Most business owners don’t realize this: when an MCA funder sues you, you are not stuck just defending. In a lot of cases, you have real, affirmative claims back against the funder. Sometimes those counterclaims are worth more than what they’re suing you for.
Short answer: You can countersue your MCA funder when the agreement is actually a disguised usurious loan, when they refused to reconcile in good faith, when they misrepresented the terms at funding, when they tortiously interfered with your customers, when they wrongfully enforced their UCC lien, or when their collection conduct crossed into harassment. Each of these is a real cause of action, with real damages, and most MCA funders will settle quickly, when you raise them.
But you have to know what you’re looking at. Below are the 6 situations where you have leverage.
1. The MCA Is Actually a Disguised Loan (And It’s Usurious)
This is the biggest one, and most business owners have no idea it exists.
An MCA is supposed to be a purchase of future receivables. Not a loan. That distinction is the entire reason MCA funders can charge what looks like 80%, 120%, even 200% APR – they say they’re not lending, they’re buying.
Courts in New York, New Jersey, California, and a growing list of other states are rejecting this. They look at three factors: is repayment truly contingent on your sales, is there a finite term, and does the funder bear any actual risk of nonpayment. If the answer is no on any of these (and for most mca agreements, the answer is no on at least one), the agreement gets recharacterized as a loan. And if it’s a loan, the rate is almost always criminally usurious.
What that means for you: the entire balance can be voided. Not reduced – voided. You can recover what you’ve already paid in. And you now have a counterclaim, that completely flips the case.
2. The Funder Refused to Reconcile in Good Faith
Almost every MCA agreement has a reconciliation clause. It says if your revenue drops, you can request that the daily payment be adjusted to match your actual sales.
Here’s the catch: most funders treat reconciliation like a joke. You request it, they ignore you. You send bank statements, they say it’s not enough. You call, you get the runaround.
That’s not just bad service. That’s a breach of the contract they wrote. And it’s also one of the strongest pieces of evidence, that the MCA was never a true purchase of receivables in the first place, but a loan in disguise (see #1).
If you requested reconciliation, in writing, and the funder ignored you or denied you without a real reason – you have a breach of contract counterclaim. You also have ammunition for the usury argument. Both at the same time.
Document everything. Save the emails, save the texts, save the call logs. This is the single most important paper trail you can build.
3. They Lied to You at Funding (Fraud in the Inducement)
A lot of MCA brokers, and funders, will tell you whatever they need to tell you to close the deal.
Common lies include:
- “The factor rate is 1.49, that’s basically a 49% interest rate.” (it’s not, the actual APR is often 5x that)
- “You can renew and refinance any time.” (then they refuse when you try)
- “Reconciliation is automatic if your revenue drops.” (it’s not, see #2)
- Hidden origination fees, ACH fees, and “risk assessment” fees that weren’t disclosed up front
- Promises about future funding that never materialize
If you can show the funder, or their broker, made a material misrepresentation that you relied on when you signed – you have a fraud claim. Fraud claims matter because they get around the contract’s disclaimer language, and in many states, they unlock punitive damages.
The funder’s lawyers know this. It’s why they settle fraud claims faster than almost anything else.
4. They Contacted Your Customers and Destroyed Your Business
When you defaulted, the funder sent UCC notices to your customers, your processor, your vendors. That’s legal in some narrow circumstances.
What’s not legal: how most funders actually do it.
You have a tortious interference claim if the funder:
- Sent notices to customers who don’t owe you receivables that the funder actually purchased
- Made false statements about you, or your business, to your customers
- Contacted parties beyond what the UCC actually authorizes
- Continued contacting customers after you cured, settled, or restructured
- Sent the notices specifically to coerce you, rather than to actually collect
Tortious interference damages are based on the business you lost. Not what you owe. If the funder’s notices cost you a $400,000 customer relationship, that’s the number you’re suing for – not the $80,000 MCA balance.
This is one of the most underused counterclaims in the MCA space, and it’s one of the most powerful.
5. They Wrongfully Enforced the UCC Lien
The UCC-1 the funder filed gives them rights. It does not give them unlimited rights.
Common UCC violations include:
- Filing the UCC-1 with an overbroad collateral description
- Sending notices to parties who aren’t account debtors
- Failing to release the lien after you paid, or settled
- Continuing to enforce after the underlying agreement was voided, expired, or recharacterized
- “Freezing” assets they have no security interest in
Wrongful UCC enforcement is a real cause of action. It’s also one of the easiest to prove, because everything is in writing – the UCC filing, the notices, the dates, the recipients. If the funder overreached, you can show it on paper.
In some states, you can also recover statutory damages for failure to terminate a UCC filing after the obligation is satisfied. That’s money in your pocket, before you even get to the breach claims.
6. The Collection Conduct Crossed the Line
The FDCPA technically doesn’t apply to commercial debt. A lot of MCA funders use that as cover, to do things they couldn’t get away with on the consumer side.
But “FDCPA doesn’t apply” is not the same as “anything goes.” You can still counterclaim when the funder, or their collectors:
- Threatened criminal prosecution they had no basis to bring
- Threatened to call ICE, immigration, or report you to authorities
- Showed up at your home, or a family member’s home
- Contacted your spouse, parents, or children with details about the debt
- Used fake “process server” or “law enforcement” calls
- Threatened violence, or implied it
- Made repeated calls designed to harass, not collect
Depending on your state, this can be intentional infliction of emotional distress, abuse of process, harassment, or violation of state-level commercial collection statutes (some states do regulate commercial collection conduct, even though the FDCPA doesn’t).
Document every call. Save voicemails. Save the numbers. Names of who you spoke with, dates, times, what was said. The funder is counting on you not having a record. When you do, the case changes.
What To Do Right Now If You Think You Have a Counterclaim
If any of the 6 situations above sound familiar, here’s the order of operations:
- Stop talking to the funder directly. Every word you say, can be used against you.
- Pull together your paper trail – the original agreement, every bank statement, every reconciliation request, every email, every voicemail, every UCC filing.
- Get the agreement reviewed for usury and reconciliation language before you respond to anything.
- Don’t sign a confession of judgment, don’t agree to a new payment plan, don’t refinance into a new MCA – any of these can wipe out your counterclaims.
- Talk to someone who actually litigates MCA cases, not a generic business attorney who has never seen one of these agreements.
The funders rely on business owners not knowing any of this. Most defendants roll over, and settle on the funder’s terms, because they think they have no leverage. You almost always have more than you think.
