Client signing merchant cash advance document

What To Do If Your Business Is Hit With An MCA Lawsuit

Small businesses that face cash flow challenges often take a merchant cash advance (MCA) to cover their expenses. Businesses that get behind on payments may face an MCA lawsuit alleging a breach of contract.

Merchant cash advance lawsuits are often filed in New York because the state’s laws are more favorable for MCA providers. These companies often include a stipulation in MCA agreements that allows them to file lawsuits in New York, even if your business is not located there. If your business is facing an MCA lawsuit, it takes an experienced MCA debt relief lawyer to protect your rights. 

What Happens in an MCA Lawsuit?

The first thing to know is that your MCA provider may not need to file a lawsuit to recoup the advance. Many MCA agreements include a provision known as “confession of judgment” whereby you acknowledge liability for the advance and waive any defenses. This allows the funder to obtain a judgment against you and begin levying your business assets. 

If your MCA agreement does not include this provision, the MCA provider may decide to file a lawsuit. In this situation, you will be served with an official complaint and court summons. The paperwork may be served directly at your home or business or through the mail or email. 

The summons will also include a deadline, typically 30 days, by which you need to file an answer. If you fail to do so, the MCA provider will file a motion for default judgment and move to freeze your accounts and place liens on your property. For this reason, it is crucial to contact an attorney with experience defending businesses against merchant cash advance lawsuits in New York.

How An MCA Attorney Can Help

An experienced MCA debt relief attorney can take several steps to defend you against an MCA lawsuit, including: 

Determine Whether the MCA Provider Followed the Law

Even though merchant cash advances are not strictly regulated, you have certain rights under an MCA agreement. An experienced MCA attorney can identify any questionable terms under the contract and determine if the funder violated any debt collection laws, and, if so, move to have the case dismissed. 

Assess the Validity of the Lawsuit

Your attorney can also determine if the breach of contract lawsuit is valid. For example, your lawyer can force the funder to prove that you are liable for the advance or review the contract to determine whether a judgment that has been entered against you is valid.  

Determine Whether You Were Properly Served

If the court documents and summons contain errors or were improperly served, an MCA debt relief attorney can ask the court to dismiss the case. 

Help You Reconcile Your Merchant Cash Advance

A typical MCA agreement includes a reconciliation clause that requires the funder to restructure the payment plan if your business experiences a downturn. An experienced MCA debt relief attorney can help to show that your business has experienced a receivables shortfall and demonstrate that your business will return to profitability. Under the reconciliation clause, the MCA provider may accept lower withdrawals from your daily credit card sales and/or extend the repayment term until your receivables meet the initial projected target.

The Bottom Line

A merchant cash advance can provide your business with working capital in the event of cash flow shortages. However, defaulting can result in an MCA lawsuit. The best way to protect the business you’ve worked so hard to build is to contact an experienced MCA debt relief attorney today.