What is a Merchant Cash Advance Agreement?

By: Robert J. Nahoum


You are a small business owner. We are in the depths of the Corona-Economy and your business, along with the rest of the economy is crashing. You are desperate to keep things afloat and conclude you need quick business funding. You search the normal channels for raising capital, your bank and other trusted lending institutions have rejected your applications for lines of credit.  You are introduced to a smooth talking “Funding Advisor†or “Loan Adviser†who assures your he can secure the business funding you need.  You enter into what appears to be a loan but is unlike any loan you’ve seen before called a “Merchant Cash Advanceâ€.  Relieved to access the funding needed to keep your business afloat, you sign all the documents presented by the smooth-talking loan broker.  Unfortunately, despite the recent capital, your business continues in the red. You default on the Merchant Cash Advance and before you know it, a judgment is entered against you, hundreds of miles away, in a court in New York State.

Sound Familiar? You’ve fallen victim to this disgusting and abusive Merchant Cash Advance lending practice plaguing the New York courts. 


Merchant Cash Advance agreements are legal; but the enforceability may be challenged depending on their execution.

How Do Merchant Cash Advance Agreement Work?

Ongoing news reporting in 2014 by Bloomberg News blew the cover off a growing and insidious lending practice known as “Merchant Cash Advance†funding (“MCAâ€), which has been referred to as “payday lending for businesses.â€[1]  According to Bloomberg’s reporting and industry insiders, MCAs have created a “high-risk market, and interest rates [that] can exceed 500 percent a year, or 50 to 100 times higher than a bank’s.[2]

The National Consumer Law Center has concluded that MCAs “operate very similarly to payday loans and have similar problemsâ€. A lump sum of cash is taken out as an advance on a borrower’s future sales. The merchant then pays back this balance in addition to an expensive premium through automatic deductions from the merchant’s daily credit card or debit card sales or from its bank account.â€[3]

To secure the obligations of the corporate borrowers, the MCA all routinely include personal guarantees wherein an officer of the corporation, most often the owner of the small business, personally guarantees that the loan will be repaid.

The predatory nature of MCAs does not stop at the end-round around usury prohibitions; the fatal kick to a distressed borrower while its down comes when the borrower cannot afford to keep up with the vig – judgment by confession.  It had been customary practice in the MCA industry to require borrowers to sign confessions of judgment at the time the transactions are originated.  The use of confessions of judgment allow the lender to obtain judgments against the borrower and the individual guarantor in New York state, often with no presence in New York, without having to prove default or damages.  Worse, the confessions of judgment are routinely filed in faraway jurisdictions having absolutely no connection to the litigants.

The New York State Legislature outlawed MCA industries’ reliance confessions of judgment against out-of-state borrowers.  In June 2019, the New York State legislature passed bill (S06395) that effectively eliminated the use of Confessions of Judgment (COJ) in the MCA industry.  The new law became effective on August 30, 2019 upon Governor Cuomo’s signing of Senate Bill S06395.

Notwithstanding the recent prohibition on the use of Confessions of Judgment, the MCA industry continues to use the New York courts to collect its predatory debts by filing lawsuits against corporate borrows and the guarantors.  The MCAs include venue and choice of law provisions designating New York as the exclusive jurisdiction for enforcement. If you are a far-away borrower, you must either travel to New York to defend yourself, engage a New York attorney to represent you or risk default.

These bad financial deals get much worse when the lawsuits are filed. The lenders ask the court for interest at the New York State statutory rate of 9%.  What’s more, the MCAs routinely have attorneys’ fees provisions that allow the lenders to add an additional 33% fee to the balance. 

While confessed MCA judgment are no longer legal, the judgments entered before August 30, 2019 remain legal and enforceable. Judgments in the state of New York are enforceable for 20-years and accrue interest at 9%.  MCA borrowers who already have judgments against them are at imminent risk of having a bank account frozen or wages garnisheed.


As a preliminary matter, the process for challenging a confessed judgment is not the same for a traditional judgment.  There is a very limited basis on which a judgment debtor can challenge a confessed judgment by motion in the same proceeding in which the confessed judgment was entered.  All other challenges require a “plenary action†where the judgment debtor must file an entirely new lawsuit against the lender to prove its defenses to the MCA.

The only circumstances under which a confessed judgment debtor can challenge a confessed judgment by motion and without a plenary action is where the confessed judgment was entered “without authorityâ€.  This lack of authority would have to be apparent on the face of the confessed judgment or the lender’s affidavit submitted in support of the filing. The most common example is where the confessed judgment is entered in a jurisdiction that was not previously agreed upon in the affidavit for confession of judgment.  The clerk reviewing the filing should have seen the inconsistency in the venue provision and stopped the entry of judgment on that basis.

Fraudulent Inducement

While MCAs are legal, the potential for illegality comes in their execution.  Let’s be clear, these lenders are bottom feeders.  MCA lenders and the funding brokers have been routinely accused of fraudulently inducing small business owners into signing MCAs or into defaulting on existing MCAs.  If the MCA is the result of a fraud, the borrower could bring a brand new “plenary action†seeking declaratory relief in the form of a court order declaring that the agreement was a product of fraud, that the borrower has no obligation under the MCA and whatever other damages the borrower suffered as a result.

If you need help settling or defending a debt collection lawsuit, stopping harassing debt collectors or suing a debt collector, contact us today to see what we can do for you.  With office located in the Brooklyn and the Hudson Valley, the Law Offices of Robert J. Nahoum defends consumers in debt collection cases throughout the Tristate area including New Jersey.

The Law Offices of Robert J. Nahoum, P.C
(845) 232-0202

A List of Active Merchant Cash Advance Lenders:

Funding Speed
On Deck
National Funding
CAN Capital
Fora Financial
AMEX Merchant Financing
CFG Merchant Solutions
WG Capital
Queen Funding
Splash Advance
Forward Financing
Central Diligence Group
Maxim Commercial Capital
Legend Funding
Fresh Funding
PIRS Capital
South End Capital
Total Merchant Resources
National Funding
Rapid Finance
Cardinal Equity group
Peak Solutions
Bitty Advance
SOS Capital
The Fundworks
GRP Funding
Fox Business Funding
Lending Valley
IBEX Funding Group
Greenwich Capital
United Business Funding
World Business Lenders
24 Capital
Spartan Capital
Accord Business Funding
SRS Capital
Hunter Caroline
Global Funding Experts
Everest Business Funding
Unique Funding Solutions
SPG Advance
RDM Capital Funding
Elevate Funding
Silverline Services

[1] Zeke Faux and Dune Lawrence, Is OnDeck Capital the Next Generation of Lender or Boiler Room?, BLOOMBERG (Nov. 13, 2014), https://www.bloomberg.com/news/articles/2014-11-13/ondeck-ipo-shady-brokers-add-risk-in-high-interest-loans. See Gomez-Jimenez v New York Law School, 36 Misc. 3d 230, 257, 943 N.Y.S.2d 834, 854 N.Y. Sup. Ct. N.Y. Cnty. 2012) (taking judicial notice of news article); Record (“R.”) 19, ¶¶ 1, 7, 16-19, 40-61.

[2] Id.

[3] National Consumer Law Center, Comments to the Comptroller of the Currency Office of the Comptroller of the Currency on Exploring Special Purpose National Bank Charters for Fintech Companies, National Consumer Law Center (January 17, 2017), https://www.nclc.org/images/pdf/banking_and_payment_systems/fintech/comments-fintech-jan2017.pdf.

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