Sued Over a Merchant Cash Advance in Ontario: Your Home and Your Defences
If a merchant cash advance funder has sued you and your company, your name is on the claim because of the personal guarantee you signed at funding. That signature turns a business debt into your debt, and a judgment against you personally lets the funder register a writ against property you own, including your home. Nothing happens automatically, though: a funder must sue, serve you, and either win or catch you in default. Before conceding, the pricing, the debits and the guarantee deserve a hard look.
What a merchant cash advance actually is
An MCA is not written as a loan (our Canada-wide guide to merchant cash advances covers the structure, the 35% and 48% thresholds and the guarantee in depth). On paper it is a purchase of future receivables: a lump sum today (the purchase price) for a larger fixed amount of future sales (the purchased amount), taken by daily or weekly debits and priced as a factor rate — 1.3, 1.45 — and not as an APR in the marketing material, so the real cost is rarely obvious. Many agreements also carry a reconciliation clause that is supposed to drop the debits to the agreed percentage of actual sales when revenue falls; whether it is honoured in practice is another matter. That clause matters most — a funder that keeps taking a fixed sum regardless of sales is behaving like a lender, not a buyer of receivables.
Why the guarantee reaches your house
Many Canadian MCA agreements are signed twice — once by the corporation, once by the owner personally, as guarantor or under a “performance guarantee” that the business will not breach the agreement. Either way the funder can pursue you personally. Such a guarantee is normally unsecured: not a mortgage, and signing it puts no charge on your property. What it creates is a personal debt that can become a judgment — and the judgment is what opens the door to enforcement against land.
What default looks like here
The usual path: debits bounce, the funder declares default, a demand letter arrives, and a Statement of Claim issues in the Superior Court of Justice naming the corporation and you as guarantor. ($50,000 or less goes to Small Claims Court.) Once served in Ontario, rule 18.01 gives you twenty days to deliver a statement of defence, and rule 18.02 adds ten more if you deliver a Notice of Intent to Defend first. Miss it and you can be noted in default under rule 19.01 — which is why the first twenty days matter so much.
With a judgment, the funder can obtain a writ of seizure and sale under rule 60.07 and file it with the sheriff, where it binds land you own in that enforcement region, or garnish an account under rule 60.08 — see what a writ does and a frozen account. The Execution Act exempts a principal residence only where the debtor’s equity is under a prescribed amount, currently $12,997 — far below most homeowners’ equity.
One thing Ontario does not have: an equivalent of the American confession of judgment. US MCA material often leaves owners assuming a funder can walk a pre-signed document into a courthouse and take judgment without notice. In Ontario a funder has to commence a proceeding and serve you before any judgment can follow.
The first defence question: is it a sale, or a loan?
If the arrangement is in substance a loan, its cost is interest, and Canada’s criminal interest rate is engaged. Since January 1, 2025, section 347 of the Criminal Code has made it an offence to enter an agreement or arrangement to receive interest at a criminal rate — an annual percentage rate above 35 per cent on the credit advanced, calculated in accordance with generally accepted actuarial practices and principles. The section’s definition of interest is wide: all charges and expenses, in any form, paid for advancing credit, excluding repayment of principal. Origination fees and the purchase-price spread are what it catches.
The exemptions matter too. Under the Criminal Interest Rate Regulations (SOR/2024-114), s. 347 does not apply where the borrower is not a natural person, the borrowing is for a business or commercial purpose, and either the credit advanced is over $10,000 and up to $500,000 at an annual percentage rate of 48 per cent or less, or it exceeds $500,000. So a corporate advance priced at 48 per cent APR or less sits outside s. 347; an advance to a sole proprietor, or one whose annual percentage rate exceeds 48 per cent, does not.
A criminal rate does not void the agreement. In Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7, the Supreme Court held that contracts offending s. 347 are not necessarily void from the outset: courts have a spectrum of remedies and may apply “notional severance” to read a rate down to the legal maximum. Which way a case goes turns on four factors: the policy behind s. 347, the parties’ purpose, their bargaining power and conduct, and whether the debtor would get an unjustified windfall.
The second question: does the guarantee bind you?
- Is there a signed guarantee? Section 4 of Ontario’s Statute of Frauds bars any action to charge a person on a promise to answer for another’s debt or default unless the agreement, or a memorandum of it, is in writing and signed by the party to be charged. A guarantee from a click-through flow, signed by the wrong person, or signed only in a corporate capacity is worth examining.
- Did the deal change after you signed? A guarantor answers for the obligation they agreed to back. Changes made by the funder and the company without the guarantor’s consent — a refinance, a renewal on new terms, a larger purchased amount — can discharge a guarantor, depending on how the guarantee is drafted.
- Do the debits reconcile? Compare every withdrawal to the contract. Was the reconciliation clause honoured when sales dropped? Were NSF and default fees charged at the stated amount and frequency? Was more taken than the agreement allowed?
- What about the PPSA registration? Most funders register a financing statement under the Personal Property Security Act against the corporation’s assets. That covers business personal property, not your home, and proves nothing about the balance owing. Once the secured obligations are performed, s. 56 lets a person with an interest in the collateral demand a discharge in writing.
Frequently asked questions
Can they take my house because I signed a personal guarantee? Not directly, and not quickly. The guarantee is an unsecured promise: the funder must sue, get judgment against you personally, then issue and file a writ of seizure and sale. A sheriff’s sale of an occupied home is uncommon; more often the writ sits against title until the property is sold or refinanced.
Are merchant cash advances illegal in Canada? No. The question is never whether MCAs are legal in the abstract — it is whether a particular agreement is, in substance, a loan, and whether its annual percentage rate exceeds what s. 347 and the regulations allow for that borrower. Even where a rate is criminal, the usual judicial response is to reduce it, not cancel the debt.
The debits kept coming after my sales collapsed. Does that matter? It can. If the agreement has a reconciliation clause and the funder ignored it, that goes to breach of contract and to the argument that this was never a genuine purchase of receivables — fixed repayment regardless of sales is the hallmark of a loan.
If the claim has already arrived
Many guarantor claims resolve before trial, but that depends entirely on the facts, and the terms depend on what the review turns up: a full accounting, a defence that puts the annual rate and reconciliation in issue, a live question about the guarantee. All of it works far better before default judgment is signed. Send us the claim and the funding agreement, and we will go through the guarantee, the pricing and the debit history and set out your realistic options.
Sources: Criminal Code, R.S.C. 1985, c. C-46, s. 347 · Criminal Code, s. 347.01 · Criminal Interest Rate Regulations, SOR/2024-114 · Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7 · Statute of Frauds, R.S.O. 1990, c. S.19, ss. 4, 6 · Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rr. 18.01, 19.01, 60.07, 60.08 · Execution Act, R.S.O. 1990, c. E.24, s. 2 · O. Reg. 657/05, prescribed exemption amounts · Personal Property Security Act, R.S.O. 1990, c. P.10, ss. 45, 56 · O. Reg. 626/00, Small Claims Court Jurisdiction and Appeal Limit. General information for Ontario, not legal advice.
General information for Ontario, not legal advice. Reviewed by Angelos Spingos. Last reviewed September 21, 2026.