In This Article
- 1.The lawsuit is already moving faster than you think
- 2.First thing you do: read the complaint and identify what type of action it is
- 3.Do not call the funder and try to negotiate on your own
- 4.What you should actually do in the first 48 hours
- 5.1. Do not move money around. Your instinct is going to be to pull cash out of your accounts, move deposits to a new bank, pay yourself before the funder gets it. Don't. This is called a fraudulent transfer, and it gives the lender ammunition to pierce your corporate veil, go after you personally, and potentially escalate to criminal fraud allegations. Courts look at this very unfavorably.
- 6.2. Find an attorney who actually handles MCA defense. Not a general business attorney. Not your cousin who does real estate closings. An attorney who understands UCC Article 9, the three-factor test for loan reclassification (Fleetwood Services v. Ram Capital, the Yellowstone Capital/Delta Bridge NY AG settlement), CPLR 5015 and 5222-a, and the specific procedural mechanics of MCA litigation. This is a niche area of law. Most attorneys don't know it.
- 7.3. File an answer before the deadline. If the funder filed a standard breach of contract action, you have a window (typically 20-30 days, depending on jurisdiction) to file a formal answer with the court. Miss that deadline and the court enters a default judgment against you. The funder wins automatically. No trial, no hearing, no chance to present your side. The number of business owners who lose MCA lawsuits simply because they didn't respond in time is staggering.
- 8.4. Identify your defenses — because you likely have them. Most business owners assume they have no case. This is false. Common defenses in MCA litigation include:
- 9.5. Check whether a UCC lien has been filed against your business. If the funder filed a UCC-1 financing statement (and they almost certainly did, at origination), they may now be sending notices to your customers, your credit card processor, and your bank instructing them to redirect payments. You need to know if this is happening because it will choke your cash flow within days, and your attorney needs to address it immediately, potentially through an emergency motion.
- 10.The timeline is not on your side, but it's not over
You got served. Or you're about to. Either way, you're reading this because an MCA lender has filed a lawsuit against you, and you need to know what to do right now. Not next week. Not after you "talk to a few people." Right now.
Short answer: You have a very limited window to respond to an MCA lawsuit — usually 20 to 30 days depending on your state. If you miss that window, the lender gets a default judgment. And a default judgment means they can freeze your bank accounts, garnish receivables, and seize assets without ever having to prove their case. Most business owners don't realize this until it's already happened.
1The lawsuit is already moving faster than you think
Here's what most people don't understand about MCA litigation. It's not like getting sued by a credit card company. MCA funders use litigation as an acceleration tool, not a last resort. Many of them file in New York, regardless of where your business is located, because New York's courts move fast and the confession of judgment (COJ) laws historically favored lenders. Even after the 2019 COJ amendments that limited out-of-state enforcement, many funders still file in NY and hope you don't show up.
And most business owners don't show up. That's the play.
If you got served with papers and you're in another state, you still need to respond. Ignoring it doesn't make it go away. It makes it worse. Exponentially worse.
2First thing you do: read the complaint and identify what type of action it is
Not all MCA lawsuits are the same. You need to figure out what you're actually dealing with before you do anything else.
Breach of contract — this is the most common. The funder is claiming you violated the terms of the MCA agreement. Could be a missed ACH, could be you switched bank accounts, could be stacking (taking additional financing without their consent). The purchased amount becomes the basis of what they're suing for, plus attorney fees, plus default fees, plus interest.
Confession of judgment (COJ) — if you signed before the 2019 amendments, or you're an in-state NY business, they may have filed a COJ. This is not a lawsuit in the traditional sense. It's a pre-signed judgment that the lender files directly with the court. You already agreed to it when you signed the MCA. The court enters it without hearing your side. You wake up one morning and your accounts are frozen. That's how fast it moves.
Fraud or misrepresentation claims — some funders will allege you made material misrepresentations on the application (fake bank statements, misstated revenue, undisclosed liens). This changes the nature of the case significantly, because now they're not just pursuing a contract claim, they're trying to pierce any defense you might have.
Restraining orders / temporary injunctions — this is the one that terrifies people. Some funders, within days of filing, will ask the court for a temporary restraining order that freezes your personal and business bank accounts. In New York, they can sometimes get these ex parte (meaning without notifying you first). You find out when your debit card stops working.
3Do not call the funder and try to negotiate on your own
This is the mistake that costs people the most. You're panicking, you think you can "work something out," you call the funder's collections team or their attorney and start talking. Everything you say in that conversation can and will be used against you. You're not negotiating. You're giving them information.
And here's the part nobody tells you: the funder's attorney is not there to settle. They're there to extract the maximum amount, as fast as possible. You calling them without representation is exactly what they're hoping for. It's by design.
4What you should actually do in the first 48 hours
51. Do not move money around. Your instinct is going to be to pull cash out of your accounts, move deposits to a new bank, pay yourself before the funder gets it. Don't. This is called a fraudulent transfer, and it gives the lender ammunition to pierce your corporate veil, go after you personally, and potentially escalate to criminal fraud allegations. Courts look at this very unfavorably.
62. Find an attorney who actually handles MCA defense. Not a general business attorney. Not your cousin who does real estate closings. An attorney who understands UCC Article 9, the three-factor test for loan reclassification (Fleetwood Services v. Ram Capital, the Yellowstone Capital/Delta Bridge NY AG settlement), CPLR 5015 and 5222-a, and the specific procedural mechanics of MCA litigation. This is a niche area of law. Most attorneys don't know it.
73. File an answer before the deadline. If the funder filed a standard breach of contract action, you have a window (typically 20-30 days, depending on jurisdiction) to file a formal answer with the court. Miss that deadline and the court enters a default judgment against you. The funder wins automatically. No trial, no hearing, no chance to present your side. The number of business owners who lose MCA lawsuits simply because they didn't respond in time is staggering.
84. Identify your defenses — because you likely have them. Most business owners assume they have no case. This is false. Common defenses in MCA litigation include:
The MCA is actually a loan in disguise (the three-factor reclassification test — if the funder had a guaranteed return regardless of your business performance, it's a loan, not a purchase of receivables, and different laws apply)
The confession of judgment was improperly filed or is unenforceable under the 2019 amendments
The funder engaged in unconscionable conduct (predatory terms, undisclosed fees, interest rates that effectively exceed usury limits when the MCA is reclassified as a loan)
NACHA operating rules violations on the ACH withdrawals
The funder failed to provide proper notice before accelerating the balance
Personal guaranty enforcement issues — particularly if the guaranty was signed under duress or contained material omissions
95. Check whether a UCC lien has been filed against your business. If the funder filed a UCC-1 financing statement (and they almost certainly did, at origination), they may now be sending notices to your customers, your credit card processor, and your bank instructing them to redirect payments. You need to know if this is happening because it will choke your cash flow within days, and your attorney needs to address it immediately, potentially through an emergency motion.
10The timeline is not on your side, but it's not over
MCA litigation is designed to overwhelm you. The speed, the aggression, the account freezes, the calls to your customers — it's all meant to make you feel like you have no options. That's not true. But the window to act is narrow, and every day you wait makes it harder.
If you got served this week, you have days, not months. If you haven't been served yet but you know you're in default, you have a window right now to get ahead of this before the lawsuit lands. Either way, the worst thing you can do is nothing.