North Dakota MCA Defense Lawyer: 5 Matters to Put Before Counsel

If you run a small business that has taken multiple “merchant cash advances,” you likely need to talk with a lawyer sooner than you wish. The five most important things to talk over are:

• when you need to file an answer,
• if the MCA is really a loan,
• usury and your business form,
• whether there is a confession of judgment,
• all your advances together.

21 Calendar Days

Start with the deadline. Every court system has time limits for you to respond to a lawsuit, by filing an answer or motion. In a North Dakota state court, you have 21 calendar days from the day you were served. Miss the 21st day, and you could be found in default. Even if you owe some money, you don’t want a default judgment. Beware of getting named both as your business and as yourself. If an MCA funder offers you a settlement, you still need to protect yourself with an answer.

It’s worth a talk if you’ve been notified that there is a default, such as for missed payments. You should bring the notice you received, the contract, and a list of payments you have made. Even then, it is often a good idea to talk before you stop making payments or sign anything.

Whether an Advance Is a Loan

Then there is the contract. MCA agreements usually say they are sales of future receivables. However, the question is more complicated than what the paper says. Even if your advance has lots of language making it “not a loan,” it could still be one. Merchant cash advances are often written under New York law. In New York, judges have asked three questions to determine whether an advance is a loan. One is whether there is a reconciliation provision. A second is whether the agreement has a definite term. A third is whether the funder has recourse if the business goes bankrupt. So when you go in to talk with an attorney, bring all your contracts. She can review them for their language on each point. In a 2026 bankruptcy decision, In re Kossoff PLLC, a court treated 19 merchant cash advances as usurious loans, not sales of future receivables. Whatever the label, a factor rate is not an annual percentage rate (APR) like on a credit card. Instead, it is a multiple of the amount given to you. To judge the cost, look at the amount actually deposited, fees and charges, the speed of payback, and the total to be repaid.

If it is a loan, usury comes next. In North Dakota, interest rates on loans cannot be more than 5.5 percentage points above the average interest rate on 6-month Treasury bills. This figure is calculated every month by the State Banking Commissioner. It can never be less than 7 percent. When a court looks to see if your loan has a usurious interest rate, the court checks not only the interest rate but your business form. If your business is a corporation or limited liability company, North Dakota’s cap does not apply. Also, the cap does not apply if the advance was more than $35,000. For other businesses, you and your lawyer will need to understand exactly what was advanced and at what rate.

Next, check for a confession of judgment, a provision in a contract that allows a creditor to go to court for a judgment without an ordinary lawsuit. On August 30, 2019, New York amended CPLR section 3218. Now, if you live outside of New York or have no business location there, in most cases no confession of judgment can be entered against you. Get all the documents from the funder to your lawyer as soon as you can, including any demand for payment and the papers with the signed confession. The lawyer can evaluate whether your confession of judgment is valid.

A Spreadsheet That Lists Them All

When you are dealing with a web of merchant cash advances that each pull from your sales proceeds, create a spreadsheet that lists them all. For each advance, you want the amount the funder gave you, the amount it says you still owe, what percentage or dollar amount it takes from your accounts each day or week, whether it filed UCCs, the terms of any personal guarantee, and whether anyone else signed a guarantee. Only after you understand the whole picture can you plan to manage the debt. When you are trying to settle several merchant cash advances by taking a new one from a different company, make sure you know whether the new company will pay off the others. Also, be sure to ask what your total debt cost will be afterward. Also keep in mind that the statute of limitations for contract lawsuits is six years in North Dakota. Each court will interpret when the claim accrued based on its facts.

When you hire that lawyer, key questions to ask are who the responsible lawyer will be, which businesses and owners are covered, whether the services include both negotiation and going to court, and whether it will be the lawyer or someone else who appears if you need to go to court. When the lawyer you hire is not admitted in the court where the case is happening, the lawyer should provide for getting a court admission or hiring local counsel to help. Calling a lawyer does not stop debt collectors or the court, so you need to take action, too. If you want to meet with a lawyer, call the State Bar Association of North Dakota’s lawyer referral service. For $30, they give you the name of a lawyer and offer up to a 30-minute consultation. Lawyers charge you their regular fees, not a reduced rate, but at least you have a chance to meet with someone and make a basic plan about what you could do.