What Are Your Rights When an MCA Funder Sues You?

Quick answer: Your rights when an MCA funder sues you start with the right to be served and the right to answer. You can raise defenses, ask for their records, and make them prove what you owe. You may fight a confession of judgment. You may ask if the deal was really a loan. Miss your deadline, and you can lose these rights fast.

MCA Wars graphic with a shield and scale icon explaining your rights when an MCA funder sues you

A lawsuit can feel like the end. It is not. It is a new front in the fight.

An MCA is a merchant cash advance. A funder gives you cash now. In return, it takes a cut of your future sales, often by daily debit. When you fall behind, many funders go to court.

Here is what funders do not tell you. They count on you to panic, ignore the papers, or call them to beg. In my years in the MCA industry since 2014, I saw many owners lose by default. They had rights. They just never used them.

You have more rights than you think. Here are the big ones.

The right to proper service. The funder must deliver the court papers the legal way. If they skip steps, a lawyer may be able to challenge it.
The right to answer. You can file a written reply to the court. This is called an answer.
The right to raise defenses. You can tell the court why the funder is wrong.
The right to see the evidence. You can ask for their records. This is called discovery.
The right to make them prove the amount. The funder must show how it got its number.
The right to a hearing. A judge, not the funder, decides the case.

None of these rights work if you do nothing.

How long do you have to answer an MCA lawsuit?

Time is your most important weapon. Do not waste it.

Each state has its own deadline. Many MCA cases are filed in New York. New York law, CPLR 320(a), sets the clock. Papers handed to you in person usually give you 20 days. Most other service gives you 30 days.

If you miss the deadline, the funder can ask for a default judgment. A judgment is a court order that says you owe the money. A default judgment means you lost because you did not show up.

Write down the date you got the papers. Call a lawyer that week.

Can you fight a confession of judgment?

A confession of judgment is a paper some funders make you sign at the start. It lets them get a judgment fast, without a full lawsuit.

New York changed its law on this. The rule is in CPLR 3218. Since August 30, 2019, it blocks New York confessions of judgment against people who live out of state. Many funders had used out-of-state confessions for years.

If a confession of judgment was entered against you, you may still have options. A lawyer can check how, where, and for how much it was filed.

Is your MCA really a loan in disguise?

This is one of the strongest defenses owners raise. Know your enemy here.

An MCA is sold as a purchase of future sales, not a loan. That matters. Loans can be limited by usury laws. Usury laws cap how much interest a lender can charge.

In 2020, a New York appeals court decided LG Funding, LLC v. United Senior Properties of Olathe, LLC. The court looked at three questions to tell an MCA from a loan:

Does the deal have a reconciliation clause, so payments drop when sales drop?
Does the deal have a set end date?
Can the funder still collect if your business goes bankrupt?

If the answers point to a loan, a court may treat it as one. This does not win every case. But a judge can weigh it.

The factor rate matters here too. A factor rate is the number a funder uses to set your payback. For example, a $50,000 advance at a 1.4 factor rate means you pay back $70,000. A lawyer can use those numbers to show the true cost.

What other defenses can you raise?

Here are defenses owners often talk through with a lawyer:

Wrong amount. Fees and penalties may not match the contract.
Bad service. The papers were not delivered the right way.
Time limits. Some claims can expire. Read our guide on how a statute of limitations can defeat old debt.
Arbitration rules. Your contract may send the fight somewhere else. Learn more about forced arbitration clauses in MCA contracts.
Counterclaims. You may have your own claims against the funder. See how owners turn an MCA lawsuit into a counter-offensive.

You also have the right to demand records. Our guide to MCA lawsuit discovery and document demands shows what to ask for.

What about bankruptcy?

Bankruptcy is a legal process under federal law. When you file, an automatic stay starts. This is a court order that stops most collection, including most lawsuits. It is found in 11 U.S.C. Section 362.

Bankruptcy has big costs. It is not right for everyone. Talk to a bankruptcy lawyer before you decide.

What should you never do after you are sued?

Avoid these common mistakes:

Do not ignore the papers.
Do not sign a new deal with the funder before a lawyer reads it.
Do not take a second MCA to pay the first.
Do not move or hide money or assets to dodge the funder. This can be illegal. It is called a fraudulent transfer, and it can make your case much worse.
Do not stop payments or switch banks without legal advice. Your contract may treat that as a default, and it can raise new claims.

Your Battle Checklist

Write down the date you were served.
Find your answer deadline.
Gather your MCA contract and every payment record.
Do not sign anything new.
Call a business debt lawyer this week.
Ask your lawyer about service, defenses, and the loan question.

Common Questions

Can an MCA company sue me personally? Often, yes. Many MCA contracts include a personal guarantee. That is a promise that you will pay if the business does not. A lawyer can check yours.

What happens if I ignore an MCA lawsuit? The funder can ask for a default judgment. Then it may try to collect from your bank or property, as state law allows.

Can I settle an MCA lawsuit after I am sued? Yes, many cases settle. Filing an answer first can protect your rights while you talk. Not sued yet? Read what to do if you cannot make your MCA payment.

You Are Not Alone in the Fight

You do not have to face this battle alone. Join the MCA Wars Discussion group on Facebook to talk with owners in the same fight. Subscribe to MCA Wars for new battle plans each week.

If your MCA default has led to a UCC lien on your business, get help now. A UCC lien is a public filing that gives the funder a claim on your business assets.

Get Your Free Case Review at StopUCC

This article is for education only. It is not legal, financial, or tax advice. Laws are different in each state. Talk to a qualified professional before you make decisions about your business debt.

What Are Your Rights When an MCA Funder Sues You?