A merchant cash advance funder can sue your business, and you as a guarantor, in a Minnesota state court. In the usual case, the lawsuit starts when a summons is served, before anything is filed in court. Minnesota’s usury limits do not apply to credit extended to an LLC or corporation. For a company like that, the defense turns on procedure, the agreement’s own terms, unconscionability, and negotiation rather than an interest-rate cap. This page covers the Minnesota rules for each step of business litigation of this kind.

Minnesota law here is a mix. Statutes and court rules govern the procedure, the usury exemptions, confessions of judgment, and liens on receivables. The Minnesota Supreme Court has applied the common-law elements of usury to a different kind of funding agreement, holding the usury statute did not apply because repayment was not absolute.

How Does a Merchant Cash Advance Work Under Minnesota Law?

A merchant cash advance agreement written as a purchase has the funder pay you a lump sum and buy a share of your business’s future receivables. Minnesota’s version of Article 9 of the Uniform Commercial Code applies to “a sale of accounts, chattel paper, payment intangibles, or promissory notes” (Minn. Stat. § 336.9-109). So the Article 9 rules, including UCC financing statements, cover a funder that bought your receivables rather than lending against them. For how those filings work, see UCC Article 9 basics.

If you also signed a personal guarantee, it is your own promise, separate from the company’s, so the lawsuit can name both the company and you. Its wording decides what it covers, which may be only certain defaults or the full amount the company owes. I suggest reading the guarantee and the agreement side by side before you respond, because the defenses available to you and to the company may differ.

When Does a Minnesota Lawsuit Start Before It Is Filed?

A lawsuit in a Minnesota state district court starts, in the usual case, when you are served, even if nothing has been filed. Under Minn. R. Civ. P. 3.01, “A civil action is commenced against each defendant” in the usual case “when the summons is served upon that defendant.” A funder can therefore sue you without paying a filing fee or opening a court file, and a search of court records may show nothing. A suit in federal court, or in another state’s court under the agreement’s forum clause, follows that court’s own rules; Minn. R. Civ. P. 1 provides that “These rules govern the procedure in the district courts of the State of Minnesota in all suits of a civil nature, with the exceptions stated in Rule 81.”

The funder cannot keep the case private forever. Minn. R. Civ. P. 5.04 provides: “Any action that is not filed with the court within one year of commencement against any party is deemed dismissed with prejudice against all parties unless the parties within that year sign a stipulation to extend the filing period.” Check the current text of Rule 5.04 before relying on this period. That filing rule does not change the date your lawsuit began, which in the usual case is the date of service. For more on Minnesota’s practice of lawsuits that start before they are filed, including what happens when one is never filed, see that page.

What Is the Deadline to Answer a Merchant Cash Advance Lawsuit?

In a Minnesota state district court, the deadline to answer is set by court rule and is counted from service on you. Minn. R. Civ. P. 12.01 provides: “Defendant shall serve an answer within 21 days after service of the summons upon that defendant unless the court directs otherwise pursuant to Rule 4.043.” Check the current text of Rule 12.01 before relying on this period. An LLC or corporation must answer through a lawyer. The Minnesota Supreme Court has stated that “a corporation must be represented by a licensed attorney when appearing in court” (Nicollet Restoration, Inc. v. Turnham, 486 N.W.2d 753 (Minn. 1992)). The Minnesota Court of Appeals applies that rule to LLCs (301 Clifton Place L.L.C. v. 301 Clifton Place Condo. Ass’n, 783 N.W.2d 551 (Minn. App. 2010)). In Save Our Creeks v. City of Brooklyn Park, 699 N.W.2d 307 (Minn. 2005), the Minnesota Supreme Court let a nonprofit corporation add a lawyer’s signature to a complaint a nonlawyer had signed, but only on conditions, and stated that “if a corporation knows or should know, that its action is improper, amendment will not be allowed.”

Missing the deadline can lead quickly to a default judgment on a funder’s claim. When a claim is “upon a contract for the payment of money only,” Minn. R. Civ. P. 55.01 lets the court administrator enter a default judgment for the amount due on the plaintiff’s request and affidavit. Some defenses can be raised by motion instead of an answer, including “lack of jurisdiction over the person” and “insufficiency of service of process” under Minn. R. Civ. P. 12.02. Those can matter when the papers were mailed or left with someone. Serving such a motion changes the answer deadline without ending it: under Minn. R. Civ. P. 12.01, “If the court denies the motion or postpones its disposition until the trial on the merits, the responsive pleading shall be served within 14 days after service of notice of the court’s action.” Check the current text of the rule before relying on this period. Under Minn. R. Civ. P. 12.07, a party that leaves an available defense out of that motion “shall not thereafter make a motion based on the defense or objection so omitted, except a motion as provided in Rule 12.08(b) hereof on any of the grounds there stated.”

