Whether a Vermont Lawyer Helps
A merchant cash advance is sold as a purchase of a business’s future receivables, not as a loan. Repayment usually comes through daily or weekly debits from the business’s bank account. Funders tend to be based in or around New York, and their contracts usually pick New York law and New York courts. That one fact shapes most of the answer for a Vermont business owner. Whether a Vermont lawyer helps depends on where the dispute actually is, and in many cases the lawyer who matters first is one admitted in New York.
Vermont’s usury rules give a merchant less leverage than many people assume. The general legal rate under 9 V.S.A. § 41a is 12 percent a year. A separate section, 9 V.S.A. § 46, lets the parties agree to a higher rate on obligations of corporations and on money borrowed to finance an income-producing business. Because of § 46, recasting an MCA as a disguised loan may accomplish little under Vermont usury law for a typical business borrower.
The disguised loan argument is most potent in New York law, which should work in favor of a Vermont merchant as the funders’ contract will typically specify New York law. New York’s test is whether: (a) the deal’s payments can be reconciled to merchant’s revenue; (b) the deal has a fixed term; and (c) the funder has recourse if the merchant goes bankrupt. In 2022, a federal court in Manhattan determined in Fleetwood Services v. Ram Capital Funding that the MCA was really a usurious loan, which a US Court of Appeals affirmed in 2023. The Second Circuit is also the appeals court for the federal court in Vermont. Vermont has enacted a commercial financing law, although not in effect yet. On June 16, 2026, Governor Phil Scott signed H.648, which became Act 142.
Act 142
The MCA and factoring provisions take effect on July 1, 2027. Providers must obtain a Vermont lender license through the state Department of Financial Regulation and brokers must obtain a loan solicitation license. Providers must provide a disclosure stating the finance charge, estimated APR, total repayment amount and terms of the fee and collateral before closing the deal. Deals of $1,000,000 or more not primarily for personal, household or family purposes are exempt.
Act 142 also modifies some terms in contracts that can become issues in collection disputes. It prohibits confessions of judgment in covered deals. It prohibits automatic debits from accounts unless the provider has a perfected first-priority security interest in the account. It requires that any disputes are subject to Vermont law and Vermont courts and prohibits in-person arbitration outside of Vermont. The agreement may be voided if the provider knowingly and willfully violated licensing rules. In other cases, the provider may only recover the amount it actually advanced. Published summaries of Act 142 don’t clarify whether it applies to contracts signed before July 2027, so older contracts should be assumed to include New York terms.
Limited the Use of Confession of Judgment
Confession of judgment is a signed statement that allows a funder to obtain a judgment against the defendant without filing a lawsuit. New York had limited the use of confession of judgment against out-of-state merchants. Governor Andrew Cuomo signed the bill that amended CPLR 3218 on August 30, 2019. The amendment applies to any confession filed on or after the date the bill was signed. A confession of judgment may only be filed in the county of New York in which the defendant was a resident at the time the confession was signed. A business is considered to reside where it has a place of business. A business from Vermont without a place of business in New York generally won’t have a confession of judgment filed against it in New York. A Vermont company with a store or office in New York might not be protected.
A Vermont company’s MCA cases will likely fall into three categories. The most common is a New York state trial court, selected based on the forum selection clause in the contract, where the funder has sued for breach of contract and the personal guarantee of the owner. The second is the Vermont Superior Court, Civil Division, for actions by creditors to enforce out-of-state judgments. Third is federal court. The US District Court for the District of Vermont sits in Burlington and Rutland (it discontinued its branch office in Brattleboro in 2017.) The bankruptcy court hears cases in either Burlington or Rutland, depending on whether the debtor resides in northern or southern Vermont.
A Domestication Suit
Unlike in some states, a holder of a New York judgment can not register the judgment for collection in Vermont. Vermont has not adopted the Uniform Enforcement of Foreign Judgments Act, allowing out of state judgments to be registered and enforced, rather than having to file a second suit. Creditors seeking to enforce foreign judgments in Vermont must bring a domestication suit in Vermont. Typically the full faith and credit clause of the Constitution makes such a suit a mere formality. However, the merchant is entitled to notice and the right to raise objections, such as a defect in jurisdiction. These suits are governed by Vermont procedure, and an action on a foreign judgment more than eight years after judgment is presumptively barred.
Once the New York judgment is a Vermont judgment, it can be enforced in Vermont using Vermont law. Business and personal bank accounts can be reached by trustee process. The bank freezes accounts to the extent of the debt when served with the trustee summons. The debtor claims exemptions. An individual guarantor can take up to $700 under 12 V.S.A. § 2740 in bank accounts and up to $7,000 (+$400) in other personal property not covered by some other exemption. A judgment lien recorded in Vermont real estate records lasts for eight years, renewable.
There are some situations in which a New York admitted lawyer is going to serve the merchant best, and situations in which a Vermont admitted lawyer will do more good. Where there is a pending New York lawsuit, where a defense is being entered, or a default vacated, or the New York disguised-loan defense is being used, a New York lawyer is called for. A Vermont lawyer will be the most helpful when a funder is seeking to domesticate the judgment in Superior Court, where a bank is being served with trustee process or the guarantors are claiming exemptions or defending real estate. A Vermont bankruptcy lawyer will probably be the most appropriate where there are multiple advances, all threatening to push the business into insolvency. Where the business is current on the payments and there is no suit pending, a lawyer who is good at negotiating a settlement is probably going to be the best fit.
