MCA Default for New York Contractors: Legal Rights, Risks & Defense Strategies

Former law clerk to the Honorable Stuart M. Bernstein, U.S. Bankruptcy Court, S.D.N.Y.

When a New York contractor falls behind on a merchant cash advance, the problem can reach beyond the MCA payment itself. The funder may declare a default, continue or attempt ACH withdrawals, pursue rights connected to a UCC-1 financing statement, file a lawsuit, or pursue an owner who signed a personal guarantee.

For contractors, the effect can be especially serious. Cash flow is tied to projects, receivables may already be committed to operating expenses, and new work may depend on financing or bonding. An MCA problem that pressures those receivables can affect more than the current debt. It can make it harder for the business to keep projects moving and pursue the next job.

That is why an MCA default should be looked at as part of the contractor’s larger financial picture.

When a New York contractor defaults on a merchant cash advance, the funder may pursue collection under the MCA agreement, assert rights connected to UCC filings, file a lawsuit, or pursue a personal guarantor. The contractor may also have defenses depending on how the transaction was structured, how reconciliation worked, what happened after revenue changed, and whether the MCA functioned as a true purchase of receivables or as a loan.

What Happens When a New York Contractor Defaults on an MCA?

When a contractor misses an MCA payment or another event of default occurs under the agreement, the funder may begin collection quickly.

What happens next depends on the contract.

The funder may continue attempting ACH withdrawals, send a default notice or demand, assert rights under its security agreement, file a lawsuit, or

pursue a personal guarantee. If a judgment is later entered, additional judgment-enforcement remedies may become available.

A merchant cash advance is generally structured as the purchase of a business’s future receivables. The funder provides money upfront in exchange for an agreed amount of future revenue.

That structure matters because an MCA is typically presented as a receivables purchase rather than a loan. In a dispute, however, the name on the agreement is not necessarily the end of the analysis. How the transaction actually operated can matter.

For a contractor already having trouble making the required payments, understanding what happens after an MCA default is important before making another financial decision that could affect the business.

How MCA Funders Define “Default” in Construction Contracts

A missed payment is one possible default, but it may not be the only one.

MCA agreements can contain broader default provisions. Depending on the contract, those provisions may address changes to the designated bank account, interference with ACH withdrawals, additional financing, failure to provide requested business records, or other events defined by the agreement.

For contractors using more than one MCA, this deserves particular attention.

A business may take another advance because it needs money for payroll, materials, equipment, or the gap between completing work and getting paid.

But before stacking another MCA on top of the first, review the existing agreement.

The new financing may affect the first funder’s rights or trigger provisions in the existing contract.

That is why you should review the agreement before assuming default begins only when a payment is missed.

Immediate Enforcement Tools: ACH Withdrawals, UCC Filings & Confessions of Judgment

Several collection mechanisms can become involved after an MCA default, and they should not be treated as the same.

ACH withdrawals come from the payment authorization in the MCA agreement. A funder may continue attempting authorized debits according to the agreement unless the authorization or payment arrangement changes. That is different from a court-ordered bank restraint.

A UCC-1 financing statement is a public filing associated with a claimed security interest in business collateral. Depending on the MCA security agreement, the collateral may include receivables, inventory, equipment, or other business property.

The UCC filing itself is not a court judgment and does not automatically give the funder unlimited authority to take business assets. The funder’s rights depend on the underlying security agreement, the collateral, priority, default, and the applicable enforcement rules.

A confession of judgment, where legally permitted and properly entered, can create a different problem because it may allow a judgment to be entered without the ordinary lawsuit process.

New York changed its confession of judgment rules in 2019. Whether a particular confession can be enforced depends on the agreement, the parties, when it was signed, where it was filed, and whether it met the statutory requirements.

If a contractor learns that a judgment has already been entered, review the actual confession, judgment, court docket, MCA agreement, and any bank restraint before deciding what comes next.

Why Contractors Are Especially Vulnerable to MCA Default Consequences

Contractors operate differently from many other businesses.

Revenue may come in large payments tied to project milestones rather than in steady daily sales. At the same time, payroll, materials, equipment, insurance, subcontractors, taxes, and other expenses still have to be paid while the contractor waits for receivables.

That timing problem is one reason MCA financing can become difficult for a construction business.

A fixed daily or weekly withdrawal can continue even when a project payment is delayed. If the contractor takes another MCA to cover the gap, the business may end up with several withdrawals hitting the same cash flow.

