Reserve Funding Group Filed Suit: 7 Questions to Answer Before You Respond

If you received a summons and complaint from the merchant cash advance company that gave you working capital, your first instinct may be to call the funder. The consequences of doing so before you get professional help can be significant. In legal action against your business by any MCA company, including Reserve Funding Group, there are seven areas that you need help to review in this time sensitive circumstance to avoid a default judgment.

1. When is your deadline

Your first question should be, when is my deadline to file a response. The timing of the summons tells you how many days you have left. In New York, you typically have 20-30 days to file a written Answer to a complaint. If you fail to respond to the Complaint by the time it is due, the lender can seek a judgment against you by default. The ramifications of default judgment can be a judgment lien on your business or a freeze on the bank accounts owned by the business.

2. What did they actually file

It is prudent to know exactly what is filed against your business. You need to understand what the complaint specifically states and the claims made against you and what they are seeking. In New York, the funder may file a motion for summary judgment instead of a complaint. In a motion, you must still respond with objections against the claims and arguments in the motion. Every step that a funder takes against you comes with its own deadlines, and you must meet them.

3. Were you properly served

As the basis for a judgment against your business, it must be shown that you were served with legal notice of the lawsuit by the plaintiff. You may be surprised to learn that a process server may serve an employee of your company in order to make valid service on the business. If the lender failed to meet the court rules for service, you may be entitled to relief. It is important that you don’t throw away or shred any documents, as this may come to the Court to attack service and potentially the validity of any judgment entered against you.

Take the case in Kings County in 2022, where Reserve Funding Group got a default judgment for $3,071,716.02 against a business and guarantor, only to have it vacated when they couldn’t prove that they complied with the contractual requirement that the lawsuit papers be sent by certified mail. If a judgment is already entered, watch the deadline for an excusable-default motion (usually one year) - a jurisdiction challenge has no stated deadline. However, in no instance should you fail to meet deadlines if you are trying to challenge service.

4. Are you personally liable

There may be an individual guarantor that is named as a defendant. If you signed a personal guaranty for a merchant cash advance, you may be responsible for the balance. Consequently, the lender can seek judgment against an individual and possibly take action against their personal bank accounts. Some guarantees cover only specific misconduct, not the full balance, so it may be beneficial to investigate whether there are any technical or substantive defenses to the guaranty that can be asserted to free you from the borrower’s debt.

5. Is it really a loan

What was the arrangement in the first place? Was it labeled as a “loan”? Or do the documents provide that it’s a financing arrangement, involving sales and purchases of future receivables? A difference in categorization between a “loan” or “a sale of future receivables” is more than semantics. There are disputes in the courts about whether the funding agreements are actually loans subject to state law limits on interest rates and fees.

In LG Funding v. United Senior Properties (2020), a New York appeals court asked three questions. Did the funding agreement require reconciliation? Was it for a finite term? And if the merchant goes bankrupt, does the funder have recourse? If the funding contract is a sale of receivables, the funder is not limited by what New York law says about interest rates. If it is a loan, however, the state’s rules may prevent a lender from recovering in court.

New York caps interest on criminal usury at 25% a year. MCA effective rates are often in the triple digits. A corporation generally can raise only criminal usury as a defense.

Consider the clause in most funding contracts where the business can request a reconciliation if receipts fall. Many funders ignore or reject requests outright, but documented failure to adjust may be evidence of fixed collections. Regulators seem to agree. In 2025, New York’s Attorney General reached a settlement with Yellowstone Capital where the advances were treated as illegal loans. $534 million of merchant debt and guarantor obligations were canceled.

6. Did you sign a confession

Did you sign what is commonly known as a Confession of Judgment, an agreement providing that if you don’t pay as promised, you’re not entitled to defend a claim? This takes the funder’s burden off in court to prove up its case. Since 2019, New York clerk’s offices can’t even enter confessions against non-New York residents. What counts as non-resident, however, isn’t always straightforward. A business’ New York place of operations counts as a New York location. A confession also must be filed within three years of signing.

7. Fight, settle or something else

If any of the preceding factors can be of benefit to you, you can either fight against the lender’s enforcement of the MCA or negotiate a workable settlement. There are issues with each of these options. By putting up a strong response in court, however, you may bring the funder to the table to settle. But make sure that the settlement papers don’t include a new confession (and sometimes the terms do). Never sign off under pressure. Never stack another advance on top of the one you have. Even if all else fails, you can file for bankruptcy. An automatic stay goes into effect against court actions to collect debts from before the filing.

Meanwhile, don’t move money out of your accounts. Before calling the funder or an attorney, gather all the agreements between you and the funder, all bank statements covering the repayment period, and any written communication between you and the company. Even if you think it may not be relevant, it may be.

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.