MCA Defense: Frequently Asked Questions

A Merchant Cash Advance (MCA) is a transaction where a funder purchases a percentage of your future receivables at a discount. It is structured as a purchase agreement, not a loan, to avoid usury laws. However, if the MCA contains a fixed repayment amount with no true reconciliation, courts may recharacterize it as a usurious loan.

Yes, legitimate MCAs are legal. However, an MCA that functions as a loan in disguise, with fixed daily payments, personal guarantees, and no true reconciliation based on actual receivables, may be recharacterized as a usurious loan under New York law. Criminal usury in New York is any rate exceeding 25% annually.

Source: NY Penal Law 190.40 (Criminal Usury); GOL 5-501

Yes. If the MCA agreement is actually a usurious loan, you may have claims for usury, fraud, breach of contract (failure to reconcile), deceptive business practices under GBL 349, and violation of RICO if part of a pattern.

Source: NY GBL 349; NY Penal Law 190.40; 18 USC 1961 (RICO)

16% annually is the civil usury cap under New York General Obligations Law. 25% annually is the criminal usury threshold under Penal Law 190.40. Loans or disguised loans exceeding 25% are void as criminally usurious. The $2.5 million threshold under GOL 5-501(6)(b) exempts certain large commercial transactions from the civil cap.

Source: GOL 5-501; Penal Law 190.40; GOL 5-501(6)(b)

Directly, no. MCAs are business transactions and typically do not report to personal credit bureaus. However, if the funder obtains a personal judgment against you through a guarantee or COJ, that judgment can appear on your credit report and impact your score for up to 7 years.

Yes. Since 2023, New York requires commercial financing providers, including MCA companies, to disclose the total cost of financing, estimated APR, and other terms before execution. Non-compliance with the Commercial Finance Disclosure Law can support claims of deceptive practices.

Source: NY Financial Services Law Art. 8 (CFDL); 23 NYCRR Part 600

Sometimes, but do not count on usury alone. The funders writing these advances are sophisticated, their documents are carefully drafted, and the ones deploying tens of millions of dollars know exactly what they are doing. Courts will recharacterize an MCA as a usurious loan in the right facts, usually where repayment is fixed with no genuine reconciliation tied to actual receivables, but usury raised as a reflex is a weak opening and experienced funders know it. The same funders are often willing to settle, and just as they were good at selling the advance, they are good at steering a merchant into a settlement that is not in the merchant's favor. What protects you is counsel who has actually handled these matters, who can tell a real recharacterization argument from wishful thinking, and who knows how these funders negotiate. Get that read before you decide whether to fight or settle.