Then the problem can spread.

A UCC filing may affect new financing. Collection pressure can interfere with operating cash. A judgment or bank restraint can make it harder to pay

employees and vendors. A personal guarantee may create a separate problem for the owner.

For a contractor, the question is therefore not simply whether the next MCA payment can be made.

The better question is what the MCA obligations are doing to the business as a whole and whether the current payment structure still works.

Does a UCC Lien From an MCA Funder Affect My Ability to Get Bonded in New York?

A UCC filing connected to an MCA can become an issue when a contractor applies for bonding or new financing.

The effect is not identical in every case. It depends on the contractor’s financial condition, the collateral covered by the filing, existing secured debt, the surety’s underwriting requirements, and the company’s overall financial picture.

But if an MCA funder has a broad security interest in business receivables or assets, a surety or lender may want that issue explained or resolved before extending additional credit or bonding capacity.

How UCC-1 Financing Statements Work Under New York Law

A UCC-1 financing statement provides public notice of a claimed security interest in collateral.

For an MCA transaction, review the filing alongside the security agreement. The financing statement shows what has been placed in the public record, while the underlying agreement helps determine what security interest the business actually granted.

The collateral language can be broad. Depending on the documents, it may cover receivables, inventory, equipment, or other business assets.

A financing statement does not mean the funder automatically owns those assets. It also does not answer every question about the validity, priority, or enforceability of the claimed security interest.

Those questions require looking at the documents and the circumstances of the transaction.

Stacked MCA Liens: A Common Problem for Construction Businesses

Contractors sometimes take a second or third MCA because the first advance did not solve the underlying cash flow problem.

One project is delayed. A receivable does not arrive when expected. Payroll is due. Materials have to be purchased for the next job. Another advance can look like the fastest way to close the gap.

But every new financing arrangement can add another obligation to the same business cash flow.

If several funders also claim security interests in overlapping assets, the contractor may end up with multiple UCC filings connected to the business.

At that point, the problem is no longer just the size of each MCA payment.

The business needs to know which funders claim an interest in which assets, when each filing was made, whether any older obligations have already been satisfied, and what each agreement says about additional financing.

That information becomes especially important when the contractor needs new credit or bonding.

How UCC Liens Affect Bonding, Bidding & Contract Awards in New York

Bonding decisions are based on the contractor’s overall financial condition and the surety’s underwriting requirements.

An MCA UCC filing can become one part of that review.

If receivables or other business assets are already subject to a claimed security interest, the surety may want to understand the amount owed, the funder’s rights, the contractor’s remaining liquidity, and whether the MCA obligation affects the company’s ability to complete the work.

Multiple MCA obligations can raise additional questions because several daily or weekly withdrawals may already be reducing the cash available for payroll, materials, subcontractors, and project expenses.

For a contractor that depends on bonded work, address those questions before the next bid deadline whenever possible.

If an MCA UCC filing is already creating problems with financing or bonding, start with the documents. Pull the UCC filing, MCA agreement, security agreement, payment history, and any other financing documents.

Once you know what's on record and what the contractor still owes, you can determine what needs to be resolved before the business pursues its next financing or bonding opportunity.

Personal Liability: Your LLC Won’t Protect You From a Personal Guarantee

Operating through an LLC or corporation does not necessarily protect a contractor from personal liability for an MCA if the owner signed a personal guarantee.

That distinction matters.

The LLC still exists as a separate legal entity, but a personal guarantee creates a separate contractual obligation for the individual who signed it. If the business defaults, the funder may assert a claim against the guarantor based on the terms of that agreement.

This does not mean every personal asset automatically becomes collateral or can immediately be taken by the funder. The guarantee, any security documents, the underlying MCA agreement, and any judgment must be reviewed separately.

But the problem may not stop with the business.

For contractors who signed an MCA personally as well as on behalf of the company, understanding personal liability for an MCA agreement should be part of the analysis from the beginning.

Personal Guarantee Claims After an MCA Default

When an MCA funder pursues a personal guarantor, start with the actual guarantee.

Who signed it? What obligations does it cover? What events trigger liability? Does it contain separate default provisions? Is the demanded amount consistent with the agreement and payment history?

Those questions matter because a personal guarantee does not answer every question about liability.

