Struggling with debt?

Regardless of your business model. Regardless of whether you’re in NYC or elsewhere. Regardless of how big or small your business might be. Once a merchant cash advance (MCA) is in default, lenders can – and often will – move swiftly. They will try to use a COJ, or file a lawsuit, in order to get their money back.

Look, lenders want to get paid back. Most merchant cash advance providers structure their agreements with terms allowing immediate legal action when the business owner fails to make payments. Often, these lenders will argue that there is a breach of contract and use legal instruments like a confession of judgment (COJ) or personal guarantee to secure faster remedies. In many cases, lenders don’t have to go through the usual court proceedings because a COJ can let them get a default judgment right away. They can take your assets ASAP.

Guess what? At DelanceyStreet.com, we know how these lenders operate. We’ve dealt with it all, helping small business owners face these lawsuits head-on. Below are some common reasons why lenders choose to sue when MCAs go unpaid:

• Breach of Contract
Merchant cash advance agreements typically include strict terms. Once you fall behind, the lender can declare a breach and pursue legal action. They can attempt to seize your assets, such as using UCC liens to get funds owed to you.

• Confession of Judgment
Many MCAs come with a COJ. It’s a legal tool that allows the lender to bypass a traditional court hearing. They simply file the COJ with the court, and instantly get a judgment against you.

• Personal Guarantees
The moment you signed for the MCA, you might have guaranteed personal liability and assurance you’ll pay the MCA back personally. That means lenders can go after your personal assets, like your savings or your home. It’s dangerous.

• Stacking and Multiple Advances
If you’ve had to juggle multiple merchant cash advances, stacking MCA’s can lead to quick defaults, making it more likely lenders will sue. Many lenders have clauses that penalize you for stacking.

• Aggressive Collection Practices
Some MCA providers adopt predatory tactics. They’ll sue first, talk later—especially if they think you can’t defend yourself.

HOW GOVERNMENT RESOURCES VIEW THIS

It’s a gray area because merchant cash advances are structured as sales of future receivables, not traditional business loans. As a result, typical consumer protection regulations might not apply. Still, if you suspect foul play or predatory terms, you can find helpful information at official government websites:

• Federal Trade Commission (FTC) – https://www.ftc.gov
Provides tips on spotting unfair or deceptive practices.
• Consumer Financial Protection Bureau (CFPB) – https://www.consumerfinance.gov
Offers guidance on financial products and how to avoid risky agreements.
• U.S. Small Business Administration (SBA) – https://www.sba.gov
Explains alternative funding options like SBA loans or lines of credit.

PENALTIES, AND LEGAL IMPLICATIONS

Guess what? Once a lender obtains a judgment—especially through a COJ—they may:

1. Freeze Bank Accounts
   Suddenly, you can’t access working capital. No more access to the money you need.
2. Lien Your Business Assets
   Equipment, inventory, or even real estate might be on the line.
3. Garnish Receivables
   The lender can intercept money you earn from customers. This is done via ucc liens.
4. Seek Personal Assets
   If you signed a personal guarantee, your personal credit and assets could be targeted.

If a default spirals out of control, there’s a risk of multiple lawsuits, default judgments, and destroyed credit. We understand how scary that is.

DEFENSE STRATEGIES: HOW WE PROTECT YOU

We’re Delancey Street – a top tier business debt relief company. We focus on creating resolutions for our clients, even when lenders are aggressive. Our defense approach includes:

1. Negotiating Reduced Balances
   We’ll speak with your creditors to reduce the principle amounts or arrange better repayment terms. This is the cornerstone of what we do.
2. Challenging the Agreement’s Validity
   Some MCA agreements may be unenforceable if they’re found to be usurious disguised loans. If the interest is very high, we might argue it’s illegal under state law.
3. Fighting the Confession of Judgment
   We review the COJ for flaws, improper filings, or lack of proper notice. If there’s any deficiency, we use it to win your case.
4. Examining Potential Violations of Law
   Could the contract be misleading or predatory? In some cases, we look at whether federal or state consumer protection regulations—like those found via the FTC website—may apply, even if it’s technically “business financing.”
5. Protecting Assets and Cash Flow
   Our goal is to keep your business operating. We might suggest options like Invoice Factoring or a Debt Consolidation Loan so your business can remain afloat.

Imagine unpeeling layer after layer of a questionable MCA agreement:

First, we inspect the language:
Is this truly a “receivables purchase,” or is it effectively a high-interest loan? If the terms are structured like a loan, we can argue it might violate usury limits. Next, we look at how the MCA was sold to you:
Were you misled about daily deductions, or the factor rate? If yes, we can challenge enforceability.

We then tackle any COJ:
Was it properly signed, witnessed, and filed? Many times, the lender’s rush leads to errors. A single missing piece might invalidate the judgment. If there’s any error in how the COJ was drafted, it can result in the COJ being nullified.

Finally, we weigh potential defenses under the Uniform Commercial Code (UCC) or relevant state laws. Our attorneys can comb through each detail, weaving a strong argument to undermine the lawsuit. Sometimes, the best offense is a thorough forensic analysis of every single piece of paper the lender used against you.

AS SEEN ON MAJOR MEDIA

Delancey Street has been QUOTED on leading websites like AmericanExpress.com, Forbes.com, and Entrepreneur.com. We’ve earned credibility in the business debt relief space. We understand how MCAs can become toxic. Our mission? Ensuring small business owners like you have the best possible representation.

WHAT YOU SHOULD DO NEXT

Look, the bottom line is that merchant cash advance defaults can be devastating. But it doesn’t have to end your business. You have rights, and we can help you navigate them.

We encourage you to contact us at DelanceyStreet.com, a top tier business debt relief company, and get a free consultation to figure out your next step.