Short answer: When you default on a merchant cash advance, getting sued isn’t a maybe. It’s a when. Most MCA funders sue within 30 to 60 days of default, and many file in New York regardless of where your business is located. Once the lawsuit is filed, you have a very short window — sometimes as little as 20 days — to respond before the funder gets a default judgment. With that judgment, they can freeze your bank accounts, garnish your receivables, and go after the personal guarantor. If you’ve just been served, the next 72 hours matter more than the next 30 days.
This post walks you through what to do, in the order you should do it.
Why MCA lawsuits move faster than you expect
Traditional lenders drag their feet. They send demand letters. They negotiate. They give you time. MCA funders don’t operate that way, and there’s a reason for that.
Most MCA agreements include a confession of judgment clause, or did until New York largely banned them for out-of-state defendants in 2019. Even without a COJ, MCA agreements typically include a New York choice of law and choice of venue clause, which means you (a business owner in Texas, Florida, California, anywhere) are getting sued in a New York court you’ve never been to. Your local attorney can’t help you. You need New York counsel. The funder knows this. The whole structure is designed to put you on your heels from the first day.
The lawsuits themselves are usually filed by a small group of plaintiff’s firms who do nothing but MCA collection work. They file hundreds of these a month. They have templates. They have the process down to a science. You don’t.
The first 72 hours after you get served
Here’s what to do, in order. Do not skip steps.
1. Read the summons. Find the response deadline.
This is the single most important thing on the document. In New York, you typically have 20 days to respond if served personally, and 30 days if served any other way (mail, substituted service, etc.). Miss the deadline and the funder gets a default judgment, automatically. That judgment is far harder to undo than the lawsuit was to fight.
Write the deadline on a calendar. Set three reminders.
2. Do not contact the plaintiff’s attorney yourself.
This is where business owners hurt themselves the most. You’re stressed, you want to make it go away, you call the attorney listed on the complaint and try to “explain the situation.” Anything you say can and will be used against you. You may also accidentally admit to the debt, or to facts that close off defenses you didn’t even know you had.
Don’t call. Don’t email. Don’t respond to their settlement letter. Not yet.
3. Pull every document related to the MCA.
You need:
- The original MCA agreement (every page, including addendums)
- The bank statements you submitted at application
- The funding statement showing what was wired to you
- All ACH debit records since funding
- Any emails or texts with the broker, the funder, or the underwriter
- Records of any reconciliation requests you made
If you don’t have the agreement, request it from the funder in writing. If they refuse, that’s something your attorney will use later.
4. Get an attorney who actually does MCA defense.
Not a general business attorney. Not your cousin who does real estate closings. An attorney who has fought MCA cases specifically, ideally in New York. There are maybe two dozen firms in the country who do this work seriously. Ask them, point blank — how many MCA cases have you defended in the last 12 months? If the answer is under 20, keep looking.
This is not the time to save money on legal fees. A good MCA defense attorney will often pay for themselves five times over in what they save you on settlement.
5. Decide your posture before you respond.
There are basically three paths from here, and you need to pick one with your attorney before anything is filed.
- Fight it. Argue the MCA was a disguised loan (usury defense), challenge the personal guarantee, contest the calculation of the balance, raise reconciliation defenses. This is expensive and slow but can result in dismissal or a much smaller settlement.
- Settle it. Most MCA lawsuits settle for 40 to 60 cents on the dollar, sometimes less, depending on the funder and your circumstances. The lawsuit is leverage — yours and theirs. Settlement is usually the right answer for most business owners.
- Bankruptcy. If you have multiple MCAs, multiple lawsuits, and no realistic path to pay, this is on the table. Don’t file before talking to a bankruptcy attorney about whether the personal guarantees survive.
What you should NOT do in the first 72 hours
This is just as important as the list above.
- Don’t move money out of your business account. If a judgment hits and they can show you transferred funds to evade collection, you’ve handed them a fraudulent transfer claim on top of everything else.
- Don’t open a new bank account and start running deposits through it. The funder will find it. They have subpoena power. This is one of the fastest ways to turn a civil lawsuit into something that looks like fraud.
- Don’t take another MCA to pay off the one suing you. This is the move that destroys business owners. You stack a 4th, 5th, 6th position on top of an already broken stack, and within 90 days you have five lawsuits instead of one.
- Don’t ignore it and hope it goes away. It won’t. Default judgments get domesticated in your home state. Then your local accounts get frozen. Then your receivables get redirected. Ignoring an MCA lawsuit is the single most expensive decision you can make.
- Don’t lie to your attorney. If you submitted bank statements that were edited, if revenue was misstated, if you took stacks the funder didn’t know about — your attorney needs to know on day one. They can defend almost anything except a surprise.
What happens if you do nothing
In case it’s not clear yet, here’s the timeline.
- Day 20-30: Default judgment entered against you and the personal guarantor.
- Day 30-45: The funder files an information subpoena and a restraining notice. Your business and personal bank accounts (anywhere they can find them) get frozen.
- Day 45-60: Judgment gets domesticated in your home state. Local sheriff or marshal is now involved. Wages, accounts, and assets in your state are now reachable.
- Day 60-90: The funder begins collecting from your customers and processors directly via UCC notices. Your cash flow stops.
Most business owners don’t survive this sequence. The ones who do are the ones who acted in the first week.
Bottom line
Getting sued by an MCA funder is fixable. Getting sued by an MCA funder and doing nothing about it for three weeks is usually not. The funder is counting on you to freeze, panic, or hope. Don’t give them any of those.
Pull the documents. Calendar the deadline. Get a real attorney. Decide your posture. Then respond.
If you’re reading this because you’ve already been served, stop reading and start on step one