The underlying MCA dispute may also affect the guarantee. If there is a legitimate dispute over the amount owed, the funder’s performance, reconciliation, the characterization of the transaction, or another part of the MCA agreement, those issues may need to be considered alongside the guarantee claim.

For a contractor, this is especially important when business and personal finances are both under pressure.

The company may be dealing with payroll, project expenses, MCA withdrawals, UCC filings, and unpaid receivables while the owner is separately receiving demands based on the guarantee.

Treat those as related problems, but do not assume they are legally identical.

Attorney Fee Clauses Can Increase the Amount Being Claimed

The MCA balance may not be the only amount a funder demands after default.

Some agreements contain provisions allowing the funder to seek attorney fees, collection expenses, default charges, or other amounts when the business breaches the agreement.

Review those provisions rather than accept them at face value.

Start with the payment history and determine what principal or purchased amount the funder claims remains unpaid. Then look at each additional charge and identify where it comes from in the agreement.

If attorney fees are being demanded, determine how the agreement calculates them and whether the amount being sought is supported by the contract and applicable law.

For a contractor negotiating a resolution, the number in a demand letter should not automatically be treated as the final amount owed.

First, understand how the funder arrived at that number.

What New York Legal Defenses Are Available to Defaulting

Contractors?

A default does not automatically mean every term of an MCA agreement is enforceable exactly as the funder claims.

The available defenses depend on the contract and what actually happened during the relationship.

One of the most important questions is whether the transaction operated as a genuine purchase of future receivables or functioned as a loan. Other issues may involve reconciliation, the funder’s performance, the amount claimed, a confession of judgment, personal guarantee enforcement, or disclosures provided when the financing was originated.

J. Singer Law Group’s merchant cash advance defense in New York starts with the documents and the payment history. The goal is to understand how the financing actually worked before deciding whether the business should litigate, negotiate, restructure, or consider another option.

Managing Partner Jeb Singer previously served as a law clerk to Hon. Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York. That bankruptcy and restructuring background is particularly relevant when an MCA dispute is part of a larger financial problem for the contractor.

The Three-Factor Test: Is Your MCA Actually a Loan?

New York courts look beyond the agreement's name when deciding whether an MCA was a true purchase of future receivables or functioned as a loan.

Three issues commonly receive close attention:

1. Reconciliation: Does the agreement provide a real way to adjust payments based on the business’s actual receivables?

A reconciliation provision matters because a genuine receivables purchase should account for changes in revenue. Contract language matters, but what happened in practice can matter too.

If the contractor’s revenue dropped and it requested reconciliation, how did the funder respond? Were payments adjusted, or did the same withdrawal continue regardless of revenue?

2. Repayment term: Is repayment genuinely dependent on future receivables, or does the transaction effectively require a fixed amount to be repaid on a predictable schedule?

A true receivables purchase involves uncertainty about how quickly those receivables will be generated. A payment structure that effectively requires repayment within a fixed period may raise a different question about the transaction's substance.

3. Risk of nonpayment: What happens if the contractor’s business fails, becomes insolvent, or enters bankruptcy?

The issue is whether the funder accepted a real risk that the purchased receivables might never be generated. If the agreement places substantially all of the risk back on the contractor, that may matter when determining whether the transaction functioned as a loan.

These factors should be considered together. Failing one factor does not automatically mean every MCA will be recharacterized as a loan.

The agreement, reconciliation history, payment structure, default provisions, and the parties' conduct all matter.

Criminal Usury Defense Under New York Penal Law § 190.40

Usury can become relevant in an MCA dispute, but there is an important first step.

The transaction must first be determined to be a loan.

A high factor rate or high effective annual cost does not, by itself, turn a merchant cash advance into a usurious loan. If the transaction is a genuine purchase of receivables, traditional usury rules generally do not apply in the same way.

If the MCA is recharacterized as a loan, New York’s criminal usury provisions may then become relevant when the applicable statutory requirements are met.

For a contractor, that means the analysis should not begin and end with an annualized percentage.

Start with how the deal worked.

Was reconciliation real? Did payments change with revenue? Was repayment effectively fixed? What happened when project revenue slowed? What risk did the funder actually bear?

Those facts determine whether a usury argument should even become part of the case.

Confessions of Judgment After the 2019 CPLR § 3218 Reform

A confession of judgment can create a serious problem because it may allow a judgment to be entered without the ordinary lawsuit process when the statutory requirements are satisfied.

