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

Just because you got sued doesn’t mean you have to lose. Your merchant cash advance provider wants you to panic and pay them back what they’re asking for without looking at your options. Do not panic. You have options and you can fight back against the lawsuit. In most places you have 20 to 30 days to answer in writing. Miss that window and you are stuck with a default judgment. There are real defenses, usually centering on the agreement, how the plaintiff treated you or served you, but none of that matters if it is not raised in the right time and manner.

1. The right to answer

The first thing you must do when you get sued is Answer. Answer with a written document that says “I know I got sued and this is my position”. File it with the court. After that, you are ready to fight. Answering is critical to keeping your options open. In New York state court the answer generally has to be within 20 days of service. One exception is when the papers were left with someone else and a copy mailed. Another exception is when the papers were served through a state official. In those two instances, the period can be up to 30 days. In federal court, you have 21 days to answer. If you do nothing, you’ll end up with a judgment. And then it’s really bad. The funder can freeze your accounts, enforce its lien on your equipment, and even pursue the people who signed personal guarantees. The time to fight is right away, not later. Getting a default judgment undone later on is really hard.

2. The right to proper service

Most court systems have rules for how service of legal papers needs to happen. These rules are important and protect the right to due process. Perhaps papers were sent to the wrong address, to a business that is no longer operating, or to someone not authorized to accept service. If that is what happened to you, that can be a great defense, even after a judgment. But don’t count on that. You can be legally served without anyone handing you papers. The funder can serve your business’s registered agent, serve someone else in your business, or serve you by mail. All of those things make the clock start.

3. The right to call it a loan

In some cases, the contract has the merchant agree that the advance is a “sale of receivables”. The law, however, does not always see that the same way. Companies often avoid calling these arrangements “loans” because the rules for lending are stricter. The law looks at what people do, not what they say they’re doing.

When a merchant cash advance provider is asking for a fixed daily payment no matter how much revenue you get, that provider has a fairly fixed return. What that means is, the risk of the funder isn’t really in your revenue, but in your promise to repay no matter what your revenue is. When looking to see if an advance is a loan in disguise, courts in New York usually look at 3 things. One, is there a reconciliation clause? Two, is there a fixed end date to the advance? Three, can the funder keep collecting after the merchant declares bankruptcy?

In New York, knowingly charging more than 25% a year on a loan is criminal usury, a felony. The effective rate on merchant cash advances often reaches triple digits. While corporations generally cannot raise the defense of usury, they can raise criminal usury. And if you prove that a deal is a loan with a criminally usurious rate, New York’s top court has said: that loan is void and the funder can’t collect any principal or interest.

4. The right to reconciliation

Since your sales can change, the agreement usually calls for adjusting what you pay based on reconciling the estimates of revenue to what actually happened. If the funder isn’t doing reconciliations, they aren’t figuring out what you owe in the way the contract says they should. In practice, many funders ignore a reconciliation request, stall it forever, or trim the payment by a token amount. Documentation of the request and refusal to respond is strong evidence that the agreement was for a fixed sum, not a variable share of sales. Write the letters, keep a copy, and follow up.

5. The right to fight a confession of judgment

Many agreements include language letting the provider automatically get a judgment. It is a confession of judgment that the funder can file without ever suing or giving you a chance to respond. Courts can overturn confession judgments, if you can show unfairness or illegality in how the funder got their contract.

New York clamped down on confession judgments against out-of-state defendants in 2019, but left a way for some old contracts and all in-state businesses to still be exposed. In New York, a confession can only be filed in the county where the person sued lived or has a place of business. These also need to be filed within three years of signing. One state has gone further. Texas enacted a law effective September 1, 2025 providing that a sales-based financing contract containing a confession of judgment is void and unenforceable. That means the whole contract, not just that clause, and not just the confession.

6. The right to read the guarantee closely

Lots of agreements are signed by the business and an individual as well. These are personal guarantees, but they don’t always mean what you think they mean. There are three parts here, one, some guarantees are limited and only cover certain misconduct. They are not for the full balance. Two, defenses to the main agreement can sometimes carry over to the guarantee. Three, when the business files bankruptcy, that stops suits against the business but not necessarily against the individual guarantor.

7. The right to push back

Looking at what the funder did and not just what it says about what you did can be a good defense. The paperwork doesn’t always match what happened. Did the funder take money from you in amounts you didn’t agree to? Have you been charged fees that were never in the contract? When they keep debiting after you tell them to stop, that’s money they’re not supposed to be taking. It can also be the basis for counterclaims.

You’re not giving up on defending the case by trying to settle it. Sometimes the best way to negotiate is from a position of strength. Fighting a lawsuit can bring the plaintiff to the table for a deal. It doesn’t always happen, but if it does, you don’t want to make a deal in panic. Do not sign a new contract that adds terms, especially a confession of judgment, without taking a look at what that agreement really says. Don’t stack your debt.