Few things strike more panic into a business owner than receiving a lawsuit. The technical language, the looming deadlines, the threat of financial ruin—it’s overwhelming. And when you’re sued for a merchant cash advance debt, that panic is amplified. These lenders are notoriously fast, aggressive, and relentless. You’re not just worried about a legal dispute; you’re worried about your bank accounts being frozen tomorrow morning.
You built your business from scratch, and now a predatory contract threatens to take it all away. This situation is unfortunately common: a stressful mix of aggressive merchant cash advance enforcement and complex commercial litigation.
You might already be familiar with the problems of merchant cash advance agreements, but now you’re seeing the worst-case scenario play out. Perhaps you’ve already discovered a UCC lien filed against your business assets and are just waiting for the other shoe to drop.
Well, it just dropped.
If you’re holding a summons and complaint, take a deep breath. You are in the right place. This guide will walk you through, step-by-step, what to do now—and what not to do—to protect your business, your finances, and your future.
Do Not Ignore the MCA Lawsuit
This is the most important rule. The single biggest mistake you can make right now is to ignore the lawsuit, toss it on your desk, or hide it in a drawer. MCA lenders move with incredible speed. Their entire business model is built on fast, aggressive collection tactics. They are counting on you to panic and make a mistake, and ignoring the suit is the most critical mistake of all.
Ignoring an MCA lawsuit doesn’t make it go away. It guarantees you lose. The lender’s attorneys will file a motion for a default judgment against you, which they will win precisely because you failed to respond.
A default judgment is a golden ticket for the lender. With it, they can immediately:
- Freeze Your Bank Accounts: They can present the judgment to your bank and instantly lock all your business accounts. This MCA bank account freeze means you can’t make payroll, pay suppliers, or even buy gas.
- Enforce UCC Liens: They will enforce the MCA UCC lien you signed (likely without fully understanding it), giving them the right to seize your business assets, equipment, and receivables.
- Start Levies and Garnishments: They can begin the process of an MCA levy or garnishment, diverting your income and customer payments directly to them.
- File a Confession of Judgment (COJ): If your contract included a confess judgment MCA clause, they may not even have needed to sue you in your home state. They can file this document in a New York or Pennsylvania court, instantly obtaining a judgment without you ever having a day in court, and then domesticate that judgment in your state to begin collections.
These aggressive MCA collectors are not your partners. They are not interested in “working it out” if you just ignore them. They are banking on you being too scared or too busy to respond, so they can get a quick judgment and seize your assets.
Step 1 — Read the Lawsuit and Deadlines Carefully
That packet of papers you were served is (usually) two separate documents: a Summons and a Complaint.
The Summons is the official court notice. It tells you that you have been sued and, most importantly, it tells you the deadline to respond. This is often just 20 or 30 days from the date you were served. Missing this deadline is how you get a default judgment. Circle this date. It is now the most important date on your calendar.
The Complaint is the lawsuit itself. It’s the document from the MCA lender’s attorney that outlines their claims against you. Read it as calmly as you can. You need to identify a few key things:
- Who is the Plaintiff? Is it the original lender, or a third-party debt buyer you’ve never heard of?
- What are the Claims? It will likely list “causes of action” like “Breach of Contract” or “Unjust Enrichment.”
- What is the Amount? Look for the “prayer for relief” or the “damages” section. How much do they claim you owe? This number is often wildly inflated with fees, penalties, and attorneys’ costs.
- Have you been sued Personally? This is critical. Check the “Defendants” list. Did they name just your business (e.g., “Main Street Bakery, LLC”), or did they also name you (“Jane Smith”)? If you are named personally, they are pursuing an MCA personal guarantee lawsuit, and your personal assets—your home, car, and personal savings—are on the line.
At Colonna Cohen, the very first thing we do when a panicked small business owner calls is ask for these documents. We will evaluate the claims, identify the court and the deadline, and immediately begin building the strategy to protect you.
Step 2 — Understand What the MCA Lender Is Actually Claiming
When you read the Complaint, you’ll see a list of accusations. The most common claim, by far, is Breach of Contract.
The lender will claim you breached the Merchant Cash Advance agreement by:
- Defaulting: Often, this is triggered by one or two “insufficient funds” (NSF) events on your daily or weekly ACH withdrawal. The contract may state that a single NSF is a default that triggers massive penalties.
- Blocking ACH Access: You may have changed your bank account or put a stop payment on the MCA daily payments lawsuit trigger to stop the bleeding. They will frame this as a fraudulent act and a breach.