New York changed CPLR § 3218 in 2019, adding restrictions on confessions of judgment involving certain parties outside New York.

The amendment did not simply eliminate every confession of judgment involving a New York contractor.

If a funder claims to have entered a confession of judgment, get the actual documents before assuming it is valid or invalid.

Look at when the confession was signed, who signed it, where it was filed, the amount of the judgment, and whether the filing complied with the requirements that applied to the transaction.

If there are problems with the judgment, fighting a confession of judgment in New York may involve procedural challenges, substantive defenses, or both depending on the facts.

Review the judgment and the underlying MCA agreement together. Vacating a judgment, if grounds exist, does not necessarily resolve the underlying MCA dispute.

New York’s Commercial Finance Disclosure Requirements

New York requires disclosures for certain covered commercial financing transactions.

For contractors reviewing an MCA entered into after those requirements took effect, the disclosure documents should be part of the file.

Compare the disclosures the contractor received before accepting the financing with the final MCA agreement and the way the transaction actually operated.

Review the amount funded, the amount the business was expected to remit, the payment structure, and any other required information provided with the offer.

If the funder failed to comply with an applicable disclosure requirement, that issue should be evaluated based on the statute, the transaction, and the remedies actually available.

Do not assume a disclosure problem automatically voids the MCA or eliminates the debt.

Instead, treat the disclosures as another part of the larger review.

For a New York contractor facing default, the strongest strategy usually begins with the same basic records: the MCA agreement, payment history, reconciliation requests, UCC filings, personal guarantee, disclosure documents, default notices, and any court papers.

Those documents show what the contractor agreed to, what the funder actually did, and which defenses may realistically apply.

What Are the Settlement, Restructuring & Bankruptcy Options for New York Contractors?

New York contractors dealing with MCA default may have several ways to address the debt, including a negotiated settlement, restructuring, refinancing, or bankruptcy.

The right option depends on more than the MCA balance.

A contractor needs to consider current projects, receivables, payroll, materials, bonding requirements, other MCA positions, secured debt, personal guarantees, and whether the underlying business can keep operating if MCA pressure is reduced.

The numbers still have to work.

Negotiating an MCA Settlement: What Contractors Need to Know

Settlement may be an option when a contractor can no longer make the MCA payments as originally structured.

But the settlement amount is only one part of the deal.

Before signing, review the payment schedule, default provisions, judgment language, personal guarantee, UCC filings, releases, and what happens if the contractor misses a settlement payment.

A settlement should not leave the personal guarantee unresolved. It should also clearly address any UCC filing or other security interest that should be released after the agreed amount is paid.

Be especially careful with provisions that allow the funder to enter judgment after a missed settlement payment. A contractor may believe it has negotiated breathing room only to find that the new agreement gives the funder a faster enforcement path if the revised payment schedule cannot be maintained.

That is why negotiating an MCA settlement should begin with a payment the business can realistically make, not simply the lowest number the funder will accept.

For contractors, test cash flow against the actual project schedule.

When are receivables expected? What payroll and material costs have to be covered before then? Are retainage payments outstanding? Does the contractor need bonding capacity for upcoming work? Are other MCA withdrawals still coming out of the same account?

A settlement that looks manageable on paper can fail quickly if it does not match how the contractor actually gets paid.

MCA Restructuring and Take-Out Financing for Construction Businesses

When the underlying business is viable, but the current MCA payment structure is not, restructuring may be worth considering.

An MCA restructuring can involve changing payment terms, negotiating with multiple funders, or finding another way to reduce the immediate pressure on the company’s cash flow.

For a contractor, the goal should be practical.

The business needs enough cash to pay employees, purchase materials, keep projects moving, maintain insurance, and cover the other expenses required to complete its work.

Reducing an MCA payment does not solve the problem if the revised obligation still leaves the contractor unable to operate.

Refinancing may also be an option for some businesses. A conventional loan or other financing facility may provide better terms than the existing MCA obligations, but only if the contractor qualifies and the new financing actually improves the company’s position.

Existing UCC filings can complicate that process. A new lender may want existing liens paid, terminated, subordinated, or otherwise addressed before providing financing.

Before replacing one obligation with another, look at the entire transaction. Compare the payment, term, fees, collateral requirements, personal guarantee, and what happens to the existing MCA debt and UCC filings at closing.

The goal is not to move the debt somewhere else.

It is to leave the contractor with a payment structure the business can actually support.

