A merchant cash advance (MCA) is money a funder gives your business today in exchange for a cut of your future sales, collected through daily or weekly withdrawals from your bank account. It’s sold as fast and easy, and it is, right up until the payments start. If the pulls are draining your account faster than sales come in, or you’ve stacked a second advance to cover the first, you have real options, including one that stops every funder at once.
Why MCA payments feel impossible: factor rates and daily pulls
MCAs don’t quote an interest rate. They quote a factor rate. Take $50,000 at a factor of 1.4 and you owe $70,000, collected a slice at a time every business day. If that runs its course over about four months, the $20,000 cost works out to an annualized rate well north of 100 percent by any honest math, and closer to 200 percent as an effective APR, since you’re paying a fixed cost on a balance that shrinks every day. The exact number depends on your terms, but it’s never in the neighborhood of a bank loan.
The daily pull is the other half of the squeeze. It’s sized to your past sales, not your current ones, so a slow stretch doesn’t lower the payment, it just empties the account faster. And because the payback amount is fixed the day you sign, paying early saves you nothing. When the pulls outrun deposits, a lot of owners take a second advance to cover the first. That’s stacking, and it’s how a cash flow pinch becomes a survival problem: two, three, or four funders drafting the same receivables at once.
Is an MCA even a loan? Why the answer matters
Legally, an MCA isn’t written as a loan at all. The contract says the funder purchased a piece of your future receivables, the way a wholesaler might buy inventory. That framing is the industry’s foundation, because usury laws, the caps on interest rates, apply to loans. If it’s a sale, the caps don’t apply on their face, and a price that would be wildly usurious as a loan becomes just the deal you signed.
Courts don’t always accept the label. Judges sometimes recharacterize an MCA as a loan by looking at how the deal actually works. New York’s appellate courts, in cases like LG Funding v. United Senior Properties (2020), focus on three things: whether payments truly adjust to your revenue through a working reconciliation process, whether the term is effectively fixed, and whether the funder has recourse against you if the business fails. Regulators have pushed hard too. In January 2025 the New York Attorney General announced a judgment and settlement of more than $1 billion against MCA giant Yellowstone Capital, canceling roughly $534 million in merchant debts, after alleging its advances were really loans at rates as high as 820 percent. And the FTC banned the operators of RCG Advances from the industry, returned $2.7 million to small businesses, and won a separate $20.3 million judgment against one operator in 2024. None of that guarantees a court will recharacterize your contract. It does mean the label on the paperwork isn’t the last word.
Confessions of judgment: the PA and NJ picture
A confession of judgment (COJ) is a clause where you agree, in advance, that the funder can enter a court judgment against you the moment it claims you defaulted. No lawsuit, no hearing, no chance to tell your side first. For years MCA funders ran these through New York courts against businesses everywhere, until New York amended its statute (CPLR 3218), effective August 30, 2019, to bar confessions of judgment against debtors who don’t reside in New York.
Closer to home, the two states we practice in split sharply. Pennsylvania still allows confessions of judgment in commercial transactions, under a procedure spelled out in Rule 2950 and the rules that follow it. Consumer COJs are off the table there, but business debts are fair game, which means a funder holding a Pennsylvania COJ may be able to turn your contract into a judgment, and start levying, before you’ve argued a word. New Jersey went the other way: since 2020, New Jersey law (N.J.S.A. 2A:16-9.1) bars providers of business financing from extending financing containing a confession of judgment to a New Jersey business, and a clause that violates the ban is invalid and unenforceable. One honest caveat: a judgment properly entered in another state can sometimes still be domesticated in New Jersey, so an out-of-state COJ isn’t automatically harmless. If there’s a COJ anywhere in your paperwork, have a merchant cash advance attorney read it before the funder does anything with it.
UCC liens and frozen accounts
Most MCA contracts include a security agreement, and funders routinely file a UCC-1 financing statement against your business assets the day the deal closes. That filing sits quietly until you miss a payment. Then Article 9 of the Uniform Commercial Code gives a secured party a blunt tool: it can send notices to the people who owe your business money, your card processor, even your customers, telling them to pay the funder directly. Owners often find out when the processor freezes their deposits. Whether a particular funder’s lien is valid, what it actually attaches to, and where it stands in line behind other lenders are all case-specific questions, but the speed of the freeze is very real.