- “Stacking”: The contract you signed almost certainly forbade you from taking on other financing. If you got a second MCA or a traditional loan, they will call this “stacking” and declare it a default. This is a common MCA stacking loans problem scenario.
- Violating Covenants: The agreement may have had other rules, like maintaining a certain bank balance or not selling your business, which they will claim you violated.
However, the central issue in many of these lawsuits is a legal fiction. Merchant cash advance companies insist that their product is not a loan. They claim it is a “purchase of future receivables”—a sale, not a loan.
Why? Because calling it a sale allows them to bypass state usury laws.
If it’s a loan, the interest rate can be regulated. If it’s a “sale,” they can charge whatever they want. This distinction is the entire legal loophole their industry is built on, and it’s a key vulnerability. Many MCA agreements, especially those with fixed daily payments and no true reconciliation, are loans in disguise.
Step 3 — Evaluate Possible Defenses to an MCA Lawsuit
This is where a specialized merchant cash advance attorney becomes your greatest asset. You are not just defending against a simple breach of contract MCA claim; you are often challenging the fundamental legality of the agreement itself.
Just because you’ve been sued for a merchant cash advance doesn’t mean you have no options. Strong legal defenses exist.
The Usury Defense: Is it a Loan, Not a Sale?
This is the most powerful of the defenses to MCA lawsuits. We argue that the “purchase of receivables” is a sham and the contract is, in fact, a criminally usurious loan.
What is usury? It’s charging an interest rate above the legal limit set by state law. In many states, like New York, the criminal usury cap is 25% APR. We have seen MCA providers factor rates that, when calculated as a true APR based on the daily payments, exceed 100%, 200%, or even 500%.
We argue the MCA is a loan if it has loan-like characteristics, such as:
- Fixed Daily Payments: The agreement called for a fixed daily ACH payment, regardless of your actual daily revenue. A true sale of receivables would fluctuate with your sales.
- No True Reconciliation: The contract may mention a “reconciliation” provision, but it’s often impossible to use, hidden, or ignored by the lender. If they didn’t adjust payments when your revenue dropped, it’s not a true sale.
- Excessive Lender Control: The contract and UCC lien gave the lender total control over your bank accounts and assets, which looks far more like a secured loan than a simple sale.
- A Personal Guarantee: Lenders demand a personal guarantee because they are not confident in the “receivables” they are buying. This is a hallmark of a loan.
If a court agrees that the MCA is a loan, the usury argument can render the entire contract void. The lender might be barred from collecting anything—not just the interest, but even the principal.
Other Powerful Defenses:
- Fraudulent Inducement / Predatory Lending: Did the broker or lender lie to you? Did they say the factor rate was “interest”? Did they obscure the terms? This can be an MCA predatory lending defense.
- Contract Unconscionability: Were the terms so one-sided and buried in fine print that the contract is grossly unfair and unenforceable?
- Bad-Faith Dealing: Did the lender trigger a default on purpose? For example, did they try to withdraw funds on a day they knew was bad, just to trigger default penalties?
- Deceptive Trade Practices: Many states have laws against unfair or deceptive business practices, which many MCA sales tactics violate.
Our team at Colonna Cohen specializes in this. We don’t just negotiate the amount; we attack the fundamental, often illegal, structure of these predatory agreements.
Step 4 — Protect Your Bank Accounts Immediately
While the lawsuit is pending, the primary goal of most MCA companies is to seize your cash flow. They have two main weapons before they even get a judgment:
- A Restraining Order: Their lawyers may file for a temporary restraining order (TRO) to freeze your bank accounts immediately, arguing that you are hiding assets.
- The UCC-1 Lien: That MCA UCC lien you signed gives them a ‘security interest’ in your assets, including your accounts receivable. They can send this lien to your payment processors (like Square, Stripe, or PayPal) or your factoring clients, who will then be legally obligated to divert your entire revenue stream to the MCA lender.
An experienced attorney can advise you on the best emergency steps to protect your business’s ability to operate. This is not about illegally hiding assets, which can lead to more legal trouble. It’s about preserving your ability to make payroll, pay rent, and fund your legal defense.
This might involve, under legal guidance, opening a new, unattached bank account at a different institution for future operations. Again, this must be done carefully and with counsel.
And from this moment forward, never speak to the collectors or the lender directly. They are recording your calls. Anything you say (“I’m trying to get the money,” “I’m just in a tight spot”) can be twisted and used against you in court as an admission of liability. Direct all communication to your attorney.
Step 5 — Hire an Attorney Experienced in MCA Litigation
This may be the most important step you take. Not all lawyers are created equal.
