6 Things to Know If Your MCA Funder Just Threatened to Sue You

The threat is a tactic. The lawsuit, if it comes, is a proceeding you can win.

An MCA funder threatening litigation is doing what the collection protocol instructs it to do: escalate the pressure until the merchant capitulates. The threat is calibrated to produce a specific response: immediate payment, a partial payment, or a verbal commitment that can be documented and used later. The threat is not calibrated to inform you of the legal landscape, which looks considerably different from what the funder's tone implies.

The Threat May Be the End, Not the Beginning

Not every funder that threatens to sue follows through. Litigation costs money. Filing fees, attorney retainers, service of process, discovery, depositions: these expenses accumulate. Funders evaluate whether the expected recovery justifies the cost. For smaller balances, or for merchants whose assets are limited, the calculation may not support filing.

The threat is free. The lawsuit is not. Funders know this distinction. So should you.

You Have Defenses the Funder Is Not Mentioning

The funder's threat presumes that the agreement is enforceable, that the amount claimed is accurate, and that you have no basis to contest the action. These presumptions are not established until a court examines them, and courts have been examining MCA agreements with increasing skepticism.

Usury challenges, illusory reconciliation defenses, defective confessions of judgment, improper jurisdiction, fraud in the inducement: each of these is a defense that a represented merchant can assert. Each one increases the cost and risk of the funder's litigation. Each one creates the conditions for settlement.

Responding to the Lawsuit Is Not Optional

If the funder does file, you will be served with a summons and complaint. The deadlines are jurisdictional and inflexible. In New York, you have thirty days to respond to a complaint served by mail, twenty days if served by hand. Missing the deadline produces a default judgment: the funder wins everything it asked for without the court considering a single defense.

The worst outcome is not a lawsuit. The worst outcome is a lawsuit you do not answer.

A Threatened Lawsuit Is a Settlement Opportunity

The period between the threat and the filing is the window of maximum settlement leverage. The funder has not yet incurred legal fees. The funder prefers resolution to expense. An attorney's engagement letter, received during this window, signals that the easy path (default judgment) is closed and that the funder must choose between settlement and contested litigation.

Settlements achieved during this window are consistently more favorable than those achieved after filing.

The Funder's Attorney Is Not Your Advisor

DEFENSE TEAM SPOTLIGHT

Todd Spodek

Lead Attorney & Founder

Featured on Netflix's "Inventing Anna," Todd Spodek brings decades of high-stakes criminal defense experience. His aggressive approach has secured dismissals and acquittals in cases others deemed unwinnable.

NY Bar Admitted Multi-State Licensed Federal Courts

Meet the Full Team

The letter or call you receive is from the funder's counsel, not from a neutral party. The representations about what will happen, the deadlines imposed, the consequences described: all of these are framed to serve the funder's interests. You are not receiving legal advice. You are receiving a demand.

Retain Counsel Before Responding to Anything

Do not call the funder's attorney to discuss the matter. Do not send a written response without legal guidance. Do not make a payment in response to a threat without understanding whether the payment resets a legal clock or acknowledges a disputed amount.

An attorney who practices MCA defense will evaluate the threat, assess the agreement, determine the viable defenses, and either negotiate a resolution or prepare an answer to the complaint. The attorney converts a one-sided demand into a two-sided proceeding.

The consultation is free. The threat is not as powerful as it sounds.