Question 1

What happens if I stop paying my merchant cash advance?

Accepted Answer

Most MCA agreements treat missed or blocked payments as a default. Once that happens, the funder may demand the full remaining balance, add default fees, and start collection efforts quickly. Those efforts can include filing a lawsuit, enforcing a personal guarantee, freezing your business bank account, or notifying your customers to pay the funder directly. How fast this moves, and what the funder is actually allowed to do, depends on your contract and the state where the case is filed. Talking to an attorney before you stop paying gives you the most options.

Question 2

Is a merchant cash advance a loan?

Accepted Answer

Funders usually say no. They structure an MCA as a purchase of your future receivables, which can let them avoid state usury laws that cap interest rates on loans. Courts don't always accept that label. Judges look at how the deal actually works — such as whether the repayment period is effectively fixed, whether the funder can collect no matter how your business performs, and whether the reconciliation clause is real or only on paper. If a court decides your MCA is really a loan, the effective interest rate may be illegal, which can change the entire case.

Question 3

Can the MCA company keep pulling money from my bank account or freeze it?

Accepted Answer

Most agreements authorize daily or weekly ACH withdrawals, and many funders keep attempting them even after a default. Repeated failed debits can also trigger bank fees. A bank account freeze is a different step. In general, a funder needs a court judgment or a similar legal process before it can force your bank to hold funds. An attorney can review whether any freeze or levy on your account was properly obtained and whether it can be challenged.

Question 4

Am I personally liable for my business's MCA?

Accepted Answer

Often, yes, at least on paper. Most MCA contracts include a personal guarantee signed by the owner, which lets the funder pursue you individually if the business defaults. The scope of that guarantee matters. Some guarantees only cover certain kinds of default — such as fraud or deliberately diverting receivables — rather than a business simply slowing down. An attorney can read the exact language and tell you how much personal exposure you actually have.

Question 5

What is a confession of judgment, and did I sign one?

Accepted Answer

A confession of judgment is a document where you agree in advance that the funder can get a court judgment against you without a lawsuit or hearing. Many MCA agreements have included one, sometimes buried in the closing paperwork. These have become much harder to use. New York, where many funders historically filed them, changed its law in 2019 to block confessions of judgment against people and businesses located outside the state, and other states restrict them too. If a judgment was entered against you this way, an attorney can review whether it can be vacated.

Question 6

Can the funder contact my customers or put a lien on my business?

Accepted Answer

Most funders file a UCC-1 financing statement, which is a public lien on your business's receivables and sometimes other assets. That lien can make it harder to get new financing while it stays on record. After a default, some funders send UCC notices to your customers telling them to pay the funder instead of you. This can damage relationships and cut off cash flow fast. Whether those notices are valid depends on the agreement and the facts, and an attorney can push back when they go too far.

Question 7

Can I lower my payments if my revenue drops?

Accepted Answer

Many MCA agreements include a reconciliation clause. It's meant to adjust your payments up or down to match a fixed percentage of your actual sales, since the funder is supposed to be buying a share of your revenue. In practice, funders sometimes ignore reconciliation requests, make the process difficult, or never honor it at all. Keep written records of every request and response. A funder that refuses to reconcile can strengthen the argument that the deal is really a loan.

Question 8

I've been sued by an MCA company. What should I do?

Accepted Answer

Don't ignore it. Lawsuits come with strict response deadlines, often as short as 20 to 30 days. If you miss that deadline, the funder can usually get a default judgment without the court ever hearing your side. Gather your MCA agreement, every amendment, your payment history, and any messages with the funder. Then get an attorney's review quickly. Common defenses include arguing the deal is a disguised loan, challenging improper fees, and contesting how the funder calculated the balance.

Question 9

Should I use litigation, debt settlement, or bankruptcy?

Accepted Answer

Each path works differently, and the right one depends on your contracts, your cash flow, and what the funder has already done. Litigation, handled by a licensed attorney, challenges the agreement, the balance, or the funder's conduct in court and often leads to a negotiated resolution — the tradeoff is legal costs and results that depend on the facts. Debt settlement, often handled by a third-party company rather than an attorney, negotiates a reduced payoff, but fees can be high and some funders won't negotiate with third parties. Bankruptcy triggers an automatic stay that stops collection while debts are restructured or discharged, but carries serious, long-lasting effects on the business and possibly your personal credit. An attorney can explain which option fits your situation before you commit to any of them.

Question 10

I have more than one MCA. Can they all be addressed together?

Accepted Answer

Yes, and this is common. Taking several advances at once — called stacking — often happens when one advance's payments squeeze cash flow and a new funder steps in. The combined daily or weekly withdrawals can quickly become unmanageable. Many agreements prohibit stacking, so each funder may claim a default. An attorney can review all of your agreements together, look for defenses in each one, and build a single strategy instead of fighting each funder piece by piece.

