The first sign of trouble was a call from Jane’s daughter at college: her debit card wouldn’t work. The family’s shared account had been blocked. When Jane rang her bank, she was told the money was still there — but frozen. The hold hadn’t come from a court; it came at the direction of a finance firm that had recently advanced money to her business.
Jane, who asked to be identified by her middle name, runs a small medical-services company in Indiana. She took out a merchant cash advance (MCA) in October — a fast, paperwork-light product pitched to companies banks consider too new or risky. After fees she received just under $47,000 and agreed to repay about $72,500. The contract called for daily automatic withdrawals from her bank account, roughly $558 a day, taken as the lender’s share of future sales.
MCAs are structured as purchases of future receivables rather than traditional loans, so many consumer- and lending-protection rules don’t apply. The money arrives fast, but it can be very expensive. “Those small daily payments seem manageable until you’re months in and still paying without relief,” Jane says.
The real danger for Jane came from a clause in her contract choosing Connecticut law to govern disputes. In Connecticut, some MCA contracts include a prejudgment remedy waiver that lets lenders, after alleging default, instruct banks to freeze a borrower’s accounts quickly and without prior judicial review. Use of this tactic increased after New York tightened rules in 2019; lenders praised Connecticut’s process as an effective way to pressure merchants who fall behind.
In practice, an affidavit alleging missed payments can prompt a state marshal to order a bank to attach funds if the bank has a branch in Connecticut. That’s what happened to Jane after she fell behind: the marshal directed her bank to freeze every account. A mailed notice about the borrower’s right to contest the freeze often arrives only later, after the business has already been locked out of money.
Compounding Jane’s situation, she had taken multiple cash advances to cover shortfalls — she ultimately had four MCAs, each intended to relieve the previous one. She also turned to an intermediary in December who promised to renegotiate her debt; the adviser recommended she stop communicating with lenders and block auto-payments, took a fee, and then vanished. By the time the lender filed a Connecticut collection suit, Jane had missed several payments and was effectively in default.
Cut off from funds, she calculated her business could survive no more than about 10 days. She borrowed from friends, scrambled to pay a Connecticut lawyer, and within weeks reached a settlement with that lender after making a large payment. She’s still negotiating other advances but says the business is holding on.
The episode highlights a largely unregulated corner of small-business finance. Some MCA funders are reputable; others operate in ways critics call predatory. Because MCAs aren’t always treated as loans, they aren’t subject to many state licensing regimes or caps on fees. Borrowers often don’t fully grasp contractual fine print — including all-caps warnings about prejudgment remedy waivers buried in dense documents — until it’s too late.
Connecticut lawmakers are moving to curb the practice. State representative Jonathan Jacobson, an attorney who has defended out-of-state business owners against MCA lenders and now serves in the legislature, sponsored a bill to ban prejudgment remedy waivers for merchant cash advances. He argues the waivers give lenders an outsized, extra-judicial power to immobilize businesses and pressure settlements.
The measure has drawn bipartisan backing from more than two dozen co-sponsors and is scheduled for a vote before May 6. Supporters say it would restore a basic legal safeguard and prevent lenders from freezing accounts without a court hearing. The proposed law would also require MCA companies to disclose fees in a way closer to a conventional annual percentage rate (APR), a transparency step the industry has resisted.
Not all MCA actors oppose curbing prejudgment remedies. The Revenue Based Finance Coalition told reporters it supports banning those waivers as a necessary guardrail. But opponents, including attorney Jared Alfin — who has represented lenders in hundreds of such cases — warn that restricting waivers and imposing APR-style disclosure could reduce funding options for small businesses by removing lenders’ security.
Connecticut tried to restrict prejudgment remedy waivers for cash advances under $250,000 in 2023, but disagreements over interpretation left open avenues some lenders still use. The current bill aims to close that gap.
For borrowers like Jane, the stakes are immediate: a lifeline that arrives fast can become a chokehold that shuts down payroll, rent payments and personal access to funds. Many small-business owners lack the time, money or out-of-state legal counsel to contest a freeze before being forced into a settlement.
Jane says she wishes she’d understood the risk earlier. After decades in business, she never expected an emergency financing tool to threaten everything she had built. Lawmakers in Connecticut are now trying to ensure fewer owners face that sudden, unreviewed loss of access to their accounts.