8 Steps to Respond to an MCA Demand Letter

A demand letter from an MCA funder is not a suggestion. It’s the opening move in a lawsuit that hasn’t been filed yet. Most business owners see the letter, panic for a day, then do the single worst thing you can do — nothing. Or they call the funder directly and say things that get used against them later.

Short answer: You have a narrow window, usually 5 to 10 days, to respond in a way that doesn’t nuke your leverage. What you do in that window decides whether you settle for 40 cents on the dollar, or whether you get a confession of judgment filed against you and your accounts frozen by Friday.

Here’s what to do, in the order you should do it.

Step 1. Stop talking to the funder.

The moment the demand letter hits, you stop picking up the phone. You stop replying to emails. You stop explaining your side. Every word you say, is evidence. Funders record calls, and they will use a casual admission (“yeah, business has been slow”) as proof of default, proof of misrepresentation, or proof you knew you couldn’t pay when you took the advance. You don’t owe them an explanation. You owe them a response, through the right channel, at the right time.

Step 2. Read the letter, carefully, twice.

Most demand letters do three things: they declare default, they accelerate the balance, and they threaten specific remedies (UCC notices, COJ filing, lawsuit in a specific county). Write down the exact amount they’re demanding, the date they’re giving you, the court they’re threatening, and the name of the attorney or firm who signed it. That information tells you what kind of funder you’re dealing with. A letter from a real law firm is different from a letter from an in-house collections guy with a JD — and the response is different.

Step 3. Pull the original agreement.

Before you do anything else, find the MCA contract. You’re looking for: the COJ (confession of judgment) if there is one, the choice of law clause (usually New York), the jurisdiction clause, the personal guaranty, the reconciliation provision, and the definition of default. A lot of agreements have a reconciliation clause that the funder ignored — meaning you had a right to request an adjustment based on actual revenue, and they never honored it. This is the single most important piece of leverage most business owners don’t know they have.

Step 4. Figure out if a COJ is in play.

If there’s a confession of judgment in your file, the timeline is not 30 days, it’s not 10 days, it’s hours. The funder can walk that COJ into a New York court and get a judgment entered without you ever seeing a courtroom. Then they restrain your bank accounts. If you have a COJ, step 4 becomes step 1, and you need representation today, not next week.

Step 5. Audit what you actually owe.

Funders routinely demand the full purchased amount, plus default fees, plus attorney fees, plus NSF fees stacked on NSF fees. A lot of this is inflated. Pull your bank statements. Add up every ACH that actually cleared. Subtract that from the purchased amount. That’s your real exposure. Not what they’re claiming. The number they put in the letter, and the number a court would actually enforce, are often very different.

Step 6. Do not, under any circumstances, sign anything they send you.

After the demand letter, some funders will follow up with a “forbearance agreement,” or a “modified payment plan,” or a “settlement stipulation.” These documents almost always contain a new COJ, a waiver of defenses, a reaffirmation of the debt, and language that kills any usury or reconciliation argument you had. You sign it, you lose every card you were holding. If a document shows up with your name on a signature line, it goes to a lawyer first. Not your accountant. Not your brother-in-law who took a contracts class.

Step 7. Get a written response out through counsel.

The response should be short. It should not admit the debt, it should not deny the debt, and it should not explain your business situation. It should acknowledge receipt, dispute the amount, invoke any reconciliation rights in the agreement, and open the door to settlement discussions — on your timeline, not theirs. A two paragraph letter from an attorney, changes the dynamic instantly. The funder now knows you’re not a guy they can scare into a COJ. You’re a file they’ll have to litigate, which most of them don’t want to do, because litigation costs them money and exposes their contracts to a judge who might not like what they read.

Step 8. Decide your end game, before you negotiate.

This is the step everyone skips. Before you counter, before you settle, before you restructure — decide what you actually want. Are you trying to keep the business open? Are you winding down? Are you trying to protect the personal guaranty? Are you stacking other MCA’s and need a global settlement? The answer changes everything. A business that’s viable negotiates a lump-sum settlement at 40-60 cents. A business that’s closing negotiates a walk-away. A guarantor with personal assets negotiates differently than a guarantor with nothing to take. You don’t pick a strategy after you start talking. You pick it first, and then every response flows from that decision.