A merchant cash advance (MCA) is an agreement whereby a business receives funds in advance in exchange for the right to collect a percentage of its revenue at some future time. The merchant cash advance agreement is typically executed with a funding company which may receive the funds through the debiting of a bank account on a daily or weekly basis. Merchant cash advance (MCA) funders typically write their merchant cash advance agreement under the laws of the state of New York and in addition require that the merchant cash advance agreement be litigated in the courts of the state of New York. Therefore if you have a merchant cash advance agreement in the state of Illinois and are wondering whether you need an Illinois merchant cash advance defense lawyer the honest answer would be “Not for all situations”. The first merchant cash advance attorney that you may need is probably admitted in the state of New York. The lawyer that actually may make a difference in your particular situation will be a New York lawyer for a New York courtroom, an Illinois lawyer for the clerk’s office in Illinois where the New York judgment has been registered, an Illinois lawyer for the county in Illinois where the confessed judgment has been entered, or an Illinois attorney for the federal bankruptcy court in Illinois.
There is no disclosure law specific to commercial financing in the state of Illinois. Under Illinois law, the funding of an MCA does not impose a statutory obligation on an MCA funder to disclose the annual percentage rate or cost to an Illinois merchant prior to the funder making the funding. Disclosure laws for funding of sales-based financing products like MCAs have been proposed by Illinois state lawmakers. SB2234 would have required providers to register with the Illinois Department of Financial and Professional Regulation and require certain disclosures, including finance charges and the APR. It was dead as of 7 January 2025. HB2595 and HB3477 were filed in February 2025 and both bills proposed to create the Small Business Financing Transparency Act. They were applicable to sales-based financing products, such as MCAs. HB3477 would have required providers to pay an annual registration fee of $2,500 and provided a maximum penalty of $20,000 for willful violation. It was dead in committee as of June 2026.
Illinois usury law gives merchants little help. The Illinois Interest Act, 815 ILCS 205/4, caps most written contracts at 9 percent, but it lists exceptions. Lenders may charge any rate on a loan to a corporation and on business loans to partnerships, sole proprietors, limited partnerships and similar business borrowers. So even if an Illinois court decided an MCA was really a loan, Illinois law would usually set no rate limit. The “disguised loan” argument matters for Illinois merchants mainly under New York law, which the contract typically chooses. New York courts use the test from LG Funding v. United Senior Properties of Olathe (2020). That test asks whether the contract has a real reconciliation clause, whether it has a fixed term, and whether the funder can still collect if the merchant goes bankrupt.
Determining whether a transaction is a loan or a sale is not always clear-cut and can be the subject of intense debate during bankruptcy proceedings. In a 2025 case in a bankruptcy court in North Carolina, the court held that the effective rate of one MCA was 101.1%, and that the contract was void under New York usury law. In a 2025 case in a bankruptcy court in Maryland, however, the court held that the other MCA was a true sale because it had a valid right of reconciliation and the funder took the risk of insolvency. In 2018, the court looked into a case of a salon that had contracted with 14 different MCA providers. The court rejected the trustee’s claim that the payments were preferences that should be recouped, holding that the payments were made in the ordinary course of business.
Confession of Judgment
A confession of judgment is not what it used to be for Illinois merchants.
A confession of judgment is a signed statement that allows a creditor to obtain a judgment against a business without a lawsuit. In 2019 New York changed its law (CPLR 3218), effective August 30, 2019, in response to complaints that funders were using confessions of judgment against businesses across the United States. Now, a confession can only be entered in the New York county where the debtor resided when signing the confession, or currently lives when the judgment is entered. A business, for example, that is only in Illinois, can thus generally not have a confession entered against it in a New York court. Funders may now resort to states that still allow confessions of judgment, and Illinois is one of those states.
