MCA breach of contract lawsuits: what the funder must show

What a merchant cash advance breach of contract claim requires, where NY courts allowed defenses like usury, and what to gather before you respond.

Updated 2026-10-30

By Anonymous MCA industry contributor Research, writing and editorial review · MCA sales background

Updated 2026-10-30

Most merchant cash advance lawsuits arrive under the same heading: breach of contract. The complaint usually says the funder bought a share of your future receivables, paid you the purchase price, and then stopped receiving the daily or weekly remittances it was promised. That is the whole story from the funder's side. This guide walks through what the claim actually requires, where merchants have found room to push back in published New York decisions, and what to gather before you or your lawyer decides how to respond.

This is general information, not legal advice. Deadlines and procedure depend on the court and how you were served, so confirm both with a licensed attorney the day the papers arrive.

What a funder is claiming when it sues for breach

A funder's breach claim is built on a few pieces of paper: the signed agreement, proof that it wired you the purchase price, a payment history, and some record of when payments stopped. In Principis Capital, LLC v I Do, Inc. (2d Dept 2022), the funder sued "to recover damages for breach of contract" after the merchant made roughly $10,183 in payments on a $52,456 purchased amount and then stopped. The appellate court noted that the funder "submitted proof of an executed written contract and proof of the defendants' breach, which the defendant did not dispute," and granted the funder summary judgment.

That case shows how quickly a breach claim can be proven when the only question is whether you paid. If the paperwork is in order and the merchant never contests the facts, there may be little left for a judge to decide.

The complaint will usually name more than the business. Many MCA agreements include a personal guaranty, and the owner who signed it is often a defendant too. In LG Funding, LLC v United Senior Properties of Olathe, LLC (2d Dept 2020), two individuals had signed "a personal guaranty of performance of all the representations, warranties, and covenants" in the agreement, and both were named alongside the company.

The acceleration clause and why the demand is so large

Funders rarely sue for just the missed payments. Most agreements say that on default the entire unpaid balance becomes due at once. The LG Funding agreement, for example, provided that "the full uncollected purchased amount plus all fees due under the agreement, including reasonable attorneys' fees, would become immediately due and payable in full." The Principis agreement had a similar clause.

So a merchant who fell two weeks behind can face a complaint for the whole remaining purchased amount, plus fees. Before you react to the number, check three things in your own records:

The purchased amount stated in the agreement, and the total you have actually remitted so far.
Every fee the complaint adds on top, and the contract section that supposedly allows each one.
Whether the funder applied any payment it received after the date it says you defaulted.

Discrepancies here are common and worth listing for counsel, even when they do not change the outcome of the case.

"Breach" depends on what the contract actually promised

Here is where an MCA differs from an ordinary loan. Many agreements describe the deal as a sale of future receivables, with payments tied to a percentage of revenue. If sales drop, a true receivables purchase is supposed to absorb some of that risk. Whether a slowdown in payments counts as a breach can therefore turn on the specific reconciliation and default language in your agreement.

Courts look at the agreement's actual terms, not its label. In LG Funding, the court said a transaction "must be 'considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it.'" It then listed the three factors New York courts usually weigh when asking whether repayment is absolute or contingent:

Whether there is a reconciliation provision.
Whether the agreement has a finite term.
Whether there is any recourse if the merchant declares bankruptcy.

If you asked for a reconciliation and the funder refused or ignored you, keep that request and any response. In Davis v Richmond Capital Group, LLC (1st Dept 2021), merchants alleged the funders breached the MCA agreements "by failing to pay the amounts promised, withdrawing unauthorized amounts, and refusing to permit reconciliation," and the appellate court held those contract claims were sufficiently pleaded against the funder entities. Our reconciliation clause guide explains how to find and use that provision.

The usury defense, and its limits

The most discussed merchant defense in New York is that the "advance" was really a loan charging criminally usurious interest. If a court agrees, the consequences are serious for the funder. In Davis, the First Department wrote that if the agreements are found to be loans, "criminal usury will be a defense to their enforcement, rendering them void."

LG Funding is the standard example of a merchant keeping that defense alive. The agreement there let the funder adjust payments "at [its] sole discretion," treated the merchant's bankruptcy or written admission of inability to pay as a default, and allowed the funder to pursue the guarantors if the business filed for bankruptcy. The court said those provisions "suggest that the plaintiff did not assume the risk" of lower revenue, refused to strike the usury defenses, and denied the funder summary judgment.

