two propositions. He assumes business failure already makes the obligation personal, then takes another advance to prevent that outcome. The later financing may be the conduct that actually breaches the performance guaranty.
The arbitration described in PIRS Capital v. Chen came very close to that fact pattern. The federal decision concerned jurisdiction and remand rather than an independent adjudication of the MCA claims, but it recounts an arbitration in which the merchant’s failure to generate sufficient sales was not treated as an event of default, while violation of an antistacking provision was treated as conduct triggering the guarantor’s obligations.
Antistacking provisions differ. Consent may be permitted or may have been given. A covenant binding the merchant does not necessarily create owner liability unless the guaranty reaches that covenant. Prior conduct may already have created exposure for other reasons. But an owner can begin with a mistaken belief that personal liability already exists and then act in a way that materially changes whether it does.
A Market That Sells Later Positions
Later-position financing is openly sold. Funders market second, third and fourth positions and sometimes considerably deeper positions. Independent sales organization (ISO) programs compensate brokers when transactions fund and when merchants return for additional capital.
For the broker, the incentive is straightforward. Another funded position produces another commission. A merchant already carrying MCA debt is not necessarily screened out of the market; in many programs, that merchant is expressly part of the market. Logic Advance, for example, markets itself as a direct funder, states that it evaluates stacking on a case-by-case basis and pays its ISO partners on repeat transactions and renewals. Logic Advance ISO program
The funder has an economic incentive as well. A later position is another transaction from which the funder purchases a new stream of future receipts at a discount to the purchased amount. The additional risk of sitting behind an existing obligation does not eliminate the opportunity; it becomes part of the underwriting and pricing. Later-position products are commonly priced more aggressively precisely because another claim is already being serviced from the same revenue.
So the incentive to stack is not confined to the broker’s commission. There is a merchant seeking liquidity, a broker compensated for placing it and a funder that can earn another return by putting capital into a later position. Whether that transaction is permitted under the merchant’s existing agreements is a different question from whether there are economic reasons for market participants to make it happen.
That does not establish that every broker or funder knowingly induces a contractual breach. It does mean the commercial incentives surrounding the merchant can encourage exactly the behavior that some MCA agreements restrict.
There is an obvious tension in an industry where one agreement may prohibit additional financing without consent while another participant is actively trying to sell precisely that financing to the same merchant.
The owner experiences both sides at once. A collector is describing the consequences of not paying. A broker is offering enough capital to keep the payments going. Another funder is willing to make the advance. The owner is trying to get through payroll, taxes and Friday’s withdrawals.
Against that backdrop, a misunderstood performance guaranty can exert considerable pressure on the next financing decision.
The New York attorney general’s Yellowstone proceeding provided an unusually public look at how complicated the funding side can become. The state alleged the use of numerous related funding entities and described “side-by-side” transactions in which multiple MCA agreements were entered with the same merchant. In one example, the petition alleges that three Yellowstone subsidiaries entered three separate MCA agreements with Maslow Media Group on the same day.
Those allegations, and the settlements that followed, do not establish that funders generally manufacture performance-guaranty defaults. They do show why questions of affiliation, broker involvement, consent and subsequent financing can look very different after default than they did to the merchant when the money was being offered.
What it Means for Senior Secured Lenders
For the senior secured lender, much of what follows is familiar. Another MCA adds another short-duration claim against operating cash. More of the company’s liquidity goes to debt service. Covenant problems multiply. Collateral performance can deteriorate along with the operating business.
What may be less apparent is why management kept adding positions after the economics had plainly begun to deteriorate.
An owner trying to finance the business may accept expensive capital. An owner trying to protect his house may accept capital he would otherwise reject.
Once personal fear enters the decision, another MCA is no longer being evaluated only against price, cash-flow capacity or productive use of proceeds. The owner believes the advance is buying time against personal consequences. Collection tactics that overstate those consequences can reinforce the decision, while an industry with economic incentives to originate additional positions stands ready to accommodate it.
There is no reliable data measuring how frequently that dynamic causes stacking, and it would be a mistake to suggest that it explains every distressed borrower. Businesses take additional MCAs for all of the familiar reasons businesses take expensive money when liquidity is disappearing. Personal exposure adds another incentive when the owner misunderstands what the performance guaranty actually covers.
A borrower can mistake a performance guaranty for a personal repayment guaranty, become convinced that legitimate business failure will expose personal assets, and take another MCA to avoid that result. The new financing increases the financial strain and weakens the senior credit. If it also violates an obligation covered by the performance guaranty, the desperate attempt to avoid the consequences of a personal repayment guaranty that may never have existed can trigger the very personal exposure the borrower was trying to avoid.
Robert DiNozzi is chief growth officer and partner at Second Wind Consultants, a nationally recognized business renewal and restructuring firm specializing in Article 9 restructuring, financeability restoration, and non-judicial solutions for distressed companies. He also helps oversee Rise Alliance, Second Wind’s Credit Rehabilitation Restructuring division, focused on helping businesses stabilize cash flow, rebuild collateral support and regain access to conventional financing.
DiNozzi is the recipient of the 2026 ABF Journal Legends & Leaders Innovator Award and was recognized by Los Angeles Times Studios as a Banking & Finance Visionary for advancing market-based restructuring frameworks that preserve operating businesses, align stakeholder interests, and create more efficient paths through distress under existing commercial law. He serves on the Global Board of Trustees of the Turnaround Management Association (TMA) and is a frequent contributor to ABF Journal, ABL Advisor and the Journal of Corporate Renewal.