Contractors should also be cautious about companies promising to consolidate MCA debt or stop collection in exchange for substantial upfront fees.

Find out exactly what the company is providing, whether it is actually negotiating with the funders, whether new financing is involved, and whether another security interest or UCC filing will be created.

Chapter 7, Chapter 11 & Subchapter V Bankruptcy for New York Contractors

Bankruptcy becomes a different conversation when a contractor deals with more than one MCA or when the MCA problem is part of a larger debt problem.

The type of bankruptcy matters.

A business Chapter 7 generally involves liquidation rather than reorganization. A business entity does not receive the same Chapter 7 discharge that an individual debtor may receive. For a contractor that wants to continue operating, Chapter 7 therefore serves a very different purpose from Chapter 11.

Chapter 11 provides a framework for reorganization. The business may continue operating while addressing creditor claims through the bankruptcy process, subject to the Bankruptcy Code and the bankruptcy court's requirements.

For qualifying small business debtors, Subchapter V provides a streamlined path within Chapter 11. Eligibility depends on the debt structure and the statutory requirements in effect when the case is filed.

A contractor considering bankruptcy should not focus only on MCA debt.

The company may also have equipment financing, tax obligations, landlord debt, vendor balances, secured lenders, outstanding project expenses, and other creditors. Personal guarantees also need separate attention because a business bankruptcy generally does not automatically protect a nondebtor owner or guarantor.

That is where the larger restructuring analysis matters.

Ira Reid previously served as a law clerk to Hon. Cecelia H. Goetz of the U.S. Bankruptcy Court for the Eastern District of New York and spent approximately 20 years as a restructuring partner at Baker McKenzie before joining J. Singer Law Group. The firm’s MCA and restructuring practices allow these issues to be evaluated together when a contractor’s problem has moved beyond a single financing agreement.

Bankruptcy is not always the answer.

If the contractor has one MCA, a workable business, and a realistic settlement or restructuring option, a bankruptcy filing may not be necessary.

But if several MCA withdrawals, judgments, UCC filings, tax obligations, and other creditor claims are hitting the business at the same time, trying to solve each problem separately may no longer make sense.

Start with the business itself.

Is the contractor profitable before debt service? Are current projects producing enough margin? What receivables are expected over the next several months? What does the company need to spend to finish those projects? How much cash are MCA funders taking each week? What other debt has to be serviced?

If the business can operate once the debt structure is changed, reorganization may be worth evaluating.

If the underlying business cannot support its operating expenses even after the debt is adjusted, bankruptcy may not solve that problem.

The decision should follow the numbers.

Three Mistakes New York Contractors Make After MCA Default (That Make Everything Worse)

• Assuming the LLC automatically protects the owner from the MCA. An LLC provides an important legal separation between the business and its owners, but a signed personal guarantee creates a separate contractual obligation. If the owner guaranteed the MCA, the funder may pursue that guarantee after default. Start with the actual document and determine what the owner agreed to guarantee rather than assuming the LLC resolves the personal liability question.
• Ignoring the UCC filing until it interferes with financing or bonding. A contractor does not need to wait for a lawsuit before checking its UCC filings. If the business depends on bonding or outside financing, find out what is already on record before the next application or bid. Pull the filings, identify the secured parties, and determine which MCA obligations remain outstanding. Address old filings tied to resolved obligations rather than leaving them for a future lender or surety to discover.
• Signing a settlement without understanding what happens after a missed payment. The settlement amount may look better than the original MCA balance, but the default provisions can matter just as much. Review whether the agreement allows judgment to be entered after default, whether there is a cure period, what additional fees may be added, what happens to the personal guarantee, and when any UCC filing will be terminated. Do not agree to a payment schedule unless the contractor’s actual cash flow can support it.

For a contractor already in default, the goal is not simply to stop today’s collection call.

The business needs a plan that accounts for the MCA debt, UCC filings, personal guarantees, bonding needs, upcoming projects, and the cash required to keep operating.

Solving only one piece can leave the contractor dealing with the same problem again a few weeks or months later.

Why New York Is the Epicenter of MCA Enforcement and Why It Matters for Contractors

Many MCA agreements contain New York governing-law, forum-selection, or venue provisions. For contractors, those provisions can become important as soon as a dispute begins.

