Glossary · legal

Arbitration clause

Also called mandatory arbitration, dispute resolution clause.

A contract term sending disputes to a private arbitrator instead of a court, usually alongside a jury waiver and a class action waiver, and usually written to bind one side more than the other.

Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.

What it means

A dispute goes to a paid arbitrator under the rules of a named body such as the AAA or JAMS: private, with narrow discovery and almost no appeal. Awards are enforceable in court. The Federal Arbitration Act makes these clauses broadly enforceable in commercial contracts, and courts generally uphold them between businesses.

In small-business funding agreements the clause rarely sits alone. It usually appears with a jury trial waiver, a class action and collective action waiver, a venue or choice-of-law provision fixing the funder's home state, and a fee-shifting clause. Together those decide where a dispute is heard, by whom, on whose law and at whose cost.

Read the carve-outs. Many agreements require the merchant to arbitrate while reserving the funder's right to go to court for collection, enforcement of the security interest, injunctive relief or entry of a confessed judgment. That asymmetry is the operative part of the clause: the merchant loses court access for claims about the deal, while the funder keeps it for claims about the money.

Cost matters in practice. Commercial arbitration filing and arbitrator fees are borne by the parties, which can make a modest claim uneconomic to bring at all.

Where this one catches people

The class action waiver is doing quiet work. Most merchant claims in this market, over misrepresented terms, undisclosed fees or improper collection, are too small to litigate individually and only ever proceeded as group actions. Waiving that is often more consequential than the choice between arbitrator and judge.

Where you will meet this term

Merchant Cash Advance Working Capital Term Loan Business Line of Credit Equipment Financing

Read next

Attorney reviewHaving a lawyer read the funding documents before signature, which in this market means reading the clauses t… Attorneys' fees clauseThe term making the business pay the funder's legal and collection costs on default, often as a fixed percent… Class action waiverThe term giving up your right to bring or join a class or collective action, so any dispute proceeds only on … Confession of judgment (COJ)A pre-signed admission of liability that lets a funder obtain a court judgment on default without suing you, … Jurisdiction clauseThe provision fixing which state's law governs the contract and where any dispute must be brought — the claus… Waiver of jury trialA clause in which both parties give up the right to a jury in any dispute arising from the agreement, leaving…

Sources and checks

Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.

  1. The Federal Arbitration Act makes written arbitration provisions in commercial contracts valid, irrevocable and enforceable definition
    "A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable".
    Legal Information Institute, Cornell Law School — 9 U.S. Code § 2 - Validity, irrevocability, and enforcement of agreem… Verified against source Checked 10 Sep 2026 by Find Me Funders research desk
  2. Review of an arbitration award is very narrow — the FAA lists only four grounds for vacatur definition
    A court may vacate only "(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators ...; (3) ... misconduct ...; or (4) where the arbitrators exceeded their powers".
    Legal Information Institute, Cornell Law School — 9 U.S. Code § 10 - Same; vacation; grounds; rehearing Verified against source Checked 10 Sep 2026 by Find Me Funders research desk

Arbitration clause — common questions

What does arbitration clause mean?

A contract term sending disputes to a private arbitrator instead of a court, usually alongside a jury waiver and a class action waiver, and usually written to bind one side more than the other.

Where does arbitration clause catch people out?

The class action waiver is doing quiet work. Most merchant claims in this market, over misrepresented terms, undisclosed fees or improper collection, are too small to litigate individually and only ever proceeded as group actions. Waiving that is often more consequential than the choice between arbitrator and judge.

Is arbitration clause the same as an interest rate?

Arbitration clause is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does arbitration clause apply to?

Merchant Cash Advance, Working Capital, Term Loan, Business Line of Credit, Equipment Financing.

Is there a worked example of arbitration clause?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside arbitration clause?

Attorney review, Attorneys' fees clause, Class action waiver, Confession of judgment, Jurisdiction clause.

Has this definition been checked?

Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.