The lawsuit arrives before you understand what you signed. That is the standard sequence with merchant cash advance litigation, and it is worth stating plainly: the funder moves fast, the paperwork is dense, and the business owner is almost always behind.
Seven things matter most once a summons lands on your desk. Not all of them favor the funder.
The Agreement May Not Be What It Claims to Be
An MCA contract describes itself as a purchase of future receivables, not a loan. That framing exists for a reason: loans are subject to usury limits, and purchases of receivables are not. New York courts have spent the last several years deciding how much of that framing to credit.
The three-factor test applied in the Second and Fourth Departments examines whether a reconciliation provision exists, whether a finite repayment term is implied by the structure, and whether the funder has full recourse against you personally if the business fails. In Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC, the Appellate Division found that fixed daily debits with no obligation to reconcile against actual sales volume, combined with full personal recourse, rendered the agreement a criminally usurious loan. The agreement was void. Not reduced. Void.
That ruling is not an isolated event. In Oakshire Properties, LLC v. Argus Capital Funding, LLC, decided in July 2024, the Fourth Department held that daily payments calibrated to return the funder’s capital within a predetermined window established an implied finite term sufficient to trigger the loan analysis. The courts are narrowing the space in which MCA funders can operate.
The Timeline Is Short
Twenty to thirty days. That is the window for filing an answer after service, depending on the jurisdiction and how service was accomplished. Missing that deadline produces a default judgment, and a default judgment is an entirely different problem than a live lawsuit. The funder can freeze accounts, attach receivables, and begin enforcement without further argument on the merits.
If you received papers and set them aside, stop and count the days from the date of service.
A Confession of Judgment May Already Exist
Many MCA contracts include a clause in which the business owner confesses judgment in advance, authorizing the funder’s attorney to enter a judgment against them in any court without prior notice. In 2019, New York banned confessions of judgment in out-of-state commercial transactions after widespread reporting on the practice. But contracts signed before the ban, and transactions structured through domestic entities, may still carry them.
A Rockland County court proceeding that drew attention in early 2025 involved hundreds of such judgments held by a cluster of funders, and the court indicated that a substantial portion would be vacated due to defective service and other procedural irregularities. If a judgment has already been entered against you, the vacatur process exists and has succeeded in documented cases.
The Funder’s Settlement Offer Is Not Neutral
Funders routinely contact defendants early in litigation with settlement proposals. These offers tend to contain fresh personal guarantees, waivers of all existing defenses, and new payment schedules that may be structured to produce the same effective return as the original agreement. Signing under time pressure, without counsel, closes off every avenue the law has opened.
One is not obligated to respond to an informal settlement approach before retaining an attorney. The offer will still exist after you have reviewed your defenses.
Jurisdiction Matters More Than You Expect
Most MCA contracts contain forum selection and choice-of-law clauses designating New York as the governing jurisdiction, regardless of where your business operates. This is not accidental. New York’s courts have developed the most extensive body of MCA case law in the country, and funders have historically found that environment favorable.
That calculation has shifted. The same concentration of cases that gave funders an advantage has also produced the decisions that now work against them. An attorney who knows New York MCA case law is not a luxury; it is the baseline requirement for any competent defense.
The Attorney General Has Entered This Space
In January 2025, New York Attorney General Letitia James announced a settlement exceeding one billion dollars against Yellowstone Capital and a network of affiliated entities, resolving claims involving deceptive practices, falsified applications, and unauthorized account withdrawals. The settlement was described as the largest consumer enforcement action ever obtained by that office outside a multistate proceeding.
The scale of that settlement signals that regulators have concluded MCA abuse is systemic, not episodic. That conclusion tends to make individual litigation more favorable for defendants.
Regulatory enforcement does not directly resolve a private lawsuit, but it changes the evidentiary environment. Courts aware of industry-wide findings are less likely to treat aggressive collection tactics as ordinary commercial conduct.
Doing Nothing Is a Choice With Consequences
Some business owners receive the summons and wait, hoping the funder will lose interest or accept reduced payments. Funders do not lose interest. The legal machinery of default judgment was designed for exactly this situation, and it operates automatically once the response period expires.
The law at this moment offers more tools for MCA defendants than it did three years ago. Recharacterization arguments that courts once dismissed without discussion are now producing successful outcomes. The window to use those tools closes on the same schedule as your response deadline.
Consultation is where this conversation begins. The facts of your agreement, the structure of the daily debits, and the presence or absence of a reconciliation provision are the details that determine which defenses are available.