Question 11

What should I do if I receive a summons from an MCA lender?

Accepted Answer

Preserve the documents and contact an attorney immediately. In New York, you typically have 20 to 30 days to respond to a summons and complaint. Missing that deadline can result in a default judgment being entered against you — which gives the funder the ability to freeze bank accounts and pursue collection without further court proceedings.

Question 12

Can I fight a merchant cash advance lawsuit?

Accepted Answer

Yes. MCA lawsuits are civil matters, and defendants have the right to contest the claims. Defense strategies include challenging the characterization of the agreement as a loan subject to usury law, raising jurisdictional defenses, contesting the funder's conduct, and disputing the amount claimed. The viability of any defense depends on the specific agreement and facts.

Question 13

Why is the lawsuit filed in New York if my business is in another state?

Accepted Answer

Most MCA agreements include a forum selection clause requiring disputes to be litigated in New York — typically Nassau County or Kings County Supreme Court. Whether that clause is enforceable against an out-of-state defendant is itself a legal question that can be raised as a defense.

Question 14

What is a confession of judgment, and what can I do about it?

Accepted Answer

A confession of judgment (COJ) is a provision in some MCA agreements that allows the funder to enter a judgment against you without filing a lawsuit or giving you notice. New York restricted the use of COJs against out-of-state defendants in 2019, but COJs entered before that change may still be enforceable. An attorney can review whether a COJ entered against you can be vacated.

Question 15

What happens if I ignore the lawsuit?

Accepted Answer

If you do not respond to the complaint within the deadline, the funder will likely seek a default judgment. A default judgment can be used to restrain your bank accounts, garnish receivables, and pursue personal guarantors. Ignoring the lawsuit forecloses options that contesting it would preserve.

Question 16

How long does an MCA lawsuit take?

Accepted Answer

A contested MCA matter typically takes one to three years or more, depending on the court, the issues raised, and the complexity of the case. Funders who expect a quick default judgment often find that a contested case moves on a very different timeline. Cases in New York Supreme Court can take significantly longer when motion practice and discovery are involved.

Question 17

What is a usury defense in an MCA case?

Accepted Answer

A usury defense argues that the MCA agreement is, in substance, a loan — not a purchase of future receivables — and that the effective interest rate exceeds the legal maximum. In New York, the criminal usury threshold for business loans is 25% per annum. A contract that violates this statute may be void and unenforceable. Whether a usury defense applies depends on the specific agreement and how courts in the relevant jurisdiction have analyzed similar transactions.

Question 18

Can a default judgment be vacated?

Accepted Answer

In some circumstances, yes. New York courts have discretion to vacate default judgments when the defendant can show a reasonable excuse for the default and a potentially meritorious defense. The standard varies by court and the specific facts. Acting promptly after learning of a default judgment improves the chances of a successful vacatur motion.

Question 19

What is the difference between an MCA defense and debt settlement?

Accepted Answer

Debt settlement involves negotiating a reduced payoff amount, typically through a third-party company. MCA litigation involves contesting the legal validity of the claim in court — raising defenses such as usury, jurisdictional challenges, or funder misconduct. These are fundamentally different approaches with different legal implications, costs, and outcomes.

Question 20

What documents are important in an MCA lawsuit?

Accepted Answer

The signed MCA agreement, all funding records, bank statements showing withdrawals, any notices or demand letters from the funder, and correspondence with the funder or its agents are all potentially relevant. Preserving these documents promptly — and not deleting communications — is important once a dispute arises.

Question 21

What does a confidential case review involve?

Accepted Answer

A confidential case review is an initial evaluation of the facts and documents in your MCA matter. It does not create an attorney-client relationship. The purpose is to assess whether there are viable legal defenses or claims, and to give you a clearer picture of your options before making any decisions.

Question 22

Does submitting an inquiry create an attorney-client relationship?

Accepted Answer

No. Submitting a case review inquiry does not create an attorney-client relationship. Representation begins only if Hartman Blake agrees to represent you and a written engagement agreement is signed.

Question 23

What should I bring to an initial review?

Accepted Answer

The MCA agreement or funding documents, any notices or court papers you have received, bank statements showing the funding and withdrawal history, and a brief written summary of the timeline and business impact are all useful. You do not need to have everything organized — an attorney can help identify what is most relevant.

Question 24

Can Hartman Blake represent businesses outside New York?

Accepted Answer

Hartman Blake handles MCA matters nationwide. Because most MCA funders file in New York courts regardless of where the business is located, New York litigation is often involved even for businesses in other states. The specific scope of representation depends on the matter.

Common questions about MCA litigation.

Common Questions

Getting Sued

The Legal Process

Working With Counsel

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