9 Defenses That Actually Work Against MCA Lawsuits

This is the big one. And it's the one that terrifies MCA funders.

MCA companies say they're buying your future receivables, they are not making you a loan. That distinction matters, because if it's a purchase of receivables, usury laws don't apply. But if it's actually a loan — and many of them are — then the interest rate is almost always illegal.

Here's how you know if your MCA is really a loan in disguise: does the funder get paid regardless of your revenue? If the daily payment is a fixed dollar amount (not a true percentage of actual daily sales), the funder has no risk tied to your performance. That's a loan. Period. Courts in New York, California, and several other states have ruled exactly this way.

When an MCA gets reclassified as a loan, the effective APR is often 200%, 300%, sometimes north of 500%. That's criminal usury in most states. And when usury applies, the entire agreement can be voided. Not reduced. Voided.

If you signed an MCA before 2019, there's a good chance you signed a confession of judgment (COJ). This is a document that lets the funder get a judgment against you, without suing you, without notice, without a hearing. They just file it with the court and the judgment appears.

Here's what changed: New York banned out-of-state confessions of judgment in 2019. If your business is outside New York, and the funder filed a COJ in New York after 2019, it's void. Done. Even for COJs filed before the ban, courts have increasingly scrutinized whether proper procedures were followed. Most weren't.

And even in states where COJs are technically still legal, they're being challenged on due process grounds. You signed that document at the same time you signed your MCA application — probably without reading it, definitely without understanding it. Courts know this.

Unconscionability is a legal doctrine that says a contract (or specific terms within a contract) can be thrown out if they're so one-sided that no reasonable person would agree to them. MCA agreements are practically built for this defense.

Think about it: you signed a 40-page agreement, on the same day you applied, under financial duress, with no ability to negotiate any terms. The funder had all the leverage. You had none. The terms were presented on a take-it-or-leave-it basis.

Courts look at two things — procedural unconscionability (was the process of signing the agreement unfair?) and substantive unconscionability (are the actual terms unreasonable?). MCA agreements often fail both tests. Default fees that double the balance. Attorney fee provisions that only go one way. Forum selection clauses that force you to litigate in a state you've never been to.

When a court finds unconscionability, it can void the entire agreement or strike the offensive terms. Either outcome is a win.

This one is underused and it shouldn't be. If the MCA funder violated their own agreement before you defaulted, you have a defense.

Common examples:

The funder debited more than the agreed-upon daily amount from your account

The funder changed the ACH amount without your consent

The funder failed to reconcile when your revenue dropped (if the agreement has a reconciliation provision, and most do, the funder is supposed to adjust the daily payment when your sales decline — most never do this, ever)

The funder double-debited your account or debited on days the agreement says they shouldn't

The funder applied payments incorrectly or charged fees not specified in the agreement

If the funder breached first, the legal principle is straightforward: you can't enforce a contract you already broke. This doesn't always get the case dismissed outright, but it gives your attorney serious leverage in negotiation. And it reframes the entire lawsuit from "you owe us" to "let's talk about what you did first."

Almost every MCA includes a personal guarantee, this is how the funder gets to your personal assets (house, car, bank accounts) and not just the business assets. But personal guarantees can be challenged.

If the guarantee was buried in the documentation, if it wasn't properly explained, if you were told verbally that you "wouldn't be personally liable" but then signed a guarantee anyway — these are all arguments. Courts have found personal guarantees unenforceable when there's evidence of misrepresentation by the funder or their broker during the sales process.

And here's something most people don't know: the broker who sold you the MCA is not the funder. If the broker made promises the funder's agreement contradicts, the funder may still be on the hook for the broker's misrepresentations. This is especially true if the broker was acting as the funder's agent (which, functionally, they almost always are).

This sounds technical. It is technical. But it works.

MCA lawsuits are almost always filed in New York, regardless of where your business is. That's because MCA agreements include a forum selection clause that says all disputes will be resolved in New York courts. But forum selection clauses aren't bulletproof.

If you can show that litigating in New York would be unreasonable or fundamentally unfair — you're a small business in Texas, you've never been to New York, you have no contacts in New York — courts can refuse to enforce the clause. This forces the funder to refile in your home state, which costs them time, money, and leverage.

On top of that, many MCA lawsuits have defective service. The funder's process server says they delivered the lawsuit to you, but they didn't. Or they served someone at an old address. Or they served a person who isn't authorized to accept service for your business. If service was improper, the entire case can be dismissed. And this happens more than you'd think — some of these process servers are filing fraudulent affidavits of service.

This sounds obvious but it's surprisingly effective. MCA funders regularly overstate what you owe.

When they accelerate the balance (which they do the moment you default), they're claiming you owe the entire purchased amount minus what you've already paid. But the calculation is often wrong. They'll include fees that aren't in the agreement. They'll fail to credit payments you've already made. They'll add "attorney fees" and "collection costs" that have no basis in the contract.

Your attorney can demand a full accounting — a line-by-line breakdown of every payment received, every fee charged, every debit and credit. Many funders can't produce one. Or the one they produce doesn't match the bank records. When the numbers don't add up, the funder's case gets significantly weaker. Courts don't like it when a plaintiff can't prove the amount they're suing for.

When you took the MCA, the funder filed a UCC-1 financing statement against your receivables. That's standard. But what some funders do after you default is not standard, it's illegal.

Some funders send notices to your customers, your credit card processor, your vendors — telling them to redirect all payments to the funder. Some funders contact your customers directly, tell them you're in default, and attempt to collect your receivables for themselves. This goes beyond what the UCC filing entitles them to do.

If the funder tortiously interfered with your business relationships, you don't just have a defense — you have a counterclaim. And counterclaims change the math entirely. Now the funder isn't just suing you. You're suing them. That's leverage they didn't expect to give you, and it makes settlement much more likely on favorable terms.

Almost every MCA agreement has a clause that says you can't take additional financing without the funder's consent. This is the "stacking clause," and the MCA industry uses it as a weapon. They'll claim you defaulted, not because you missed a payment, but because you took a second MCA from someone else.

But here's the problem with that argument: the funder almost always knew. The second MCA funder ran a check, saw the existing UCC filing, and funded you anyway. In many cases, the original funder's own broker referred you to the second funder. The industry is set up to stack. Everyone knows it happens. Then they use it as a default trigger when it's convenient.

Courts are increasingly skeptical of stacking clause enforcement, especially when the funder can't show they suffered actual damages from the additional financing. If your daily payments were current when you took the second MCA, it's hard for the original funder to argue they were harmed.

If you've been sued by an MCA funder, do not ignore the lawsuit. That's the single worst thing you can do. A default judgment means the funder wins automatically, and now they can freeze your bank accounts, garnish your wages (if you're the personal guarantor), and seize assets.

Respond within the deadline. In New York, you typically have 20–30 days to answer after being served. In other states, it varies. Miss the deadline and nothing else in this article matters.

And talk to an attorney who actually handles MCA cases. Not a general business lawyer. Not your cousin who does real estate closings. An attorney who understands these agreements, these funders, and these courts. The defenses above are real, but they require someone who knows how to deploy them.

The MCA industry is built on the assumption that you won't fight back. Most business owners don't. They assume the agreement is ironclad, that they have no options, that they're stuck. They're wrong. The agreements are full of vulnerabilities. The funders cut corners. The math is often bad. And the courts are paying more attention to these cases every year.

You have more options than you think. But only if you act.