Merchant Cash Advance Defense for New York Business Owners

The MCA Trap Is More Complicated Than It Looks

Merchant cash advances are marketed as fast, flexible capital — no collateral, no fixed payments, no credit requirements. What they don't advertise is the effective interest rate, which can run from 40% to well over 150% annually when you calculate the true cost of the advance. And when a business hits a rough patch and receivables slow down, funders don't wait. They file. They freeze. They sweep.

New York courts have begun to push back. In a series of decisions following the 2019 confession of judgment reform — which prohibited out-of-state businesses from filing COJs against New York defendants — appellate courts have increasingly applied a recharacterization analysis to MCA agreements. If the agreement guarantees repayment regardless of whether receivables are actually generated, courts have found it functions as a loan, not a purchase. That distinction matters enormously, because a loan at 150% interest is void under New York usury law.

If you're dealing with a stacked MCA situation — multiple advances from different funders, all sweeping from the same accounts — you may have additional grounds to challenge those agreements on bad faith, misrepresentation, or unconscionability. Being buried under multiple MCAs is not a situation you simply have to survive. It's a situation that may have legal solutions.

Four Ways We Defend and Resolve MCA Matters

Every MCA situation is different. Some require immediate litigation defense. Some can be resolved through negotiation before a lawsuit is ever filed. We work through the facts of your specific situation and identify the resolution path that gives your business the best outcome.

• MCA lawsuit defense: If you've been served with a summons and complaint from an MCA funder or their collection counsel, you have the right to defend the case in court. We analyze the agreement for usury, misrepresentation, and procedural defects, and we appear on your behalf.
• Confession of judgment vacatur: A COJ can be filed against you and your bank account frozen in a matter of hours. But a COJ filed improperly — or one that violates the 2019 New York reforms — can be challenged and potentially vacated, which may release the freeze on your accounts.
• UCC lien challenges: MCA funders routinely file UCC-1 financing statements against your business assets, which can block you from obtaining other financing or selling assets. We review those filings and challenge liens that are overly broad, improperly filed, or no longer supported by a valid agreement.
• Restructure and settlement: Not every MCA matter goes to court. In many cases, we can negotiate directly with the funder to restructure the repayment terms — reducing the daily or weekly sweep amount to something your cash flow can actually support — or to settle the outstanding balance for less than what's owed.

A Frozen Bank Account Is Not the End of the Road

One of the most distressing moments for a business owner facing MCA default is the morning they log into their business account and find it frozen. A confession of judgment allows a funder to obtain a court judgment against you — without prior notice — and direct a marshal or sheriff to restrain your bank account. For a business that depends on daily cash flow, this can feel catastrophic.

What many business owners don't know is that a COJ can be vacated. New York CPLR § 5015 provides grounds to open a default judgment, and New York's 2019 COJ reform law created additional protections specifically for New York-based defendants. If the COJ was filed without proper affidavit support, if the underlying agreement is subject to recharacterization as a usurious loan, or if the funder failed to comply with the procedural requirements of the reform legislation, there are grounds to challenge it. We move quickly on COJ matters because timing matters when your payroll is at stake.

Recharacterization as a Usurious Loan

The core question in MCA recharacterization is whether the agreement truly transfers the risk of your receivables to the funder, or whether it guarantees repayment regardless of business performance. If the daily payment is fixed, if there is a personal guarantee, or if the funder has the right to collect even when revenue drops to zero, courts have found these to be signals that the agreement is a disguised loan. A loan at the effective interest rates MCA funders charge is void under New York's civil usury statute.

Confession of Judgment Defects

A confession of judgment must comply with specific procedural requirements under New York law, and the 2019 reform added additional restrictions on out-of-state COJ filings against New York defendants. We review every COJ filing against our clients for affidavit deficiencies, jurisdictional problems, and compliance failures that provide grounds for vacatur. When we find them, we move to vacate and seek release of the account restraint.

UCC Lien Scope and Validity

MCA funders file UCC-1 financing statements that often claim a blanket lien on all of your business assets — accounts receivable, inventory, equipment, and more. These filings can prevent you from obtaining other financing, selling assets, or even closing your business cleanly. We examine whether the lien is supported by a valid, enforceable agreement, whether the scope of the filing exceeds what the agreement actually authorized, and whether grounds exist to file a termination statement.