You Have the Right to Fight
When an MCA funder files a lawsuit, your first instinct may be panic. But MCA lawsuits are fought and won every day. Funders rely on the fact that most business owners do not respond, resulting in easy default judgments. When you fight back with competent legal representation, the calculus changes entirely.
Step 1: Answer the Complaint
The single most important thing you can do is file a timely answer. In New York, where most MCA lawsuits are filed, you have 20 days after personal service or 30 days after service by mail. Missing this deadline results in a default judgment giving the funder power to freeze your accounts and seize assets.
Step 2: Assert Your Defenses
- Usury and recharacterization. If the MCA is really a loan, New York caps interest at 16 percent civil and 25 percent criminal. Most MCAs far exceed these limits.
- Breach by the funder. If they refused reconciliation, charged unauthorized fees, or failed to deliver the full advance amount.
- Fraud. Material misrepresentations about terms, cost, or nature of the MCA.
- Unconscionability. Contracts with egregiously one-sided terms can be voided or reformed.
Step 3: File Counterclaims
If the funder or broker engaged in fraud, deceptive practices, or usury, you can file counterclaims seeking damages. A funder that sued you for $150,000 now faces a $300,000 counterclaim. That changes the settlement math dramatically.
Step 4: Use Discovery
Litigation gives you the right to demand documents from the funder including internal communications about your account, reconciliation policies, evidence of underwriting practices, and records of other borrowers’ experiences showing patterns of predatory behavior.
Step 5: Negotiate from Strength
The purpose of fighting is creating conditions for a favorable settlement. A funder facing active defense, counterclaims, and discovery requests is far more willing to negotiate than one holding a default judgment. Most actively defended MCA lawsuits settle for a fraction of the claimed balance.