A contractor does not necessarily have to be based in New York for New York law or a New York forum to become part of the dispute. An out-of-state construction company may sign an MCA agreement that selects New York law, identifies a New York court as the agreed forum, or contains other provisions affecting where a dispute may be brought.

But those provisions should not be treated as automatic answers.

Governing law, jurisdiction, and venue are different legal questions. The agreement's language, the parties' locations, the nature of the transaction, and the applicable procedural requirements can all matter.

For contractors already dealing with default, this means the first step is to read the contract before assuming where the case must be handled.

New York Forum Selection Clauses: Out-of-State Contractors Are Not Necessarily Outside New York’s Reach

An out-of-state contractor may still find itself dealing with an MCA dispute in New York if the agreement contains an enforceable New York forum-selection provision.

That can come as a surprise.

A contractor may operate in another state, perform all of its construction work there, maintain its bank accounts there, and still have an MCA agreement that points to New York for litigation.

The same agreement may also contain a New York choice-of-law provision.

Those clauses need separate review.

A choice-of-law provision addresses which state’s law the parties agreed would govern certain issues. A forum-selection provision addresses where a dispute may be heard. Neither provision should be assumed to resolve every legal question that can arise in an MCA case.

Other issues may involve personal jurisdiction, venue, UCC rules, the location of collateral, judgment enforcement, or the law applicable to a particular defense.

If an out-of-state contractor receives New York court papers and ignores them because the company is located elsewhere, it can create a much larger problem.

Start with the summons and complaint, the MCA agreement, the personal guarantee, any confession of judgment, and the provisions addressing governing law and forum.

Then determine which deadline applies and what to address first.

Why New York MCA Law Matters to Contractors

New York is an important forum for MCA disputes because many MCA agreements select New York law or New York courts.

That makes New York’s treatment of MCA transactions particularly important for contractors facing collection.

One central question remains whether the transaction was actually a purchase of future receivables or functioned as a loan.

That question does not turn on the contract title alone.

The payment structure, reconciliation provision, repayment term, allocation of risk, default provisions, and how the parties actually performed under the

agreement can all matter.

For contractors, the revenue structure deserves particular attention.

Construction revenue does not always arrive evenly. A contractor may complete substantial work and then wait for an owner or general contractor to release payment. Change orders may remain unresolved. Retainage may not be paid until later in the project. Weather, permitting, inspections, material delays, or another contractor’s performance can affect when receivables arrive.

If an MCA is meant to represent the purchase of future receivables, those revenue changes may matter when reviewing how the agreement actually operated.

• Did the payment amount change when revenue fell?
• Was there a workable reconciliation process?
• What happened when a project payment was delayed?
• Did the funder continue collecting the same amount regardless of what the business actually received?

Those are more useful questions than simply looking at the factor rate and deciding the MCA must be either valid or invalid.

What New York Contractors Should Review Before a Default Becomes a Lawsuit

A contractor doesn't need to wait for litigation to review its MCA position.

If payments are becoming difficult, start by gathering the records.

Pull every MCA agreement, security agreement, personal guarantee, UCC filing, payment history, reconciliation request, disclosure document, default notice, and communication with the funder.

If there is more than one MCA, organize the documents by funder.

Then look at what is happening inside the business.

How much is being withdrawn each day or week? Which projects are generating the receivables that support those payments? What receivables are still outstanding? What does the contractor need for payroll, materials, insurance, equipment, subcontractors, and taxes? Is another bid or bond application coming up?

The legal documents tell you what the funders may claim.

Business records tell you whether the contractor can keep operating under the current payment structure.

Both sides of that picture matter.

If a default has already occurred, the same review becomes more urgent. Determine whether a lawsuit has been filed, whether a judgment exists, whether the funder is asserting rights under a UCC filing, whether ACH withdrawals are continuing, and whether the owner has received a separate demand under a personal guarantee.

A contractor facing several of those issues at once should not assume they all have the same solution.

The MCA agreement may need to be defended or renegotiated. A judgment may require a separate court response. A UCC filing may need to be addressed as part of a settlement or restructuring. A personal guarantee may create a separate claim against the owner.

The strategy should match the problems that actually exist.

For New York contractors, that starts with understanding the documents, the cash flow, and what the funder has already done.

Frequently Asked Questions

Can an MCA funder freeze my contractor business bank account in New York without going to court?

An MCA funder may have several ways to pursue payment after default, but an ACH withdrawal and a judicial bank restraint are not the same thing.

