In New York, merchant cash advances are legally structured as purchases of future receivables, not loans. Whether a funder can sue you personally if your business closes depends on how the contract is written and why the business closed.
If you signed a personal guarantee, closing your business creates legal exposure, but a funder demanding full personal repayment without proof of breach or fraud may be treating the agreement as an illegal loan. Here is what that means for you.
How funders come after you personally
MCA funders move fast. Historically, many relied on Confession of Judgment clauses to obtain a court judgment against you without a trial. In New York, those clauses now face strict legal limits and are unenforceable in many cases. Today, funders typically have to file a lawsuit for breach of contract to enforce a personal guarantee. If they win, they can serve a restraining notice directly to your bank and freeze your accounts with no warning.
Why closing your business can make things worse
Most MCA contracts treat closing your business or blocking ACH withdrawals as a breach of the agreement. That gives the funder additional legal grounds to pursue you personally, on top of the personal guarantee. Some contracts also prohibit switching banks, disputing payments or taking on new debt without the funder’s consent. Any of these give the funder additional ammunition to argue breach of contract in court.
What you can do before it gets to that point
If your business is struggling and you are thinking about closing, consulting a New York MCA attorney before taking action can help protect your rights. The decisions you make now, including how you close the business, what accounts you move money into and how you communicate with the funder, can all affect your personal exposure.
There may be options to negotiate a settlement, challenge the validity of the agreement under New York usury laws, or limit what the funder can collect from you personally. The earlier you evaluate your options, the more leverage you may have.