Your local business lawyer or a family friend who’s an attorney is likely not equipped for this fight. General “debt settlement” law firms are also usually the wrong choice. They often provide a one-size-fits-all negotiation service when what you need is an aggressive litigator.
You need a business cash advance dispute attorney who is both a commercial debt defense lawyer and an MCA litigation defense specialist.
Why? Because MCA law is a highly specific niche that involves a complex intersection of:
- The Uniform Commercial Code (UCC)
- State-specific criminal usury laws
- Contract law
- Banking regulations
- Arcane court procedures like Confessions of Judgment
We often take over cases from well-meaning general practitioners who are in over their heads. A settlement-only firm might offer to “negotiate 50 cents on the dollar.” An MCA litigator will file a formal Answer with counterclaims, file a motion to dismiss the case based on usury, and serve the lender with discovery demands to prove their fraud. The goals are different. One is damage control; the other is a real fight.
An experienced MCA attorney will:
- File a formal “Answer” to the lawsuit, meeting the deadline and preventing a default judgment.
- Assert all your affirmative defenses and file counterclaims against the lender.
- Immediately stop the harassment. Once you are represented by counsel, all communication must go through your lawyer.
- Fight any attempts to freeze your bank accounts.
- Aggressively negotiate an MCA settlement from a position of strength, not desperation.
- Potentially get the case dismissed entirely.
Colonna Cohen has extensive experience defending business owners against merchant cash advance lawsuits and predatory lending tactics. Our team responds quickly to protect your business, your accounts, and your rights.
Step 6 — Consider Settlement or MCA Restructuring
Fighting the lawsuit doesn’t always mean going to a full-blown trial, which can be long and expensive. Sometimes, a strategic settlement is the faster, more cost-effective path to freedom.
But there’s a world of difference between settling from a position of weakness (begging your collector for a discount) and settling from a position of strength.
Having an aggressive MCA settlement lawyer on your side changes the entire negotiation. Once we file a strong Answer and counterclaims for usury and fraud, the lender’s “slam dunk” case suddenly looks risky and expensive for them. Their attorneys know that if they lose on the usury argument, their entire business model could be threatened.
This new leverage often leads to a far more favorable settlement. Options include:
- A Lump-Sum Settlement: A one-time payment for a fraction of the claimed amount, in exchange for a full release of all claims and the personal guarantee.
- MCA Restructuring: A new, formal payment plan with a significantly reduced balance and an affordable, fixed payment, properly documented as a loan.
- Release of the Personal Guarantee: In some cases, we can get you, the owner, released from the personal guarantee, meaning the lender can no longer come after your personal assets.
- Global Restructuring: If you’re drowning under MCA stacking loans problems, a good attorney can look at a global restructuring, resolving all your MCA debts at once.
Step 7 — What NOT to Do After Being Sued
We’ve covered what to do. Here is a quick-reference list of what not to do, under any circumstances.
- DON’T Call the Lender: As mentioned, this will only hurt you. They are not your friends.
- DON’T Sign Anything: The lender may send you a “settlement agreement” or “forbearance agreement” under pressure. These are almost always traps, full of new concessions, new personal guarantees, and a waiver of all your legal defenses.
- DON’T Send More Payments: Don’t assume that “catching up” will fix the lawsuit. By this point, the default has triggered penalties you can never outrun, and you may be throwing good money after bad.
- DON’T Rely on Generic Debt Negotiators: These “debt relief” companies have no legal authority. They can’t represent you in court, and lenders often ignore them.
- DON’T Wait Until Your Accounts Are Frozen: The biggest “don’t” is don’t wait. The moment your MCA bank account freeze is in place, your back is against the wall. Be proactive.
- DON’T Transfer Assets Improperly: While you need to protect your payroll, listen to your attorney. Frantically transferring all your business assets to a new LLC or to a personal account can be seen as “fraudulent conveyance” and can get you into even deeper legal trouble.
When to Contact an MCA Defense Attorney
The time to act is now. The clock on that Summons is ticking.
If you have been served with an MCA lawsuit, you need merchant cash advance lawsuit help immediately.
If your accounts are already being drained or frozen, it’s a five-alarm fire.
If you are juggling multiple MCA loans and know a default is coming, it’s time to get a strategy.
If aggressive MCA collectors are harassing you, your employees, or your customers, it’s time to put a legal shield around your business.
Don’t face this alone. The moments after being served are critical, and the decisions you make in the next 20 days can determine the future of your business. Contact the MCA debt relief attorney team at Colonna Cohen today for a confidential consultation. We understand the urgency, we know these lenders’ playbooks, and we are prepared to fight for your business.