If the contractor authorized ACH withdrawals under the MCA agreement, the funder may continue attempting debits under that authorization and the agreement's terms. That does not mean the funder has obtained a court order freezing the account.

A bank restraint based on a money judgment is different. Judgment-enforcement procedures generally require a judgment before a creditor can use those procedures to restrain funds in a business bank account.

A confession of judgment can affect how quickly a judgment is entered when it is legally permitted and properly filed, but there is still a judgment behind the restraint.

If your contractor business suddenly cannot access money in its bank account, find out what actually happened before deciding how to respond.

Ask the bank for the restraint or levy documents if one exists. Check whether a judgment has been entered and which court entered it. Then pull the

MCA agreement, ACH authorization, personal guarantee, UCC filing, and any confession of judgment.

Those documents can help determine whether you are dealing with ongoing ACH activity, judgment enforcement, a UCC issue, or several problems at once.

Does a UCC lien from an MCA funder affect my ability to get bonded for construction contracts in New York?

It can.

A UCC-1 financing statement connected to an MCA can become part of the financial picture a surety reviews when deciding whether to bond a contractor.

The effect will depend on the circumstances. The surety may look at the collateral covered by the filing, the amount still owed, other secured obligations, available working capital, existing projects, receivables, and the contractor’s overall financial condition.

Multiple MCA obligations can create additional concerns if several funders claim interests in the same or overlapping business assets.

But a UCC filing should not automatically be treated as a bond denial.

If an MCA filing is creating a problem during underwriting, find out exactly what the surety requires. The contractor may need to resolve the MCA, obtain a termination after the secured obligation has been satisfied, negotiate another arrangement with the funder, or address an older filing that should no longer remain outstanding.

Do this before the next bid deadline whenever possible.

A contractor that depends on bonded projects does not want to discover an unresolved UCC issue after the underwriting process is already underway.

Does my construction LLC protect me personally if I default on an MCA in New York?

An LLC does not automatically protect an owner from an obligation the owner personally guaranteed.

The LLC and the personal guarantee are separate issues.

If the construction company entered into the MCA, the company is generally the party obligated under that agreement. But if an owner also signed a personal guarantee, the funder may assert a separate contractual claim against that individual after a qualifying default.

That does not mean the funder automatically owns or can immediately take the guarantor’s personal bank accounts, home, vehicles, or other property.

The guarantee needs to be reviewed to determine what the owner actually agreed to. If the funder later obtains a judgment against the guarantor, collection rights and available protections become separate questions.

The underlying MCA dispute may matter too.

If there is a legitimate dispute over the amount owed, the characterization of the MCA, reconciliation, the funder’s performance, or another part of the

transaction, those issues may affect the larger case.

Don't assume the LLC solves the personal liability problem, and don't assume a signed guarantee gives the funder unlimited access to everything the owner owns either.

Start with the documents.

What is the three-factor test and how does it affect my MCA defense as a New York

contractor?

The three-factor analysis helps determine whether an MCA operated as a genuine purchase of future receivables or functioned as a loan.

The first issue is reconciliation. Does the agreement provide a real mechanism for changing payments when the contractor’s actual revenue changes?

The second is the repayment term. Is repayment genuinely dependent on future receivables, or does the structure effectively require the business to repay a fixed amount over a predictable period?

The third is the risk of nonpayment. Did the funder accept a real risk that the expected receivables might not be generated, or did the agreement effectively require repayment regardless of what happened to the business?

For contractors, the reconciliation issue can be especially important because construction revenue is rarely uniform.

A project payment may be delayed. Retainage may remain outstanding. A change order may take weeks or months to resolve. Weather or permitting problems can slow a job. A general contractor or project owner may pay later than expected.

If revenue fell, what happened to the MCA payment?

That kind of factual question can matter when determining how the transaction actually operated.

Consider the three factors together with the agreement and the parties’ conduct. One unfavorable provision does not automatically turn every MCA into a loan.

If the transaction is ultimately determined to be a loan, New York’s usury laws may then become relevant if the applicable statutory requirements are

satisfied.

A high factor rate or annualized cost by itself does not establish that an MCA is a usurious loan.

The characterization question comes first.

Can I negotiate a settlement after defaulting on an MCA in New York?

Yes. Settlement may be possible after an MCA default, but the contractor should look beyond the amount being offered.

The payment schedule matters.