Confessions of judgment may be used in Illinois on commercial debts. Confessions of judgment may only be filed in the county where signed, where a defendant lives or where a defendant owns property. Per 735 ILCS 5/2-1301(c). A confessed judgment filed in any other county is legally null and void. In 2024, an Illinois appellate court voided a $700,000 confessed judgment filed in Cook County against defendants who lived in and signed the confession in Arizona in the case of Bottalla v. Serpe. This applied despite a clause in the guaranty in which the defendants agreed to the jurisdiction of Cook County. The case is unpublished, so other courts may consider it as a persuasive precedent, but are not required to follow the case.
Finally, upon confession of judgment, a merchant has two weapons to attack the confessed judgment. For example, the merchant can seek under Illinois Supreme Court Rule 276, to “open” the judgment. A merchant can only accomplish this goal if the merchant files an affidavit and proffered answer to establish a meritorious defense to the underlying cause of action and diligence. Upon the establishment of a meritorious defense and diligence, the court will have to “open” the judgment and then try the action. Illinois Supreme Court Rule 276 does not specify a number of days. Diligence is the critical term. Second, a merchant can attack a void judgment pursuant to 735 ILCS 5/2-1401. For example, in 2025, the federal bankruptcy court in Chicago vacated a confessed judgment as void because the guaranty failed to recite the amount guaranteed.
The vast majority of MCA cases against Illinois businesses are either (1) cases in New York Supreme Court (probably Kings aka Brooklyn, New York aka Manhattan, Queens, Nassau or Westchester County – per forum selection clause), (2) cases in Illinois circuit court (confessed judgments filed by funders and registered New York judgments), or (3) federal lawsuits – including bankruptcy mostly but also lawsuits. Illinois has three U.S. District Courts:
United States District Court for the Northern District of Illinois, Chicago, Cook, DuPage, Kane, Lake and Will counties.
United States District Court for the Central District of Illinois (Springfield, Peoria, Urbana and Rock Island).
United States District Court for the Southern District of Illinois, East St. Louis and Benton .
All cases appealed from any of these courts go to the Seventh Circuit.
The New York judgment does not automatically affect the bank accounts in Illinois. Typically, the funder will docket the judgment under Illinois’s Uniform Enforcement of Foreign Judgments Act, 735 ILCS 5/12-650 et seq. To docket the judgment, the funder needs to file an authenticated copy of the judgment and an affidavit containing names and addresses with any county circuit clerk in Illinois. The clerk must then send notice to the merchant. Once docketed, the judgment operates as a judgment of that Illinois county. Under section 12-654, the Illinois court must stay enforcement if the New York judgment is on appeal or a stay of some sort is otherwise allowed. Absent a stay, the funder can issue a citation to discover assets under 735 ILCS 5/2-1402 on the bank of the merchant. The bank will then have to withhold up to twice the value of the unpaid judgment, except for funds that can be identified as legally exempt from execution.
An Illinois business files for bankruptcy in the United States Bankruptcy Court for the district in which it resides. The filing of a bankruptcy petition automatically gives the bankruptcy filer business a stay from collection action against the business. A more expedient process for a small business reorganization (Subchapter V of Chapter 11 of the United States Bankruptcy Code) has been capped at $3,424,000 (as of April 1, 2025), but H.R. 7730, approved by the United States Congress in September 2026, would raise this to $7,500,000 for bankruptcy filings after the bill was signed into law. As of early October 2026, the bill is awaiting a signature by the United States president. Personal guarantors on the debt are usually still liable to the funder unless they file for bankruptcy protection themselves.
Depends on Your Stage
For an Illinois merchant, who is more important right now depends on your stage.
What you should care about first if a funder sued you in NY is what your NY lawyer does. That’s where any deadlines and any defenses and any issue of loan or sale will be sorted.
If a judgment has been registered in an Illinois county, a citation has been issued against the merchant’s bank account, a confessed judgment has been entered in Illinois, or exemptions must be asserted, then your Illinois lawyer should matter first.
If you have multiple merchant cash advances and you have not been sued, in some cases a negotiator capable of restructuring the payments is more important.
If debts are scattered across multiple funders and the business can’t make daily debits work, a bankruptcy lawyer admitted in the right Illinois district usually matters first.
