Merchant Cash Advance
A merchant cash advance is a financing vehicle where a business sells its future receivables to an organization. A merchant cash advance is repaid through a daily or weekly withdrawal from the business’s bank account and is typically subject to a personal guarantee from the business owner and a choice of New York law and forum clause. North Carolina does not have a commercial financing disclosure law. House Bill 969 (2021), Senate Bill 539 (2023) and House Bill 662 (2023) would have required disclosure of the cost of sales-based financing but all failed. North Carolina does not license or regulate merchant cash advance funders or brokers. A merchant in Charlotte has none of the disclosure regarding the cost of a merchant cash advance that funders are required by law to provide to businesses in other states, such as New York, Virginia and Georgia.
Usury Claim or Defense
North Carolina’s usury law won’t help a Charlotte business the way many think it will. Section 24-9 of the General Statutes creates a list of exempt loans, including a loan to a borrower that is not a natural person, a loan of $300,000 or more, and a loan made primarily for business purposes. An exempt loan means parties can agree to any rate and fees, and there is no usury claim or defense under the statute. Let’s assume a court were to find an MCA is in fact a loan to an LLC or corporation. North Carolina’s usury laws probably wouldn’t give that business much to hang their hat on anyway. In other words, a Charlotte merchant’s usury claim or defense will probably be litigated under New York law — which they select in the MCA contract. In Adar Bays v. GeneSYS ID (2021), the New York Court of Appeals determined that a loan exceeding the 25% criminal usury rate is “void ab initio”, and a corporation can raise that defense.
The most similar case here was a disguised-loan case in federal bankruptcy court in Charlotte. In Martinez Quality Painting & Drywall v. Newco Capital Group VI, a painting and drywall company in Chapter 11 in the Western District of North Carolina claimed it borrowed $575,000 under two MCA agreements, repaid $799,250 through daily withdrawals, and paid effective rates in excess of 40%. In a decision in May 2025, Judge Edwards allowed its constructive fraudulent transfer claim to proceed. She presumed New York law applied because the contracts specified it. She also ruled that a corporate debtor could not invoke New York’s criminal usury law to sue a funder; only to defend against one. That ruling was based on In re Azalea Gynecology, a 2024 bankruptcy case from the Eastern District of North Carolina.
Signed Confessions
The confession of judgment is not the same to a Charlotte merchant as it was in 2019. Funders used to file signed confessions in New York counties against companies in North Carolina with no contacts in New York. New York’s CPLR 3218 was amended in August of 2019. A confession may now only be filed in the New York county where the defendant resided at the time the confession was executed – which effectively prohibits a North Carolina business. Some pre-amendment confessions may be enforceable. North Carolina has a process under Rule 68.1 of the North Carolina Rules of Civil Procedure. A sworn confession may be entered by the clerk of superior court in a county where the defendant or the plaintiff resides. A company resides where it maintains its principal place of business, so a confession from a company with its headquarters in Charlotte could be entered in Mecklenburg County without a lawsuit.
New York Forum Clauses
There’s another twist to New York forum clauses in North Carolina law that funders don’t care to talk about. Section 22B-3 declares void any contract provision in a contract entered into in North Carolina that designates the forum for a lawsuit or arbitration in another state. The statute provides two exceptions: non-consumer loan transactions, and any instance in which all parties agree to the other forum after a dispute arises. Funders insist that an MCA is a sale of receivables, not a loan. That position arguably means the contract falls outside the loan exception, rendering the New York forum clause void. If an MCA is deemed to be a loan, then the exception may apply and the clause may be valid. It’s not clear how North Carolina courts will interpret the statute with respect to MCAs. Note, too, that if an MCA is litigated in North Carolina, section 22B-10 renders a contractual waiver of jury trial unenforceable.
As a practical matter, lawsuits against Charlotte businesses are most often brought in New York Supreme Court, the state’s general trial-level court. Such suits are often filed in Westchester County, Erie County, Nassau County, or Kings County. The case will then “return” to Charlotte when a funder files its New York judgment with the Clerk of Superior Court in Mecklenburg County at 832 East Fourth Street. That courthouse is also home to the Charlotte chambers of the North Carolina Business Court. On October 9, 2023, Mecklenburg County transitioned to the eCourts system, allowing local cases to be searched for online through the Portal. Federal cases are heard in the United States District Court for the Western District of North Carolina, and the Charlotte Division of that district only includes Mecklenburg, Gaston, Union, and Anson counties. A business located in nearby Cabarrus County would fall in the Middle District of North Carolina.
Domesticate That Judgment from New York
Okay, then how do you domesticate that judgment from New York so you can execute it against an account in Charlotte? The statute is Article 17 of Chapter 1C of the General Statutes, the Uniform Enforcement of Foreign Judgments Act. You file the judgment and an affidavit in the clerk’s office. Then you have to serve the merchant with a notice of filing.
Once you have served notice, you give the merchant 30 days to file a petition for relief from the judgment based upon a pending appeal or stay in New York or for any other reason that would permit the merchant to seek relief from judgment in North Carolina. If the merchant files the petition, then you have to show that the judgment from New York should be given full faith and credit. After 30 days, if the merchant doesn’t file the petition, then you can enforce the judgment as though it were a North Carolina judgment. That will allow you to go after accounts and property at business locations.
State Exemptions
Exemption Laws of North Carolina, Section 1C-1601 Exemption laws become relevant after a judgment has been domesticated, not before. North Carolina statute allows an individual to exempt from collection $35,000 equity in a residence, $3,500 in a vehicle, and $2,000 in tools of the trade. This statute also allows an individual to exempt up to $5,000 in “other property” based on any unused portion of the homestead exemption. North Carolina debtors who file for bankruptcy have no choice in the matter, they must use the state exemptions, rather than the federal bankruptcy exemptions. Section 1-362, Exemptions North Carolina law allows the protection of earnings for the 60 days preceding a court order of collection if the debtor can show the money is needed for the support of a family. The above exemptions are for individuals only. There are no protections for a business account with receivables.
Bankruptcy in Charlotte
The Charlotte-based business is in the Bankruptcy Court, Western District, 401 West Trade Street. The automatic stay, section 362 of the Bankruptcy Code, arises on a bankruptcy filing. Subchapter V of Chapter 11 is the small business reorganization bankruptcy and currently only covers small businesses that owe up to $3.4 million in debt. The Bankruptcy Threshold Adjustment Act has been passed by Congress to increase it to $7.5 million. As of early October 2026, it is still pending the President’s signature. The Martinez case is an example of a bankruptcy in Charlotte being used to file a lawsuit against a funder for a refund of past payments.
Get a Lawyer for an MCA Defense
Whether a Charlotte entrepreneur should get a lawyer for an MCA defense depends on the stage of the dispute, and the best lawyer for your situation might not even be in Charlotte but somewhere in New York. If the funder has filed suit in New York, you need a lawyer who’s licensed in that jurisdiction to answer or move to dismiss or vacate a default. An attorney in Charlotte is a must, however, if a judgment was filed in Mecklenburg County triggering the 30-day deadline, if a Rule 68.1 confession was entered locally, if your personal assets must be protected under our state exemptions, or if filing bankruptcy in the Western District is the only feasible option. There are some cases where payments have just become difficult to make and nothing has been filed. For those, you may be better served by a seasoned settlement negotiator. Bankruptcy lawyers are more appropriate when you have stacked advances that outstrip any potential settlement.
