A common mistake business owners make before they stop paying is not sending any letters to the MCA funder, because “they’re not going to listen to me anyway.” We disagree. Whether to stop paying at all is a different conversation; see whether you should stop paying your MCA before you try to settle it.
Why send letters to MCA funder before stopping payment?
Most MCA contracts are governed by New York law, and New York appellate courts have recently said that merchants can’t raise certain defenses unless they send certain letters to the MCA funder first. In Apollo Funding Company v Dave Reilly Construction (2nd Dept. Sept. 24, 2025), the court said a merchant couldn’t argue its reconciliation clause was “illusory” because it “did not engage in the agreement’s reconciliation procedure.” That language was repeated in Diesel Funding v Build Retail (April 2026). And a reconciliation provision is one of the first factors in the test that the courts use to decide whether an MCA was actually a loan. Also, in People v Richmond Capital Group (1st Dept Feb. 19, 2026), the court found the MCAs were loans in part because “there is evidence that such requests were denied.” Funders still win plenty of these cases (this past April, the appellate court affirmed an $8,234,160.50 judgment for the funder in Spin Capital v Bridgelink), it’s better to take the steps that can help you win.
Which five letters should you send, and what does each one prove?
| Type of Letter | Legal Hook | Time Limit for Funder to Respond | Helps to Show |
|---|
| Request for Records | UCC 9-210 and MCA Contract | 14 days if UCC 9-210 applies | What the funder had and wouldn’t produce |
| Request for Reconciliation | MCA Contract | Time specified in MCA Contract | You used the procedure before defaulting |
| Notice of Hardship | MCA Contract and CPLR 4547 (if you’re making a separate offer) | N/A | Cause and timing of the revenue drop |
| Dispute of Balance | MCA Contract and UCC 9-513 (after you’ve paid off the account) | 20 days for UCC 9-513 demand | Which charges you contested, and when |
| Notice of ACH Revocation | Nacha Rules and Deposit Agreement with Bank | 2 banking days for funds to be returned by bank | Date and scope of withdrawn authorization |
Letter 1: Request for records
Request all of your records: the signed agreement, any signed addendums, the signed ACH authorization, the debit ledger (with dates, amounts, and return codes), the fee ledger, the UCC-1 filing number, and the current owner/servicer of the receivables. Under UCC 9-210, most “secured parties” must respond to requests for accountings within 14 days. The first request every 6 months is free; each additional one costs up to $25. Under UCC 9-625, if the “secured party” fails to comply “without reasonable cause,” it can be liable to you for $500 plus any damages you incurred. The funder will often argue it’s exempt as a “buyer” of your receivables. We think that works in your favor, because “buyers” of receivables have to follow the terms of the reconciliation, so send them a request for reconciliation, too.
Letter 2: Reconciliation request
Specify the section of the agreement where reconciliation is discussed. Include 60-90 days of bank statements (unaltered PDFs from your bank) and any processor statements. Show your math and request a decision by a certain date. For example, if your specified percentage is 12% and you had $48,000 in deposits over the last 30 days, you would owe $5,760. If the funder has been debiting $600/day over 21 business days, they’ve taken $12,600. They should have been debiting about $274/day. They’ve overcharged you by $6,840.
Letter 3: Hardship notice
It explains the reason and time period of the drop in business and asks for a modification of the terms. The letter should not contain phrases like “I cannot make the payments,” “my business is closing,” or anything that suggests you moved the deposit. Put any dollar offer to settle in a separate letter so that it is protected under CPLR 4547.
Letter 4: Dispute of the balance
Once you get the ledger, look for post-default charges the agreement doesn’t provide for, debits over the specified percentage, debits on holidays (the Richmond court noted wrongful holiday withdrawals), double NSF charges, or other errors in the acceleration calculation. If you believe you’ve paid the purchased amount in full, include a demand for a termination statement pursuant to UCC 9-513, which gives them 20 days to respond.
Letter 5: ACH revocation notice
Finally, send a notice revoking the ACH. Include the revocation date, the accounts they debit, and the scope of the authorization you are revoking. Most agreements treat revocation as a default; take the bank-side steps as well (see How to Revoke ACH Authorization on an MCA). If you are in Texas, demand that they show they perfected a security interest in first position, as Tex. Fin. Code 398.056 prohibits automatic debits unless the funder has one.
How do I send the letters to the funder?
Send the letters however the notice provisions in the agreement allow. Usually that’s certified mail or email to a specific address. Keep the green cards, email headers, and copies of all exhibits. Mark off the date by which you are giving the funder time to respond.
Frequently Asked Questions
Does the FDCPA let me dispute an MCA balance?
No. The FDCPA only applies to collections of a “debt,” which is defined as arising from a transaction primarily for personal, family, or household purposes. So the funder isn’t required to send a validation notice, give you 30 days to dispute, or pause collection. You will have to rely on the contract and the UCC.
Can a hardship letter be used against me in court?
It can. CPLR 4547 and Federal Rule of Evidence 408 shield compromise offers on a claim that’s disputed in validity or amount, but a plain admission that you can’t pay an undisputed debt may fall outside that protection, so keep the offer in a separate, labeled settlement letter.
What if the funder doesn’t respond to my letters?
Keep the green cards and email headers, send a follow up letter with a new date, and file everything. In People v Richmond Capital Group, evidence that reconciliation requests were denied helped the court find the agreements were loans.
Should I sign the modification agreement they send me?
Have a lawyer review it first. It may include a new personal guaranty, a new confession of judgment, a new UCC filing, a change of venue, or a waiver of your defenses. In Diesel Funding v Build Retail, the funder obtained a $1,476,330.68 judgment, without any further notice to the borrower, based on a stipulation the borrower signed.