What to expect when an MCA funder sues your business

The debits stopped clearing in March. You called the funder, left messages, maybe got a verbal payment plan from a rep who has since left the company. Then a process server hands your office manager an envelope with your business name and your own name on it.

That is where most merchant cash advance lawsuits actually begin. Not with a dramatic decision to fight, but with a funder concluding that collection calls have stalled and a filing is cheaper than waiting.

Here is how these cases usually run, stage by stage, so the next several months are less of a shock.

One thing to be clear about before anything else: this is general information about how MCA litigation typically works, not legal advice. No article can tell you what your specific case needs. A licensed attorney has to read your agreement and your court papers before you decide anything.

What usually triggers the filing

Funders rarely sue on day one. A suit typically follows a short list of events:

• Two or more failed ACH debits with no communication from the merchant
• A closed or changed bank account the funder was not told about
• A processor switch that breaks a split funding arrangement
• A new advance taken on top of an existing one in violation of an anti-stacking covenant
• A flat denial that any money is owed, which removes the funder's reason to keep talking

The pattern that draws a filing fastest is silence. Funders run large collection floors, and a merchant who answers the phone is a merchant they expect to collect from eventually. A merchant who has gone dark gets handed to outside counsel.

Where the case gets filed, and why it may not be your state

Open your agreement and find the governing law and forum selection paragraph. On a large share of MCA contracts it names New York no matter where your business operates, because many funders are headquartered there.

That paragraph is how a Georgia landscaping company ends up defending a case in Kings County. Forum clauses are not enforceable in every circumstance, but courts uphold them often enough that you should assume you will be litigating on the funder's home ground unless counsel finds a reason otherwise.

One thing has shifted in the merchant's favor. Before 2019, many funders skipped litigation entirely by filing a confession of judgment, a document signed at closing that let them enter judgment without ever filing suit. New York amended CPLR 3218 in August 2019 to bar entry of a confession of judgment against a debtor who does not reside in New York. That change pushed a large volume of collection activity into ordinary lawsuits, which is a direct reason filings look the way they do today.

The stages, and roughly how long each takes

Service and the response window

The clock starts when you are served, not when you read the papers. Response windows are commonly 20 to 30 days in state court depending on the jurisdiction and how service was made, and 21 days in federal court under Rule 12 of the Federal Rules of Civil Procedure. Missing that window is how default judgments happen.

Early motion practice

New York funders frequently use a motion for summary judgment in lieu of a complaint under CPLR 3213, served together with the summons. It compresses the schedule dramatically and is designed to get a judgment in weeks rather than months. Whether an MCA agreement qualifies for that procedure is itself contested, and it is one of the first things defense counsel evaluates.

Discovery

If the case survives early motions, both sides exchange documents. This is where a merchant's own records start to matter: bank statements, batch reports, emails requesting reconciliation, and any record of revenue decline. Discovery commonly runs three to nine months.

Judgment and enforcement

A judgment is not the end of the process, it is the start of a different one. With a judgment in hand, a creditor can serve restraining notices on banks, levy accounts, docket the judgment as a lien against real property, and pursue accounts receivable. Enforcement is also where a personal guarantee starts to bite, because the judgment reaches the guarantor's assets too.

Who gets named besides the business

Expect the complaint to name every entity and person the funder can plausibly reach. That usually means the borrowing entity, any affiliated entity listed on the application, and each individual who signed a guarantee.

Some complaints also plead fraud in the inducement, typically alleging that the merchant misrepresented revenue or concealed other advances. Those counts matter because fraud claims are harder to discharge in bankruptcy and can raise the stakes of the case considerably.

The defenses that come up most

Defense counsel typically evaluates several angles, and which ones apply depends entirely on the contract and the conduct:

• Whether the agreement is a true purchase of receivables or a disguised loan, which opens the door to usury arguments
• Whether the funder honored its reconciliation obligation when revenue fell
• Whether service was proper and whether the court has jurisdiction over an out of state guarantor
• Whether fees charged at funding matched what the contract permitted
• Whether the amount claimed is accurate after crediting every debit actually taken

That last one is not glamorous, but it is often the most productive. Payoff demands in MCA cases are frequently overstated once every debit, fee reversal, and partial payment is reconciled against the funder's own ledger.

What the funder can and cannot do while the case is pending

Filing a lawsuit does not, by itself, give a funder new collection powers. Until a judgment is entered, it still has only the tools its contract gave it, which typically means continuing to attempt ACH debits and continuing to call.

What does change is the amount at issue. Most agreements accelerate the full remaining payback on default, add a default fee, and shift attorney fees and costs to the merchant. A balance you thought was $74,000 can appear in the complaint as $96,000 once acceleration, a default fee, a returned item fee for every failed debit, and a fee shifting clause are stacked on top.

Two practical points follow.

First, ask counsel about the debits. Whether a funder may keep pulling from your account after declaring default and filing suit depends on the contract and on what your bank will honor. Some merchants close the account, and closing an operating account while an advance is outstanding is frequently itself an event of default and can trigger the guarantee. Do not make that decision alone.

Second, the fee provisions are negotiable in practice even when they are enforceable on paper. Funders regularly waive default fees and reduce claimed attorney fees as part of a resolution, because those line items cost them nothing to give up and make the principal easier to collect.

Most of these cases end in a number

Litigation is expensive on both sides. A funder that has already collected a meaningful share of the payback amount often prefers a negotiated resolution to a judgment it may struggle to enforce against a business with thin assets.

That is the work we do. We handle MCA lawsuits by coordinating the defense with experienced MCA defense counsel while we negotiate directly with the funder on the money. Historically, negotiated resolutions in this space have landed in the range of 40 to 60 cents on the dollar. That describes past negotiations across many files and many funders, not a projection for yours. Every file is different and no outcome can be promised in advance.

What to do in the first week

Calendar the response deadline the day you are served. Pull the funding agreement, the personal guarantee, every bank statement since funding, and the full ACH debit history. Write down the date and substance of every conversation you had with the funder about reconciliation or a payment plan, because that record is often the difference between a weak defense and a real one.

Then get a licensed attorney reading the file. The earlier that happens, the more options stay open.