An MCA Is Not a Loan — and That Changes Everything
A merchant cash advance is a purchase of future receivables. That's not wordplay — it's the legal distinction that determines what lenders can do when you stop paying. Because an MCA isn't technically a loan, many standard borrower protections don't apply.
MCA agreements typically include a confession of judgment clause, a UCC-1 filing and an ACH authorization. Each of those gives the funder specific tools when payments stop. Understanding what each one means is the first step toward knowing your options.
What Happens Step by Step When You Stop Paying
Week 1–2: The Calls Start
Most MCA funders contact you within 24-48 hours of a bounced ACH debit. The first calls are usually from your rep or an account manager. They'll ask about the missed payment and try to get you back on track.
Week 2–4: Collections Escalation
If you don't resume payments, the account moves to a collections department — either internal or third-party. The tone changes. Calls become more frequent. You may receive emails referencing your signed agreement and the legal remedies available to the funder.
Month 1–3: Legal Action Begins
This is where it gets serious. MCA lenders have several enforcement tools:
- Confession of Judgment (COJ): If your agreement includes a COJ (most New York-based MCAs do), the funder can obtain a judgment against you without a trial. They file the COJ in court and can receive a judgment in days.
- UCC Lien Enforcement: The UCC-1 filing made when you signed gives the funder a security interest in your business assets. They can use this to claim your receivables.
- Bank Account Freeze: With a judgment in hand, lenders can petition to freeze your business bank account through a restraining notice.
- Lawsuit: If no COJ exists, the funder may file a breach of contract lawsuit — which takes longer but has the same end goal.
What MCA Lenders Can and Can't Do
MCA lenders have real power — but they're not unlimited. Here's the breakdown.
| Action | Can They? | Details |
|---|---|---|
| File a Confession of Judgment | Yes (if in agreement) | Allowed in some states. COJs signed in NY are most common. Some states have banned them. |
| Freeze Your Bank Account | Yes (with judgment) | Requires a court judgment first. They file a restraining notice with your bank. |
| Take Money From Personal Accounts | Sometimes | Only if you signed a personal guarantee. The guarantee must be enforceable in your state. |
| Report to Credit Bureaus | Sometimes | MCAs don't always report. But judgments and liens can appear on business and personal credit. |
| Charge Criminal Penalties | No | MCA default is a civil matter. You can't go to jail for not paying an MCA. |
| Seize Physical Property | Generally No | UCC filings cover receivables, not physical assets — unless the agreement specifically includes them. |
| Garnish Wages | No (for the business) | MCA agreements are business-to-business. Wage garnishment rules apply to consumer debt. |
Your Rights as a Business Owner
Even in default, you have options. Most business owners don't realize this because MCA lenders move fast and the language in the agreements is designed to feel final. It's not.
- Right to challenge a COJ: Several states (New York included, since 2019) have added protections against out-of-state COJs. If you didn't sign the COJ in the state where it was filed, there may be grounds to vacate it.
- Right to negotiate: MCA funders often prefer settlement over litigation. A reduced payoff is better for them than chasing a business through court for months.
- Right to legal defense: If sued, you have the right to respond, raise defenses and counterclaim — especially if the MCA terms were usurious (disguised as a purchase) or if the funder didn't follow proper procedures.
- Right to change bank accounts: Moving your business banking may temporarily stop ACH debits, but it's a short-term move. Lenders will pursue other remedies. Use this as breathing room, not a permanent solution.
- Right to file complaints: You can file complaints with your state's Attorney General, the FTC and the Better Business Bureau if funders use deceptive or abusive collection practices.
Not Sure Where You Stand?
A 10-minute conversation can tell you exactly what your lender can do — and what you can do back.
Call or Text (904) 558-1268When You Need an Attorney
Not every MCA default requires a lawyer. But some situations demand one:
- You've been served a lawsuit or received a judgment notice
- Your bank account has been frozen or a restraining notice filed
- You believe the MCA terms are predatory or the effective interest rate exceeds what should be legal
- You have multiple MCAs from different funders creating conflicting claims
- A personal guarantee has been triggered and your personal assets are at risk
First American is not a law firm. We don't provide legal advice. But we work directly with licensed attorneys who specialize in MCA cases across all 50 states. When legal help is needed, we can connect you with the right person for your state and situation.
The Cost of Waiting
MCA lenders move faster than traditional creditors. A COJ can be filed and a judgment entered within days. Bank freezes can happen without warning. Every day of inaction narrows your options.
Business owners who call us early — before a judgment is entered or an account is frozen — consistently have more paths available. The math is simple: more time equals more leverage.
Whether you end up working with us, talking to your own attorney or handling it yourself — get informed now. Understand what your lender can actually do. Know what cards you're holding. A free consultation takes 10 minutes and costs nothing.
