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What a lawsuit over an MCA can look like

On Behalf of | May 21, 2024 | Merchant Cash Advances

When your business is caught up trying to keep up repaying a merchant cash advance (MCA), the last thing you want to hear about is a lawsuit from the MCA provider. Yet, understanding the brutal reality of what such a lawsuit entails could help you decide if it’s the right choice for you.

Before the lawsuit is filed

If you miss a payment, the MCA company could smell blood. They and their collection agency might start hounding you relentlessly for a few weeks, trying to lock you into another suffocating payment schedule. It could seem like they are doing you a favor, but they are not. The truth is, they are trying to salvage what they can. Fail to comply, and their in-house legal team or a hired gun law firm will be on your case with a breach of contract suit.

The MCA company files suit

If you and the MCA company do not settle, expect a lawsuit to drop. Whether you are located in New York or not, many MCA lawsuits are filed here due to laws that favor lenders and issuers of advances like MCAs.

Just like the plaintiff in any civil suit, the MCA company must serve you notice. They’ll serve you with a summons, either in person — which is generally done properly — or via mail or email, which can be contested for lack of proper notice in some cases.

Responding to the MCA breach of contract lawsuit

Now you’re on the hook to respond within 30 days of receiving the lawsuit. Ignore this at your peril, as failing to file a defense leads to a default judgment, which is open season on your bank accounts and assets for the MCA vultures. Instead, responding gives you options like filing a motion to dismiss, which could end the matter if the lawsuit is baseless or due to an error. If not, negotiations could lead to a reasonable settlement, or your attorney can prepare an aggressive defense to use at trial.

What you need to do

The moment you get wind of a lawsuit, you need to act fast. The difference in outcomes can be stark whether you respond assertively or wait and hope for the best. With the right legal muscle in your corner, you can counter the aggressive tactics of MCA lenders and stand a fighting chance.