7 Rights You Have When an MCA Company Sues You (That They Do Not Want You to Know)

The lawsuit is designed to make you feel like the outcome has already been decided. It has not.

MCA funders sue merchants with regularity and with speed. The complaint is typically a breach of contract claim, filed in a jurisdiction specified by the agreement (most often New York), styled in language that implies the funder's entitlement to the full accelerated balance is beyond dispute. The serving of process is itself a pressure tactic: the clock begins running the moment you receive the summons, and in New York, you have thirty days to respond (twenty if served by hand). The funder knows that many business owners, overwhelmed and unrepresented, will not respond in time.

That failure to respond produces a default judgment, which is a judgment entered without any consideration of your defenses, your rights, or the enforceability of the agreement. The funder wins by absence, not by argument.

You have rights. They are specific, they are substantial, and they exist whether or not the funder acknowledges them.

The Right to Challenge the Agreement as a Disguised Loan

New York courts apply a three-factor test to determine whether an MCA is a true purchase of future receivables or a loan subject to usury limits. The court examines whether the agreement contains a genuine reconciliation provision, whether the funder lacks recourse if the merchant declares bankruptcy, and whether the funder bears meaningful risk tied to the merchant's revenue.

If the agreement fails this test, it is a loan. And a loan with an effective APR of one hundred, two hundred, or eight hundred percent violates New York's civil usury cap of sixteen percent and its criminal usury cap of twenty-five percent. The remedy is not a reduction in the amount owed. It is the potential voiding of the agreement entirely.

The January 2025 Yellowstone Capital settlement, which resulted in a billion-dollar judgment and the cancellation of over five hundred million in merchant debt, was built on this precise argument. The advances were loans. The rates were usurious. The contracts were unenforceable.

You have the right to make the same argument about your contract.

The Right to Demand Reconciliation

If your MCA agreement contains a reconciliation clause, and virtually all of them do, you have the contractual right to request an adjustment to your daily payment when your revenue declines. This right is not contingent on the funder's goodwill. It is a term of the contract they drafted.

If the funder refused to reconcile, or ignored your request, or imposed documentation requirements designed to prevent reconciliation from occurring, their conduct supports the argument that the clause was illusory. An illusory reconciliation clause is evidence that the agreement is a loan, not a purchase of receivables.

The clause was written to defeat a legal challenge. It was not written to be used.

Your right to reconciliation exists independently of the lawsuit. But it is most powerful when asserted as a defense within it. The funder sues for breach of contract. You respond that the funder breached first, by refusing to honor the reconciliation provision their own agreement required.

The Right to Challenge a Confession of Judgment

If the funder obtained a judgment against you through a confession of judgment, you have the right to move to vacate that judgment. The grounds include improper jurisdiction (the 2019 New York amendments prohibit COJ filings against out-of-state businesses), fraud or misrepresentation in the affidavit of default, procedural deficiencies in the filing, and the invalidity of the underlying agreement.

Confessions of judgment are vacated with regularity. The funder prefers that you do not know this. The entire utility of a COJ depends on the merchant's belief that the judgment is final and unassailable. It is neither.

The Right to Dispute the Amount Claimed

The accelerated balance the funder claims in its complaint is the full remaining amount under the factor rate. But that number assumes the agreement is enforceable as written. If the agreement is reclassified as a loan, the amount owed is recalculated using legally permissible interest rates, not the factor rate. The difference can be tens of thousands of dollars.

Even if the agreement is not reclassified, the amount claimed may include fees, penalties, and charges that exceed what the contract authorizes. Funders do not always limit their claims to the contractual balance. They add attorneys' fees, default interest, and collection costs that may not be supported by the agreement's terms.

You have the right to contest every dollar.

The Right to Assert Counterclaims

A lawsuit is a two-directional proceeding. The funder sues you for breach of contract. You have the right to assert counterclaims against the funder for its own misconduct.

Potential counterclaims include usury (if the agreement is a disguised loan with rates exceeding statutory limits), fraud in the inducement (if the terms of the agreement were misrepresented at signing), breach of the implied covenant of good faith and fair dealing (if the funder's conduct undermined the purpose of the agreement), violations of state consumer protection statutes (which some jurisdictions apply to commercial transactions involving small businesses), and tortious interference (if the funder contacted your customers or vendors in a manner that damaged your business relationships).

Counterclaims change the dynamic of the litigation. A funder pursuing a breach of contract claim against an unrepresented merchant expects a default judgment. A funder facing counterclaims from a represented merchant faces discovery, depositions, and the possibility of liability. The cost calculus shifts.

Most MCA funders prefer not to examine it too closely.

The Right to Respond (And the Consequence of Not Responding)

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This is the most important right and the one most frequently forfeited. If you are served with a summons and complaint and do not respond within the jurisdictional deadline, the court will enter a default judgment. That judgment carries the full accelerated balance the funder claims. It can be enforced immediately through bank account restraints, wage garnishment (for personal guarantees), and asset seizure.

A default judgment is not a finding that the funder's claims are meritorious. It is a finding that you did not show up. The court did not evaluate the agreement. It did not consider your defenses. It simply recorded that the funder asked for a judgment and no one objected.

Default judgments can be vacated, but the process is more difficult and more expensive than responding in the first instance. The simplest, most cost-effective legal action available to a business owner facing an MCA lawsuit is answering the complaint on time.

If you have been served with an MCA lawsuit and the deadline is approaching, contact an attorney today. Not tomorrow. Today.

The Right to Negotiate from Strength

Every right described above is a form of leverage. Usury challenges, reconciliation defenses, COJ vacatur, counterclaims: each one increases the cost and risk of litigation for the funder. And funders, despite their aggressive posture, are economic actors. They prefer settlements to trials. They prefer certainty to risk. They prefer a negotiated resolution to the possibility that a court will reclassify their agreement and void the obligation.

When you respond to an MCA lawsuit with a competent defense, the funder's calculus changes. The case that was supposed to produce a default judgment now requires actual litigation. The funder must pay its attorneys. It must produce documents. It must defend the agreement it drafted. And the longer the case proceeds, the greater the chance that the court examines the agreement's structure and arrives at a conclusion the funder would prefer to avoid.

The right to negotiate from strength is not a right the contract grants you. It is a right that competent representation creates.

A consultation is where that representation begins.