Business Backer Lawsuit: 6 Defenses Worth Raising in Your Answer

If your business entered an agreement with the Business Backer, LLC, a Cincinnati, Ohio funder selling loans, lines of credit and purchases of receivables (like merchant cash advances), that did not work out well, you have a path forward even if the company has sued you. You can answer in court, and whatever defense you want the judge to hear has to be included in that answer. In state court in Ohio, you have 28 days after you were served. In federal court in Ohio, you have 21 days. Leaving a good defense out of the answer can waive it, which is why it helps to have an attorney on the case at the outset. Below are the six good defenses for these lawsuits.

1. Call it a loan

You probably know this already, but what the paperwork calls something is only part of the story. If the contract is calling for payments regardless of sales, holds you personally liable and the funder bore no risk of a noncollectable bill, the judge may reclassify this as a loan. A New York court said a judge should look at three things: was there a way to sort out the real amount of receivables owed, was there an end date set, and who paid if the business folded?

If the judge agrees it is a loan, then the court will proceed under lending laws. Criminal usury in New York is charging any interest higher than 25% a year. If your advance deal was charging triple digits, which is common, a court could toss out the whole contract. As of January 2025, the state Attorney General has a $1.065 billion judgment against Yellowstone Capital, a merchant cash advance seller. The court canceled $534 million owed by more than 18,000 small businesses. Ohio’s usury law, by contrast, has lots of exemptions for many business loans.

2. Demand the reconciliation

You may have an option in the contract for reconciliation. Usually this is an option to ask for a lower payment when revenue drops. The funder may stall or decline the request. If that is what happened, save the correspondence as evidence. This refusal shows the funder never planned to take that risk of lower sales.

Getting around the paperwork is always tricky, but one thing that really convinces judges is where you can point to an email or a letter that shows someone refused to live up to a promise. If you have one, tell your lawyer, because that documented refusal is powerful evidence. You need to give your lawyer copies of the agreement, any addenda to it, your bank statements, credit card processing statements and every message about lowering payments.

3. Point to the funder’s conduct

If the funder violated the agreement, then courts can look at its own conduct too. That includes unauthorized debits from your bank account, hidden fees, money taken after a stop order. A court will also look at whatever the broker quoted you, so if the paperwork does not match up with what the broker promised, write it down and save messages showing that. The law recognizes that some deals are so unfair, so one-sided, that a judge will not let them stand.

4. Challenge the service

If you were not properly served, you can attack the judgement on the grounds of improper service. If the papers went to an old address or wrong contact person, the delivery may be invalid. But act fast in federal court. Under a strict rule, you must raise this in the answer or the first motion you file with the court, or else waive it. Leave this one for your lawyer, because the rules are tricky.

5. Attack the confession

A confession of judgment lets the funder get a judgment against you without notice or a hearing. Ohio law says a confession of judgment must be signed beside a warning. If the funder did not handle that right, the judge could throw it out. Also, if you are in Ohio, a confession of judgment must be entered in a court where debtor resides or signed agreement. If you have a confession of judgment, ask your attorney to look at it.

6. Read the guarantee closely

A personal guarantee is a way to make the owner pay personally for what the business owes. If you signed one, however, it may not be as powerful as the funder makes out. These promises can limit what the owner is responsible for. Some may only make the owner pay if there was misconduct. And if you have defenses like fraud to the original deal, you may be able to raise them against a personal guarantee. Do not assume that if you signed one you will have to pay the full balance. Bring the contract to an attorney who can explain what the wording means.

If You Ignore a Lawsuit

If you fully paid, you have to say so in the answer. Other defenses are duress, waiver, or the statute of limitations, which in Ohio is six years for a written contract.

The worst case is if you ignore a lawsuit, because then the plaintiff gets a default judgment. The funder can freeze your bank account and even grab property if you miss the deadline to respond. You do not want to let the case get past you, because it is much harder to reverse a judgment than to answer at the start and get the case back on track. Responding often leads to the funder changing its attitude.

If the funder offered a new deal, that would be its own contract, and could have a confession of judgment included. You never have to sign anything, especially when the pressure is on. And stacking new advances on top of old ones is a kind of debt that will bury you.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.