Being served with a merchant cash advance lawsuit is not the end of the negotiation. It is the beginning of a formal proceeding in which the funder is betting you will do nothing.
Most defendants do nothing, which is why default judgments dominate MCA dockets. Eight steps, taken in order, change that outcome.
Step 1: Read the Papers Carefully
The summons tells you where the case was filed and when your response is due. Those two facts govern everything else. The complaint describes what the funder claims you owe and under what theory. Read both documents fully before contacting anyone, including the funder.
Under New York’s Civil Practice Law and Rules, the response window is twenty days if the papers were delivered to you personally, thirty days if served by another method. Both deadlines begin running from the date of service, not the date you opened the envelope.
Step 2: Do Not Contact the Funder Directly
The instinct to call and explain the situation is understandable. Resist it. Anything you say to the funder or its attorney can be used in the proceeding. Early direct contact tends to produce informal agreements that strip you of every defense the law has opened over the last several years.
Step 3: Preserve Every Document
Gather the original MCA agreement, all amendments and addenda, bank statements showing every debit, emails and text messages with the broker and the funder, and any application materials you signed. The reconciliation provision, if one exists, lives in the agreement. Its presence or absence is often the dispositive fact in a recharacterization defense.
Step 4: Retain an Attorney With MCA Experience
General civil litigators can file an answer. An attorney who has read hundreds of MCA agreements knows immediately whether the daily fixed debits, the absence of a true reconciliation mechanism, and the personal guarantee combine to support a usury argument. That pattern recognition is what creates early leverage.
The New York Attorney General’s January 2025 settlement with Yellowstone Capital, which exceeded one billion dollars across an affiliated network of funders, demonstrated that the industry’s abuses are well documented and that regulators are building a public record. Attorneys familiar with that record litigate differently than those who are not.
Step 5: Assess Whether a Confession of Judgment Has Already Been Entered
Search the court docket in the jurisdiction identified in the summons. Some MCA lawsuits are actually post-judgment enforcement actions, filed after a confession of judgment was entered without prior notice. If that is the case, the procedural posture is different, the timeline is shorter, and emergency relief may be necessary.
Step 6: File a Timely Answer With All Available Defenses
An affirmative defense not raised in the answer is generally waived. This is not a technicality; it is the structural rule that governs civil litigation. Usury, unconscionability, breach of the reconciliation provision, fraudulent inducement, and failure to credit payments properly are defenses that must appear in the answer to survive. Filing late, or filing without them, forecloses arguments that might otherwise have been decisive.
The answer is not a formality. It is the document that defines the boundaries of the case.
Step 7: Evaluate Counterclaims
If the funder made material misrepresentations during the sales process, debited accounts without authorization, or structured the agreement to evade usury law, counterclaims may exist. Counterclaims must be asserted in the answer. A business owner who files a counterclaim occupies a different negotiating position than one who merely defends.
Step 8: Engage the Settlement Discussion From Strength
After the answer is filed and the defenses are preserved, settlement becomes a genuine conversation rather than a capitulation. Funders who face a well-documented usury argument, a reconciliation breach claim, or a counterclaim have reasons to reduce their demands. The cases that settle favorably are almost always the ones where the defendant responded, preserved defenses, and forced the funder to assess its own litigation risk.
A first call costs nothing and assumes nothing. The facts of your agreement determine which of these steps carry the most weight.