So do the default provisions, personal guarantee, UCC filing, releases, additional fees, and any language allowing the funder to seek or enter judgment if the contractor misses a settlement payment.

Before signing, run the proposed payment against the contractor’s actual cash flow.

When are the next receivables expected? What does the business need for payroll and materials? Are retainage payments still outstanding? Are other

MCA withdrawals continuing? Does the company have upcoming bonding or financing needs?

A settlement does not help if the contractor cannot realistically make the new payments.

The agreement should also make clear what happens when the settlement is completed. If the resolution is supposed to address a UCC filing or personal guarantee, the settlement should state those terms rather than leave them for later.

The goal is not simply to get a lower payment today.

It is to reach an agreement the contractor can actually complete without creating another immediate default.

Does New York’s Commercial Finance Disclosure Law apply to my MCA agreement?

New York’s commercial financing disclosure requirements apply to certain covered commercial financing transactions.

Whether those requirements apply to a particular MCA depends on the transaction, when it was entered into, the amount and type of financing, and the applicable rules.

If your contractor business received an MCA after New York’s disclosure requirements took effect, pull the disclosures you received before accepting the financing.

Compare them with the final agreement.

Review the amount provided to the business, the amount the contractor was expected to remit, the payment structure, and any other information disclosed with the financing offer.

If required disclosures were missing or potentially noncompliant, you should review that issue as part of the larger MCA dispute.

But a disclosure problem should not automatically be treated as proof that the MCA is void or that the contractor owes nothing.

The available consequences and remedies depend on the law and the facts of the transaction.

The disclosure documents can also be useful for another reason. They provide another record of how the funder presented the financing when the

contractor entered into the deal.

Compare that record with the MCA agreement, payment history, reconciliation process, and what actually happened after funding.

For a contractor already facing default, those documents may help clarify the bigger question: what the parties agreed to, how the transaction actually operated, and what legal and financial options are available now.

Get a Second Opinion Before You Sign Anything

An MCA default can move quickly, but that does not mean a contractor should make the next decision quickly without understanding what it will do to the business.

The UCC filing may already be in place. ACH withdrawals may still be affecting cash flow. The owner may have signed a personal guarantee. A lawsuit or judgment may create additional pressure.

What happens next depends on the documents and the facts.

Before signing a settlement, taking another MCA, agreeing to a new payment schedule, or deciding bankruptcy is the only option, review the entire

situation.

Start with the MCA agreements, payment history, UCC filings, personal guarantees, reconciliation requests, disclosure documents, default notices, and any court papers. Then compare those obligations with the contractor’s current projects, receivables, payroll, materials, bonding requirements, taxes, and other debt.

Legal and business strategy need to work together.

For one contractor, that may mean defending an MCA lawsuit or challenging a judgment. For another, it may mean negotiating a payment the business can realistically afford. If several MCA funders and other creditors are pressuring the same cash flow, restructuring or bankruptcy may need to be

evaluated as part of the larger picture.

The goal is not simply to deal with today’s MCA payment.

It is to determine what gives the contractor a realistic path forward.

J. Singer Law Group represents contractors, construction companies, subcontractors, and other business owners facing MCA defaults, UCC disputes, personal guarantee claims, judgments, and financial restructuring matters in New York.

Because the firm’s practice includes both MCA defense and bankruptcy and restructuring, the analysis can address more than the immediate collection problem. When appropriate, the business can evaluate litigation, negotiation, restructuring, and bankruptcy options together before deciding which direction makes sense.

If your contractor business is already in default, has received court papers, is dealing with a bank restraint, or is being asked to sign a settlement, get the documents reviewed before agreeing to the next step.

Call J. Singer Law Group at (917) 905-8280 or Contact Us to discuss your situation.

About the Author

Jeb Singer is the Managing Partner of J. Singer Law Group, PLLC. He previously served as a law clerk to the Honorable Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York. His practice includes merchant cash advance disputes, commercial litigation, bankruptcy, and business restructuring.

Jeb’s approach to MCA matters starts with understanding how the financing actually operated and what is happening inside the business. That means reviewing the MCA agreements, payment history, UCC filings, personal guarantees, court papers, and the company’s broader financial position before determining whether litigation, negotiation, restructuring, or another option makes sense.

For contractors, that broader review matters even more. An MCA problem can affect project cash flow, financing, bonding, and the owner’s personal exposure at the same time. The strategy should account for all of it.



Strategy. Not just defense.