9 Terms in Your ByzFunder Agreement That Matter Once Suit Is Filed

If ByzFunder sues on a merchant cash advance, the funder will rely on the agreement you signed. Beyond the obvious questions of reconciliation and breach, it will matter whether the deal is a true sale, or it is really a loan. Once suit is filed, understanding nine key provisions will probably be more helpful than most other arguments you come up with.

1. Read the cover page

In one December 2023 agreement, the title is “Revenue Purchase Agreement and Security Agreement and Guaranty of Performance,” and the signers are identified as Byzfunder NY LLC, the merchant and one or more individual guarantors. Is the contract between you, an individual, and your business, or only the business? The name of the agreement doesn’t necessarily indicate the true nature of the deal. The fact that these funders don’t call them loans doesn’t necessarily mean that they are not.

2. The reconciliation clause

This determines if the amount you’re repaying each day can change if your business falls off. This matters to a New York court, because the clause can help it figure out whether the deal is a loan or not, and it is the first of three questions those courts ask.

In ByzFunder v Octagon Constructors (Nassau County, 2023), a guarantor argued that the reconciliation clause was meaningless, but offered nothing beyond their own statement to show one had ever been requested. The court rejected the argument. The judgment turned on proof, not language. If sales drop, preserve your rights by making a written reconciliation request under the clause. Send your bank and payment processor statements with this request to prove the argument. A claim is more believable if it comes up in writing early.

3. No fixed end date

In New York, this is the second question a court will ask if you claim the deal is a loan. In Byzfunder NY LLC v Holy City Collision (Ontario County, 2023), the fact there was no end date to the agreement helped convince the court the deal was a sale of receivables, not a loan, in that case. Like other questions, this doesn’t decide the issue by itself, but it is a big part of it.

4. What happens in bankruptcy

Is bankruptcy an event of default? That’s the third question a New York court looks at to determine whether the transaction is a loan or not. In Holy City, the contract said that bankruptcy was not an event of default, which helped the court find that the deal was a sale of receivables rather than a loan.

Byzfunder NY LLC v Mullins Renovation (Erie County, 2025) shows that the answer is not always easy to tell. In that case, the merchant had already used the reconciliation clause once. But the court still found that the agreement was not a loan, and enforced it, because there was no fixed end date and the deal did not allow recourse against the merchant in the event of bankruptcy. You have to look at the whole contract.

5. The New York law clause

This tells you which state’s law decides the case. If the deal turns out to be a loan, that can have a huge impact. In New York, criminal usury is a defense for interest above 25% a year. In 2021, the highest court of the state of New York said a corporate borrower can raise it, and that such a loan is void from the start. Because Holy City found there was no loan, it rejected the usury defense.

Also check: do you have a right to jury trial? Courts in New York enforce jury waivers in advance, while those in California do not. Look for a waiver.

6. The personal guaranty

The guaranty says whether the funder can sue the owner of the business personally, as well as the business. In most commercial advance agreements, there is one, although it often goes by the name performance guaranty. Mullins shows that the funder can. In that case, the court entered summary judgment on a roughly $54,000 merchant cash advance against the merchant and owner together.

7. The security agreement

It gives the funder a lien against your receivables. Funders register this document with a UCC-1 statement, which tells other lenders that there is a lien against your business assets. That can make it hard to get other financing, because funders usually put a blanket lien on your receivables. So always be sure to have any settlement require them to file a UCC-3 termination statement to remove their lien from the state record.

8. The confession of judgment

It is a clause that allows the funder to ask a court to enter a judgment without a lawsuit. However, there are limits on how it can be used. Look out for the date you signed it: in New York, it is good for 3 years, and a funder can file it for a judgment in the county where you lived when you signed or where you live now. These clauses can still be used if you live in New York, but not if you live in another state. The state stopped allowing them against out of state borrowers in 2019.

9. Default fees

Does the deal give the funder fees for blocked ACH debits? If so, ask: is this a fee, or a penalty? The court in Holy City reportedly refused to enforce a $2,500 default fee, finding it was a penalty rather than an estimate of actual damages, and the funder was limited to collecting its real losses instead. Don’t revoke the ACH authorization and don’t close the accounts without a plan, because that usually triggers a default.

Once you are served in New York, be sure to respond within 20 days if served personally or 30 days for other service: a judgment can add 9% interest a year.

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.