Business LendingBureau

Glossary

Confession of judgment

A clause in which you agree, in advance, that the lender may obtain a court judgment against you without suing you first, without notifying you, and without you getting a chance to defend. You waive your day in court before any dispute exists.

Reviewed and updated · How we research this

Confession of judgment: A clause in which you agree, in advance, that the lender may obtain a court judgment against you without suing you first, without notifying you, and without you getting a chance to defend. You waive your day in court before any dispute exists.

Why it matters

This is the most aggressive term in commercial finance. With a signed confession of judgment, a lender that declares you in default can walk into a court, file the document, and obtain a judgment, often within days. The first you may hear of it is when your bank account is frozen.

You do not get to argue that you were not actually in default. You do not get to argue that the lender broke the agreement. The defense happens afterwards, if at all, by which point your operating account may already be levied and your business effectively dead.

Where you will meet it

Overwhelmingly in merchant cash advances and some high-cost online lending. Banks and SBA lenders do not use them. The clause may be in the agreement itself or in a separate document signed alongside it, sometimes labeled an affidavit of confession of judgment.

It may not be called that. Look for language about confessing judgment, warrants of attorney, or appointing the lender as your attorney-in-fact to confess judgment on your behalf.

Enforceability varies by state, and the rules have tightened over time — including federal restrictions on their use against small businesses in certain contexts, and state-level limits. But the position differs from state to state and depends on the facts, so treat “I heard those are banned now” as something to verify with a lawyer rather than rely on. Do not sign one on the assumption it is unenforceable.

What to ask before you sign

  • Is there a confession of judgment or warrant of attorney anywhere in these documents?
  • Am I signing any document other than the agreement itself, and what is it?
  • What exactly constitutes default — and can a drop in revenue alone trigger it?
  • Will you remove the clause? (The answer tells you a lot.)

Read next