The confession of judgment clause in your merchant cash advance contract is not a formality. It is a mechanism designed to convert a disputed obligation into an enforceable judgment before you have a chance to speak.
New York has served as the preferred venue for MCA enforcement actions for years, not because of coincidence but because its courts historically allowed funders to obtain judgments against out-of-state business owners with minimal procedural friction. That changed in 2019, when the state barred confessions of judgment against non-domiciliaries, but the change addressed one tool while leaving the underlying architecture intact.
What an Attorney Actually Does in These Cases
The framing that gets repeated across competitor sites treats attorney involvement as a generic protective measure. What attorneys do in MCA matters is considerably more specific than that framing suggests.
A qualified MCA attorney begins by examining whether the advance qualifies as a loan under New York law. This is not a minor question. New York’s civil usury cap sits at 16 percent; its criminal threshold at 25 percent. If a court characterizes the advance as a loan, and if the effective annual percentage rate exceeds those thresholds, the entire contract is void. The funder forfeits both principal and interest. That outcome is not available to businesses that treat the funder’s characterization of the instrument as settled.
In January 2025, Attorney General Letitia James announced a settlement against Yellowstone Capital and its affiliated entities exceeding one billion dollars, canceling hundreds of millions in outstanding obligations and vacating more than 1,100 judgments against New York businesses. That enforcement action confirmed what practitioners already understood: characterization disputes are real, and they have real consequences for funders.
Vacating a Confession of Judgment
Under CPLR Section 5015, a court may vacate a judgment on grounds including fraud, misrepresentation, excusable default, or lack of jurisdiction. An attorney working a confession of judgment motion will examine the affidavit for missing notarization, procedural defects, jurisdictional problems arising from the 2019 reform, and whether the underlying agreement supports the loan-versus-purchase argument that would render the COJ void at the root.
The window matters. Delay between the entry of judgment and the motion to vacate narrows the available arguments and, in some instances, permits the funder to execute against accounts before the court can act.
Speed is not a stylistic preference in MCA defense. It is a structural requirement.
UCC Liens and What Happens After
When a funder files a UCC-1 financing statement against your business, it creates a security interest that appears in public records and encumbers future financing. Lenders reviewing your business will see the lien. Banks will decline applications. The lien does not disappear when the advance is repaid unless someone compels the funder to file a UCC-3 termination statement.
An attorney can demand that termination filing. If the funder refuses, a court order is available. Most businesses that repay their MCA and move forward do not know this, and the lien continues to restrict their access to capital for years without any legal necessity.
Stacking, the practice of layering multiple MCAs so that daily debits from several agreements run concurrently against the same revenue stream, creates a different kind of problem. The individual agreements may each be defensible in isolation. Combined, they produce an effective rate and a payment burden that courts in the Southern District of New York have examined with increasing scrutiny. Handling stacked agreements requires simultaneous negotiation with multiple funders and a sequenced strategy for asserting defenses without triggering acceleration clauses across all open agreements at once.
The Recharacterization Argument
Whether a merchant cash advance is a loan is the central legal question in most MCA disputes. The answer determines whether usury law applies, whether interest calculations can void the contract, and whether the funder’s conduct can be reached by consumer protection statutes that would not otherwise apply to a purchase-of-receivables arrangement.
Courts look at whether repayment is contingent on the business generating revenue. If the agreement contains a reconciliation clause that adjusts daily payments when revenue falls, the contingency argument is stronger. If the funder takes a fixed daily debit regardless of revenue performance, the transaction begins to resemble a loan. And a loan carrying an effective rate well above 25 percent annual is, under New York law, criminally usurious and unenforceable.
Not every MCA is recharacterizable. One needs to review the specific agreement language before forming a view. But the argument is available far more often than funders represent, and it is an argument that requires legal training to pursue correctly.
Negotiated Settlement as a Tool
Settlement is not capitulation. In the context of MCA defense, a negotiated resolution reached after asserting legal defenses carries different terms than a settlement reached before the funder understands that its contract may not be enforceable.
Attorney General settlements with MCA companies over the past several years have produced lump-sum resolutions at significant discounts to the outstanding balance, along with injunctive relief and, in some cases, cancellation of remaining obligations entirely. Private settlements in contested matters often reflect the funder’s litigation risk rather than the nominal balance owed.
New York Senate Bill S1726, introduced in the current legislative term and dubbed the End Loan Sharking Act, would impose disclosure requirements and rate caps on MCA agreements if enacted. The bill’s existence signals ongoing legislative pressure on the industry, and that pressure is relevant context in any settlement negotiation.
Personal Guarantees
Most MCA agreements include a personal guarantee that extends the funder’s claim to the owner’s personal assets. An attorney can challenge the guarantee on grounds of unconscionability, failure of consideration, or the argument that the underlying obligation is void for usury. A void underlying obligation does not support an enforceable guarantee.
That last point is one that businesses handling MCA disputes without counsel frequently miss. The guarantee feels absolute. Its enforceability is a legal question, not a factual one, and the answer depends on whether the underlying agreement survives scrutiny.
The Process From First Call
A first engagement with an MCA attorney typically begins with contract review. The attorney examines the agreement, identifies the confession of judgment language, assesses the UCC filings, and determines whether the reconciliation clause supports a contingency argument. From that review, a defense posture emerges: vacatur motion, recharacterization claim, settlement negotiation, or some combination depending on where the funder is in the enforcement process.
- Contract and confession of judgment review
- UCC-1 lien search and analysis
- Assessment of recharacterization and usury defenses
- Motion to vacate filing if judgment has been entered
- Negotiation with funders or their counsel
- Personal guarantee challenge where supported
Consultation is where this conversation begins. The contract you signed does not define the outer boundary of your legal position, and the funder’s characterization of the transaction is the starting point of a legal argument, not its conclusion.
What remains worth saying is this: businesses that engage counsel early retain options that businesses waiting for enforcement actions have already surrendered. The MCA industry has built its enforcement model on the assumption that most borrowers will not seek legal review. That assumption has been wrong with increasing frequency since 2019, and it grows more wrong with each enforcement action the Attorney General brings.