Two limits matter.

First, the defense depends on the contract. Principis went the other way because its agreement "specifically provided for adjustments to the monthly payments" based on sales, had no finite term as a result, and did not make bankruptcy a default. The funder won.

Second, in LG Funding the court said a merchant "may assert criminal usury as an affirmative defense" but "may not assert criminal usury as the basis for a counterclaim," and dismissed the counterclaim. In plain terms, in that line of cases usury worked as a shield against the funder's claim, not as a separate claim for money back. Whether that rule applies to your situation, and which state's law governs your agreement, is a question for a lawyer.

For the broader question of when courts treat an MCA as a loan, see our guide on whether MCA loans are legal. The MCA lawsuit tracker lists the published decisions we follow, with court and citation for each.

Other issues worth raising with counsel

Usury gets the attention, but plenty of breach cases turn on less dramatic points. Ask your lawyer to look at:

Who is actually a party. In Davis, contract claims against individual defendants were dismissed because they "are not parties to the subject Merchant Cash Advance (MCA) agreements" and veil-piercing facts were not alleged. The same logic can cut in a merchant's favor when a funder names someone who never signed.
Unauthorized debits. Withdrawals above the agreed amount, or after an agreed pause, can support the merchant's own breach theory, as the Davis plaintiffs alleged.
Service and venue. Where the case was filed and how papers were delivered can matter as much as the merits.
Prior modifications. Emails or texts agreeing to a lower payment can change what "default" means.
A confession of judgment. If you signed one, the funder may not need to win a breach case at all. Read our confession of judgment guide right away.

What to do in the first few days

The order matters more than the details.

Find the real deadline. It depends on the court and the method of service. Do not assume 20 or 30 days. Our page on what to do after being served covers how to verify it.

Get a lawyer involved. A business entity often cannot appear in court without an attorney, even if the owner can appear personally on a guaranty claim. A settlement company cannot file an answer for you. Our comparison of MCA attorneys vs settlement companies explains who does what.

Build the file. Pull the full agreement with every addendum, the funding wire confirmation, bank statements showing each debit, any reconciliation request and reply, and every message with the funder or broker.

Do not ignore the case while negotiating. Talks with the funder do not extend a court deadline unless the extension is agreed in writing or ordered by the court. A missed deadline can lead to a default judgment, and after that the funder can move toward restraining your bank account.

Decide on resolution with the facts in hand. Many breach cases end in a negotiated payoff. A real defense, or a provable billing error, is leverage in those talks. Get the release, the case dismissal, and any UCC termination spelled out in the settlement document.

Common questions

Can a funder sue me personally for the business's MCA?

If you signed a personal guaranty, the funder will usually name you. Both LG Funding and Principis involved guarantors sued alongside the business. What the guaranty covers depends on its wording, so have counsel read it rather than assuming it covers everything.

If my sales dropped, did I breach the agreement?

Not automatically. In a true receivables purchase, lower sales are supposed to mean lower payments through reconciliation. Whether a payment shortfall is a breach depends on your agreement's reconciliation and default terms and on whether you asked for an adjustment.

Will raising usury make the debt disappear?

Not on its own. It is a defense a court has to accept based on the contract terms, and published decisions have gone both ways. LG Funding kept the defense alive at an early stage; Principis rejected it. Even a strong defense typically has to be litigated or used as leverage in a settlement.

Is a breach of contract case the same as a confession of judgment?

No. A breach case is a lawsuit the funder has to prove. A confession of judgment is a document you may have signed in advance that lets the funder ask a court to enter judgment without a full lawsuit. The deadlines and options are different.

Sources

LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664 (2d Dept 2020), New York State Law Reporting Bureau - Opened October 30, 2026.
Principis Capital, LLC v I Do, Inc., 201 AD3d 752 (2d Dept 2022), New York State Law Reporting Bureau - Opened October 30, 2026.
Davis v Richmond Capital Group, LLC, 194 AD3d 516 (1st Dept 2021), New York State Law Reporting Bureau - Opened October 30, 2026.

Quotations come from the opinions above. Outcomes in published cases depend on their specific agreements and records and do not predict yours.

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