An MCA funder has sued your business in New York.
A merchant cash advance funder that sues usually files a breach of contract action on the purchase agreement and the personal guaranty. You have a limited window to answer before a default judgment can be entered. Defenses may exist in the agreement itself, depending on how it was written and performed.
- Admitted in New York, New Jersey and Florida
- 139 Fulton Street, Suite 801, Manhattan
Why did the funder sue instead of just collecting?
Most merchant cash advance agreements are written so that the funder can stop relying on daily or weekly debits the moment those debits fail. When the account no longer clears, the funder generally treats that as a breach and moves to the agreement's enforcement terms. What arrives next is usually a summons and complaint pleading breach of the purchase agreement, breach of the personal guaranty, and often account stated.
Being sued is not the same as owing what the complaint says you owe. The number in the ad damnum clause is the funder's figure, calculated under the funder's reading of its own contract, and it commonly includes fees and default charges that are themselves contestable.
What happens if you do nothing?
If nobody appears for the business or the guarantor, the funder can ask the court to enter a default judgment. A judgment is what turns a lawsuit into an enforcement problem: it is the thing that lets a creditor restrain a bank account, serve an information subpoena, or docket a lien.
Response time in New York is short, and it is not a single number. Under CPLR 320 the period turns on how you were served and where, and the practical deadline is different again in the Civil Court of the City of New York than in Supreme Court. Read the papers you were handed, note the date you received them, and get them in front of a lawyer quickly.
What defenses can a merchant actually raise?
Which defenses are available depends entirely on the agreement and on how the parties behaved under it. In New York MCA litigation, the arguments that come up most often include:
- The agreement is really a loan. New York has no usury ceiling for most corporate borrowers, but a transaction dressed as a purchase of receivables can still be recharacterised. In LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep't 2020), the Appellate Division weighed three factors: whether the agreement contains a reconciliation provision, whether it has a finite term, and whether the funder has recourse if the merchant files for bankruptcy.
- The reconciliation provision was not honoured. Many agreements promise that the remittance will be adjusted to actual receipts on request. Where that promise exists and was not kept, it may support a defense or a counterclaim.
- The guaranty does not reach this claim. Personal guaranties in MCA paper vary widely. Some are limited to specified breaches rather than to performance of the advance itself.
- Procedural defects. Service, venue, capacity to sue, and the accuracy of the balance pleaded are all fair ground.
None of these is automatic, and none of them is a prediction. They are the questions worth asking about a specific agreement.
What does defending the case involve?
In practice it starts with reading the agreement and the papers together: what was actually signed, what was actually debited, what the funder says it is owed, and whether the two reconcile. From there the work is ordinary civil litigation - an answer with defenses and any counterclaims, discovery aimed at the funder's own accounting, motion practice where the contract supports it, and settlement discussions that are informed by the strength of the defenses rather than by the size of the demand.
Sources
- LG Funding, LLC v United Senior Props. of Olathe, LLC (2020 NY Slip Op 01607) (New York Official Reports)
- CPLR 320: Defendant's appearance (New York State Senate)
Every case turns on its own agreement, facts and procedural posture. Nothing on this site is legal advice or a prediction of any outcome.
FAQ
Questions people ask at this stage
Can I be sued personally if the advance was to my company?
Often, yes. Most merchant cash advance agreements include a personal guaranty signed by an owner, and funders routinely name that person as a defendant alongside the business. What the guaranty actually covers varies between agreements, and it is worth reading closely rather than assuming it reaches everything the funder claims.
Does answering the complaint make things worse?
No. Appearing in the case preserves your defenses, and it is the step that stops the funder taking a default judgment. Vacating a default afterwards is harder and slower than answering on time, because it becomes its own proceeding rather than a defense in an existing one.
The balance in the complaint looks wrong. Does that matter?
It can. The figure pleaded is the funder's own calculation under its own reading of the agreement, and it frequently includes default fees and charges that are open to challenge. Disputing the amount is a normal part of defending the case.
How long do I have to respond to an MCA lawsuit?
There is no single New York answer deadline. The period turns on how you were served and where, under CPLR 320, and the practical deadline is different again in New York City Civil Court than in Supreme Court. Read the papers you were handed and note the date you received them.
If nobody appears for the business or the guarantor, the funder can ask the court to enter a default judgment. A judgment is what turns a lawsuit into an enforcement problem: it is the thing that lets a creditor restrain a bank account, serve an information subpoena, or docket a lien.
Can a merchant cash advance agreement be treated as a loan?
Sometimes. A transaction dressed as a purchase of receivables can still be recharacterised. In LG Funding v. United Senior Properties, the Appellate Division weighed three factors: whether the agreement contains a reconciliation provision, whether it has a finite term, and whether the funder has recourse if the merchant files for bankruptcy.
None of that is automatic, and none of it is a prediction. Which factors matter depends entirely on the agreement in front of you and on how the parties actually behaved under it.
What is a reconciliation provision, and why does it matter?
It is the clause that makes the arrangement contingent in practice. Many agreements promise that the remittance will be adjusted to actual receipts on request. Where that promise exists and was not kept, it may support a defense or a counterclaim, depending on what was asked for and what the funder did.
Whether a given agreement carries a meaningful reconciliation right, and whether it was honoured when invoked, is often the central factual question in later litigation. The correspondence usually decides it.
What happens after I appear in the case?
It starts with reading the agreement and the papers together: what was signed, what was debited, what the funder says it is owed, and whether those reconcile. From there it is ordinary civil litigation — an answer with defenses, discovery aimed at the funder's accounting, and motion practice where the contract supports it.
Settlement discussions follow, informed by the strength of the defenses rather than by the size of the demand. Understanding what is wrong with a claim is what makes a settlement conversation something other than a repayment plan on the funder's terms.
Speak to the attorney
Book a consultation
Six short questions about what arrived and when, ending with a time that suits you. It takes about two minutes.
- The call is with Migir Ilganayev directly, not an intake desk.
- He asks what arrived and when.
- He reads the agreement and the payment history against each other.
- He tells you where you stand and what the options are.
- Fees are discussed on the call and depend on the matter.
- No obligation. Sending it does not create an attorney-client relationship.
- If it is urgent, calling is faster than writing.
- 139 Fulton Street, Suite 801, New York.
Prefer to speak now? Call 646-396-8050, or see the office address and email.
Ready to put this in front of the attorney?
Book a consultationTalk it through before the deadline passes.
Bring the summons, the complaint and the agreement you signed. The first conversation is about what the papers actually say and how long you have.