When one person contacted me about a summons over a merchant cash advance, I asked whether the papers had been served on them and on what date. I also recommended against speaking with the attorney suing, because that attorney could record the conversation and use it later. A guide to responding after you are served covers the rest of the early steps, from verifying service to choosing between an answer and a motion.

Why Do Minnesota Usury Limits Not Reach an LLC or Corporation?

Minnesota’s usury chapter does not limit what a funder may charge an LLC or corporation. Minn. Stat. § 334.022 states that “no limitation on the rate or amount of interest, points, finance charges, fees, or other charges applies to an extension of credit to an organization, and any such extension of credit is exempt from the other provisions of this chapter.” The statute’s list of organizations includes a “corporation,” a “partnership,” and a “limited liability company.”

The exemption applies whatever the deal is called. Even if a court treated your advance as a loan, chapter 334’s 8% ceiling ("$8 on $100 for one year" under Minn. Stat. § 334.01, subd. 1) would not apply to an advance made to your company. A second exemption covers larger deals: under § 334.01, subd. 2, no limit applies to an “advance made under a written contract, signed by the debtor, for the extension of credit to the debtor in the amount of $100,000 or more.” Minnesota usury law for business owners lays out every category.

If your agreement chooses another state’s law, the funder or you may argue that state’s rules govern instead. Minnesota courts have traditionally enforced such a clause: in Hagstrom v. American Circuit Breaker Corp., 518 N.W.2d 46 (Minn. App. 1994), a sales-representative dispute, the court enforced a choice of North Carolina law, quoting an earlier decision that parties “acting in good faith and without an intent to evade the law, may agree that the law of either state shall govern.” Minn. Stat. § 325E.37, subd. 7, added in 2014, now provides that a sales representative agreement term choosing “an application or choice of law of any other state” is “void and unenforceable.” This page states Minnesota law only.

What Makes Repayment Absolute Under Minnesota Usury Law?

Minnesota courts decide usury questions by what a deal does, and a key question is whether repayment was certain. In Maslowski v. Prospect Funding Partners LLC, 994 N.W.2d 293 (Minn. 2023), the Minnesota Supreme Court repeated four elements of usury from an earlier decision, including “an agreement between the parties that the principal shall be repayable absolutely.” The court explained that “the element of absolute payment means that the payment of the principal cannot be contingent on any event that must occur before payment is required.”

Maslowski involved a consumer’s litigation funding agreement, not a merchant cash advance. The funder there would collect nothing if the injury lawsuit failed, so the court held Minnesota’s usury statute did not apply. It expressly did not decide whether that purchase was a loan. The court also said the inquiry does not rest on “what the parties represent the transaction to be,” quoting a 1939 decision, but on the whole evidence. Quoting a 1923 decision, the court added that usury cannot be predicated on “something occurring which may never occur.”

The test matters most to a sole proprietor, because § 334.022 already exempts organizations. For a business advance under $100,000 to a borrower that is not an organization, Minn. Stat. § 334.011, subd. 1, allows a rate of “not more than 4-1/2 percent in excess of the discount rate on 90-day commercial paper” at the Federal Reserve Bank for Minnesota’s district. Under subd. 2, if a greater rate is charged, “the entire interest due on that note, bill or other evidence of debt is forfeited.” The same subdivision adds: “If the greater rate of interest has been paid, the person who paid it may recover in a civil action an amount equal to twice the amount of interest paid.”

Usury is not the only fairness argument. The Maslowski court sent the rate challenge back to the trial court under “the common-law doctrine of unconscionability,” a challenge the court treated as separate from the usury statute.

How Does a Confession of Judgment Work in Minnesota?

A confession of judgment lets a creditor obtain a judgment without a lawsuit, based on a document you signed in advance. Under Minn. Stat. § 548.22, judgment may be entered “upon filing with the court administrator a statement, signed and verified by the defendant, authorizing the entry of judgment for a specified sum.” For money due, “the writing shall state concisely the facts out of which the debt arose, and show that the sum confessed is justly due or to become due.” Once entered, “The judgment shall be final, and, unless special provision be made for a stay, execution may issue immediately.”