How bankruptcy and the automatic stay stop it
The moment a bankruptcy case is filed, the automatic stay stops nearly all collection against the filer: the daily ACH pulls, enforcement of a confessed judgment, the lawsuits, the processor notices. Every funder, all at once, the same day. (If you’ve had a recent prior bankruptcy case, the stay can be limited, so flag any earlier filing right away.)
Inside the case, an MCA claim gets treated based on what it actually is, not what it calls itself. A funder’s lien is only as strong as the collateral behind it and its place in line, and stacked funders sitting behind a bank or an SBA lien are often unsecured in practice, which puts them in the group bankruptcy handles best. Recharacterization arguments can come into play here too. A business that wants to keep operating can restructure through Subchapter V, a streamlined small business Chapter 11 that can pay secured claims based on what the collateral is actually worth and stretch or reduce the rest. A business that’s done can close cleanly, and an owner facing a personal guarantee can deal with it through a personal Chapter 7 or Chapter 13. Which path fits depends on your numbers, and that’s exactly what a consultation sorts out.
Getting out: settle, restructure, or file
MCA debt relief isn’t one product. It’s a choice among a few real paths, and a couple of traps. Genuine MCA debt settlement happens: funders sometimes accept a reduced payoff, especially when they know bankruptcy is the alternative. But the settlement-company industry that advertises alongside MCAs has its own problems, including upfront fees and advice to simply stop paying while judgments pile up. Here’s how the options compare.
| Option | What it does | The catch |
|---|---|---|
| Keep paying | The pulls continue until the full payback amount is collected | The cost is fixed, so toughing it out earns you nothing, and one slow month can trigger a default |
| Debt settlement company | Promises reduced payoffs, often after telling you to stop paying | Upfront fees, little regulation, and a default while you wait can mean judgments and frozen accounts |
| Lawyer-negotiated workout | A lawyer negotiates directly with your funders, sometimes for real reductions | Funders don’t have to say yes; it works best when they know bankruptcy is the alternative |
| Bankruptcy | The automatic stay stops every funder at once; the debt is discharged or restructured | It’s a court process with eligibility rules, and liens and personal guarantees need case-specific review |
This page is part of our business debt relief practice, and it’s a conversation we have with owners every week. For the current filing fees and other PA and NJ bankruptcy figures, see our current bankruptcy numbers page. Talk to a merchant cash advance lawyer before the next default notice, not after. The consultation is free, we handle cases by phone or Zoom across Pennsylvania and New Jersey, and our fees are affordable, with payment plans available. Book a free consultation and bring your MCA contracts. The way out is usually closer than it feels.
Yes. The automatic stay takes effect the moment your case is filed, and it stops the ACH pulls along with lawsuits, judgment enforcement, and collection calls. If you have had a recent prior bankruptcy case, the stay can be limited, so tell your lawyer about any earlier filings up front.
On paper, no. MCA contracts are written as purchases of your future receivables, which is how funders avoid usury caps. Courts sometimes look past the label and treat an MCA as a loan, focusing on whether payments actually adjust with your revenue, whether the term is effectively fixed, and whether the funder has recourse if the business fails. Whether that argument works depends entirely on your contract and your facts.
It depends on where and when. New York stopped accepting confessions of judgment against out-of-state debtors in 2019, and New Jersey bars them in business financing extended to New Jersey businesses. Pennsylvania still allows them in commercial deals, so a funder may be able to enter judgment quickly there. Have a lawyer read the paperwork before anything gets filed, and if a judgment already exists, bankruptcy’s automatic stay stops its enforcement.
No. Stacking is common, and it is usually the point where an owner finally calls a lawyer. When several funders are pulling from the same receivables, settlement gets harder and bankruptcy often gets stronger, because one filing stops every funder at once and deals with all of the balances in a single case.