Forbearance is a pause, not a resolution. Funders grant it when the alternative is a contested default they would rather avoid. Understanding what that pause actually contains is the precondition for using it wisely.
Forbearance Does Not Toll the Factor Rate
During a forbearance period, the daily debits stop. The balance does not. In most forbearance agreements, the remaining balance continues to accrue under the original terms, meaning the merchant who pauses payments for thirty days does not reduce what is owed. The pause is on collections, not on the obligation. Some funders add a forbearance fee to the balance as a condition of granting the pause, compounding the effect.
This fact appears nowhere in the language funders use when they describe forbearance. They describe it as relief. The balance sheet tells a different story.
The Trigger Conditions Are Not Disclosed in Advance
Funders do not publish what conditions must exist before they will grant forbearance. They do not advertise a revenue decline threshold, a minimum account age, or a maximum number of NSF events that will disqualify an application. The criteria are internal and discretionary. Two merchants with identical financial profiles can receive different responses to identical forbearance requests submitted on the same day.
This discretion is not incidental. It is the architecture of the product. An uncertain path to relief keeps merchants in communication with the funder rather than seeking legal counsel.
Forbearance May Require a Personal Financial Disclosure
As a condition of evaluating a forbearance request, funders often require the merchant to submit personal financial information, including personal bank statements, tax returns, and a schedule of personal assets. The stated purpose is to assess the merchant’s capacity to resume payments. The secondary purpose, which funders do not volunteer, is to identify personal assets available for collection in the event of default under the personal guarantee.
The documentation the funder requests to evaluate your relief application is the same documentation they will use if the application fails and they pursue the guarantee.
The Agreement May Waive Existing Defenses
Forbearance agreements frequently contain a release of claims. The merchant signs the forbearance and simultaneously releases any claims arising from the original agreement or from the funder’s conduct during the collection period. If the funder ignored documented reconciliation requests, withdrew funds during a period when the merchant had given proper notice of a revenue decline, or filed a UCC lien improperly, those claims may be extinguished by the forbearance agreement.
The attorney reviews the release language before any forbearance agreement is signed. A release is a permanent legal act. A pause in debits is temporary. They should not be exchanged.
The Cure Period After Forbearance Is Often Shorter
When a forbearance period ends and payments resume, the modification agreement governing that resumption may contain default and cure provisions that are less favorable than the original contract’s. A merchant who defaults during or after the forbearance period may find that the cure window has narrowed from five business days to two, or that the definition of default now includes a broader set of triggering events than the original agreement contemplated.
Forbearance Is Not Confidential Unless Specified
Some funders share information about merchant defaults, forbearances, and modification agreements with data networks used by other funders to assess credit risk. A forbearance agreement that does not contain an explicit non-reporting provision may result in the merchant being flagged as a risk across the broader MCA market, limiting access to future financing.
Whether that limitation matters depends on whether the merchant intends to seek additional MCA funding, which is usually inadvisable in any case. But the reporting implication should be understood before the agreement is signed.
The Funder Controls the Timing
Forbearance requests take time to process. During that processing period, debits continue. A merchant who submits a forbearance application on Monday morning should not expect the Wednesday debit to pause. The attorney who requests an immediate debit pause as a separate preliminary step, prior to or concurrent with the formal application, changes this dynamic. The pause is achievable. It simply requires someone to ask for it specifically and in writing.
The Forbearance Conversation Is a Negotiation
Funders present forbearance as a program, implying fixed terms and standard conditions. In practice, the duration, fee structure, release scope, and reporting implications are all negotiable. The merchant who accepts the first offer leaves options on the table. An attorney who has negotiated forbearance agreements before knows which terms move and which do not, and can compress weeks of back-and-forth into a shorter process.
A first conversation with Spodek Law Group involves no commitment. But it changes what you know before you walk into any forbearance discussion with a funder.