A second route uses an attorney’s plea, and Minn. Stat. § 548.23 requires that the debtor’s signed authorization “must be distinct from that containing the bond, contract, or other evidence of the demand for which judgment is confessed.” I suggest comparing any confession entered in Minnesota against these requirements, because a gap in them may support a motion for relief from the judgment. Confession of judgment in Minnesota covers the clauses themselves.

A judgment entered in another state can be filed here under Minn. Stat. § 548.27, which makes it “subject to the same procedures, defenses and proceedings for reopening, vacating, or staying” as a Minnesota judgment, though the Minnesota Supreme Court has held that the grounds for reopening one are narrower. In Matson v. Matson, 333 N.W.2d 862 (Minn. 1983), a case enforcing a filed Wisconsin divorce judgment, the Minnesota Supreme Court held that “After a foreign judgment has been duly filed, the grounds for reopening or vacating it are limited to lack of personal or subject matter jurisdiction of the rendering court, fraud in procurement (extrinsic), satisfaction, lack of due process, or other grounds that make a judgment invalid or unenforceable.” For a judgment entered in a Minnesota court, relief comes by motion under Minn. R. Civ. P. 60.02, whose grounds include “Mistake, inadvertence, surprise, or excusable neglect” and that “The judgment is void.” The rule provides: “The motion shall be made within a reasonable time, and for reasons (a), (b), and (c) not more than one year after the judgment, order, or proceeding was entered or taken.” Check the current text of Rule 60.02 before relying on these periods. Minn. R. Civ. P. 60.02 also provides that “A Rule 60.02 motion does not affect the finality of a judgment or suspend its operation,” so collection can continue while the motion is pending. See vacating a judgment in Minnesota for the motion itself.

What Can the Funder Do With Your Receivables and Customers?

A funder that claims your receivables can tell your customers to pay it instead of you. Under Minn. Stat. § 336.9-406, once a customer receives a proper signed notice of the assignment, “the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.” In plain terms, a customer who keeps paying you after that notice may have to pay twice, unless the funder fails to give proof of the assignment that the customer requested. A notice is ineffective “at the option of an account debtor, if the notification notifies the account debtor to make less than the full amount of any installment or other periodic payment to the assignee.”

The same section gives your customers a check on the funder. If a customer asks, “an assignee shall seasonably furnish reasonable proof that the assignment has been made,” and until it does, the customer may keep paying you. I suggest telling key customers what is happening before a notice arrives, because it lets you explain the notice and answer their questions first.

What Are Your Options: Workout, Defense, Settlement, or Bankruptcy?

You have five main options, and the right one depends on whether the business is still operating, what you signed, and how much you can pay. Each has a different cost and risk.

  1. A direct conversation with the funder. If you are still paying or just fell behind, asking the funder for a lower payment costs nothing. I suggest confirming any change in writing, because Minnesota’s credit-agreement statute, covered next, limits what a spoken promise can do for you.
  2. A written workout. Under Minn. Stat. § 513.33, subd. 2, “A debtor may not maintain an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and the debtor.” Subdivision 3 applies that rule to a creditor’s agreement to forbear or to extend installments. A step-by-step debt workout walks through the negotiation.
  3. An answer and a defense. Answering on time preserves your chance to raise defenses such as service, the court’s power over you, the agreement’s terms, unconscionability, and for a sole proprietor, usury. An LLC or corporation must make that answer through a licensed attorney, under the rule in the answer deadline section. Under Minn. R. Civ. P. 12.08(a), “A defense of lack of jurisdiction over the person, insufficiency of process, or insufficiency of service of process is waived (1) if omitted from a motion in the circumstances described in Rule 12.07, or (2) if it is neither made by motion pursuant to this rule nor included in a responsive pleading or an amendment thereof permitted by Rule 15.01 to be made as a matter of course.” A defense also costs fees and time, so it fits best when the defenses are strong or the funder will not negotiate.
  4. A settlement. A case can end with a lump sum or a payment plan in a signed agreement. Minn. Stat. § 336.9-513(c) provides that “within 20 days after a secured party receives a signed demand from a debtor, the secured party shall cause the secured party of record for a financing statement to send to the debtor a termination statement for the financing statement or file the termination statement in the filing office” if one of its listed conditions applies. Check the current text of the statute before relying on this period. Subsection (c)(1)’s condition, that nothing remains secured and nothing more is committed, applies “except in the case of a financing statement covering accounts or chattel paper that has been sold or goods that are the subject of a consignment.” For sold accounts, the condition is that “the financing statement covers accounts or chattel paper that has been sold but as to which the account debtor or other person obligated has discharged its obligation,” meaning the customers on those accounts have paid. I suggest sending that signed demand once the condition that fits your filing is met.
  5. Bankruptcy. Subject to the exceptions and limits elsewhere in the section, a bankruptcy filing stays “the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title” (11 U.S.C. § 362(a)). Whether that protects you as a guarantor is a separate question covered in bankruptcy and a personal guarantee.
Can the funder sue me personally if my company has closed?

