The attorney you retain on the first day sets the ceiling for what your case can achieve. Not because the law changes after day one, but because funders watch what lawyers do in the first seventy-two hours, and they adjust accordingly.
Pull the Contract Apart
Before any call to the funder, before any letter, the attorney reads the agreement in full. Not a summary. The agreement itself. Every merchant cash advance contract contains at least four provisions that most business owners never read: the reconciliation mechanism, the confession of judgment clause, the governing law selection, and the personal guarantee scope. Each one represents either a vulnerability for the funder or a trap for the merchant. A competent attorney maps them on day one.
The reconciliation clause deserves particular attention. New York courts have developed a three-factor test to determine whether an MCA is a genuine purchase of future receivables or a disguised loan subject to usury statutes. One of the three factors is whether the funder bore actual risk, meaning whether the daily withdrawals were truly contingent on revenue. If the reconciliation provision exists in the contract but was never honored, that discrepancy becomes the foundation of the defense.
Document the ACH History
The attorney requests bank statements going back to the inception of the agreement. What the statements reveal is often more useful than what the contract says. If the funder withdrew a fixed amount every business day regardless of what the business deposited, the reconciliation provision was illusory. The attorney knows this. The funder knows this. The question is whether the client has preserved the evidence.
A 2024 ruling in the Southern District held that a merchant’s documented request for reconciliation, followed by the funder’s silence, was sufficient to raise a triable issue of fact on whether the MCA functioned as a loan. That is not an exotic legal theory. It is a straightforward evidentiary argument that begins with bank records.
Assess the Confession of Judgment
Most MCA contracts include a confession of judgment clause. The clause authorizes the funder to obtain a court judgment against the merchant without prior notice or hearing, simply by filing an affidavit of default. New York banned outgoing confessions of judgment for out-of-state defendants in 2019, but the prohibition has not eliminated the practice. Funders still file COJs against New York-based merchants, and they file them in counties with historically favorable dockets.
The attorney checks on day one whether a COJ has already been filed. If it has, the response is different than if the funder is still in the pre-litigation phase. An existing judgment requires a vacatur motion. A threatened judgment requires a different kind of leverage.
Identify the UCC Filings
A UCC-1 financing statement filed by the funder clouds the merchant’s ability to obtain new credit. The attorney searches the Secretary of State database on day one to determine how many liens are active, whether any were filed without proper authorization, and whether the filing descriptions are accurate. Overbroad or defective filings give the attorney grounds to demand termination as a condition of any settlement.
In cases where multiple funders have filed liens, the stacking problem compounds. The attorney needs to understand the priority order before advising the client on any path forward.
Calculate the Effective Rate
The attorney does the math. Whatever the contract calls the transaction, dividing the total amount owed by the advance received and annualizing the result produces a figure that matters enormously in negotiation. New York’s criminal usury threshold sits at 25% per annum. Many MCA agreements, when annualized, produce effective rates that exceed that threshold by a substantial margin.
The Yellowstone Capital settlement in early 2025 confirmed what practitioners had been arguing for years: that annualized rates in some MCA portfolios reached figures that would be indefensible in any court applying the loan characterization standard. The attorney who can demonstrate that figure credibly holds negotiating leverage that did not exist before the calculation.
Send the Preservation Letter
On day one, the attorney sends a litigation hold letter to the funder. The letter demands preservation of all communications, bank records, and origination documents related to the merchant’s account. The practical effect is twofold. It signals that the attorney intends to litigate if necessary. And it creates a record that, if the funder later destroys documents, could support a spoliation argument.
Most funders, when they receive a well-drafted preservation demand from counsel, slow down. Not because they are frightened of the letter itself, but because the letter tells them the merchant is no longer operating alone.
Open a Direct Channel
At some point on day one or day two, the attorney makes contact with the funder’s legal department. Not to negotiate yet. To introduce the representation, confirm the account, and establish a line of communication that bypasses the collections team. Collections personnel operate on different incentives than legal counsel. Getting the matter transferred to legal changes the tone of every subsequent exchange.
The collections desk is designed to pressure. The legal department is designed to resolve. Getting to the right department is itself a tactical act.
Brief the Client on the Range
The attorney tells the client what is realistic. Not a guarantee. A range, with the conditions that determine where within the range the outcome will land. A client who understands that a negotiated settlement might produce a reduction of forty to sixty cents on the dollar, while a full usury challenge might produce a complete rescission but also might fail, can make an informed decision about risk tolerance.
That briefing is not a formality. It is the foundation of the attorney-client relationship for the duration of the case. And it should happen on day one, before any action is taken that the client cannot reverse.
Consultation is where this conversation begins. The first call costs nothing and assumes nothing, but what the attorney learns in that call determines everything that follows.
