MCA Debt Collection: 6 Collection Tools and the Rules That Limit Them

Six Tools

If you are behind on a merchant cash advance, the first thing to know is that while the process is often quick and harsh, your funder has six tools:

• they can set up daily ACH debits;
• they can file a confession of judgment;
• they can issue a bank restraining notice and freeze your bank accounts;
• they can attach a UCC lien to your assets;
• they can send notices to redirect your customer payments;
• and they can use a personal guarantee.

But each of these tools has rules and limits on when and how they can be used, and knowing your rights gives you more space to move and more leverage to negotiate.

A confession of judgment is usually the fastest tool your funder can reach for. It’s often signed with the MCA in the first place, and after a default the funder simply files it with the court clerk. The judgment gets entered in as little as one to three days, and since you’ve already confessed there’s no chance to answer or raise any defenses to slow things down.

Since August 30, 2019, clerks across New York cannot enter a confession of judgment against any debtors living outside the state. However, if you have a business that has a place of business in any New York county, the law treats you as living there. Even in New York a confession of judgment can be filed only within three years after the affidavit is signed. The funder cannot just choose the court clerk it likes best either, but has to file in the county where you lived when you signed the affidavit or where you live now. Under new legislation in effect since September 1, 2025, Texas law goes further than New York: House Bill 700 makes any sales-based financing contract containing a confession of judgment completely void and unenforceable.

Once a judgment is entered, the funder has some very effective ways to take your money and prevent you from spending it. It can serve a restraining notice on your bank, bringing payments to a halt and locking balances. If you signed a personal guarantee, then your personal accounts are caught in the same trap. Payroll, rent, payments to suppliers can all suddenly stop, just when you are most vulnerable and under the greatest pressure.

If you are in New York, the law says a restraining notice lasts only up to one year from the day it is served, or until the judgment is paid or vacated. Once the bank has frozen enough money to hold twice the judgment amount, other funds are free and can be sent on.

Before a judgment is entered, the main weapon your funder can wield is simply continuing the daily or weekly ACH debits from your business account. A default can be triggered by as little as one missed payment, switching bank accounts or revoking ACH authorization. Texas law does not let providers collect a payment from your business bank account through recurring debits. To do that, a provider has to own a perfected security interest in the account, with a first priority that beats every other claim against the funds.

A Uniform Commercial Code-1, or UCC-1, is a document a funder can file to give it a security interest in your business assets. The filing is public, warns other lenders that there is a claim on your assets, and can block future SBA or bank loans. It lasts five years unless the funder continues it.

The funder can also intercept the receivables that keep your business going by sending your customers a notice to pay it instead. Once your customers get the notice, paying you no longer settles their bill, which means the revenue you depend on gets cut off while your cash is frozen. It is a fast, hard way of turning the screws.

A personal guarantee can put you in the same legal bind as the business itself. The same lawsuit, judgment and collections can cover you and the business. A lender can use those to go after personal accounts and, in some cases, vehicles or home equity. But if there is a co-owner who did not sign the guarantee, he or she won’t be bound by it.

One law you should not count on is the Fair Debt Collection Practices Act (FDCPA). It covers only consumer debt, used for personal, family or household purposes. So those protections don’t help with a merchant cash advance.

Illegal Loan Subject to State Usury Law

MCA providers argue what they sell isn’t a loan and doesn’t count as interest when it gets repaid. If the court sees the deal as a cash advance to be paid back out of future revenue, that might be true. But some courts have been finding that features like a fixed, non-negotiable repayment schedule and harsh default rules add up to an illegal loan subject to state usury law.

In 2020 a case in New York’s Appellate Division, LG Funding v. United Senior Properties, came up with three questions to help decide what is a sale. The court there asks: does the contract have a reconciliation provision? Is there a finite term? Is there any recourse if the merchant goes bankrupt? If a deal is a loan, any interest above 25% a year is criminal usury.

You may also be able to take the offensive with an attack on the MCA. If a court finds the deal was an illegal loan, the agreement as well as any confession of judgment may be void. Other possible grounds to move to vacate a confession of judgment include fraud, improper service, wrong venue, a missing notarization, or balances inflated by fees.

A Bank Freeze or Intercepted Payment

If the order freezing your business account lands on you suddenly, don’t be tempted to move or hide your assets. Start by gathering together any merchant cash advance contracts, confessions of judgment, e-mails, bank statements and the papers behind the judgment. And call a business attorney the same day.

Something to ask your attorney about is whether the court has a procedure for emergency relief. If a bank freeze or intercepted payment puts your business in a bad enough spot, some courts may release part of the funds for payroll while a motion to vacate is pending, but it’s discretionary. Don’t start negotiating with the MCA provider on your own, before getting legal advice. In some cases reaching out to a funder before legal review can unintentionally waive some defenses.

These tools are powerful and fast, but they are not always enforceable. If there is a basis for challenging their use, your attorney may be able to ask a court to undo them.