Yes, if you signed a personal guarantee of the advance. A guarantee is a promise you made in your own name, so its wording decides what it covers and what ends it. In a Minnesota state district court, Minn. R. Civ. P. 3.01 commences the lawsuit against each defendant separately, in the usual case when that defendant is served. I suggest noting the date you were served yourself, because the company may have been served on a different day.

Should I wait to respond until the lawsuit shows up in the court records?

No. In a Minnesota state district court, a lawsuit is commenced against a defendant in the usual case “when the summons is served upon that defendant” (Minn. R. Civ. P. 3.01), even with no court file. Minn. R. Civ. P. 12.01 requires an answer “within 21 days after service of the summons upon that defendant unless the court directs otherwise pursuant to Rule 4.043.” Check the current text of the rule before relying on this period. An LLC or corporation must answer through a licensed attorney (Nicollet Restoration, Inc. v. Turnham, Minn. 1992; 301 Clifton Place, Minn. App. 2010).

Does a triple-digit rate make my advance illegal in Minnesota?

Not under Minnesota’s usury chapter if the advance went to your LLC or corporation. Minn. Stat. § 334.022 says no limit on interest, fees, or other charges applies to credit extended to an organization, a term that includes corporations and limited liability companies. For a sole proprietor, the answer depends on the elements of usury, including whether repayment was absolute, and on the amount. Minn. Stat. § 334.011 limits business rates under $100,000, and § 334.01, subd. 2 lifts all limits at $100,000 or more under a “written contract, signed by the debtor.” A rate can be challenged as unconscionable.

Can we restructure advances we have paid on for two years?

Yes, if the funder agrees, and the change should be in a writing both sides sign. Under Minn. Stat. § 513.33, a debtor may not sue to enforce a credit agreement unless it is written, states the consideration and terms, and is signed by both the creditor and the debtor. A funder’s promise to forbear or to extend installments is covered. I suggest getting a signed amendment before changing what you pay, because a spoken promise to wait may not be enforceable by you.

What if the funder already has a judgment from another state?

The funder can file a certified copy here and enforce it. Minn. Stat. § 548.27 makes it subject to the same procedures for reopening or vacating as a Minnesota judgment. But in Matson v. Matson (Minn. 1983), the Minnesota Supreme Court held that after filing, “the grounds for reopening or vacating it are limited to lack of personal or subject matter jurisdiction of the rendering court, fraud in procurement (extrinsic), satisfaction, lack of due process, or other grounds that make a judgment invalid or unenforceable.” I suggest reading the out-of-state judgment and the paper behind it before any garnishment begins.

Will the UCC filing come off after I settle?

It should, on your signed demand, once its conditions are met. Under Minn. Stat. § 336.9-513, a secured party that receives a signed demand from a debtor must send or file a termination statement if one of the section’s listed conditions applies. For accounts that were sold, that duty applies once the customers obligated on them have paid. The statute requires it “within 20 days after a secured party receives a signed demand from a debtor.” Check the current text of the statute before relying on this period. I suggest making that demand once your filing’s condition is met.

Responding to a Merchant Cash Advance Lawsuit

A merchant cash advance lawsuit in a Minnesota state district court starts, in the usual case, when you are served, whether or not anything is filed. For an LLC or corporation, Minnesota’s usury chapter imposes no rate limit, so I suggest building the response around service, the agreement’s own terms, unconscionability, and a written resolution with the funder. Any workout or settlement should be signed by both sides, and a signed demand to terminate the UCC filing can follow once a condition in § 336.9-513(c) is met. For how a dispute like this fits a broader defense, see my Minnesota business litigation practice.

If a merchant cash advance funder has served you or your company, email [email protected] with a brief description, and I can start an intake and conflict check before you send any confidential documents.