Yes, but only if the Court finds that the "advance" is actually a loan. Whether it is usurious then depends on the state law governing the MCA contract and the amount of the advance. In New York, the criminal usury cap of 25% per annum is most applicable.
In LG Funding v United Senior Properties of Olathe, the New York Appellate Division stated: "Where there is no loan, there can be no usury, however unconscionable the contract may be." On how courts decide that question, see Is a Merchant Cash Advance a loan or a purchase of receivables?
What is the Usury Cap Applicable to Merchant Cash Advances in New York?
Because most MCA recipients are corporations, which cannot invoke the 16% civil usury cap, the only cap that applies to most merchant cash advances in New York is the 25% criminal usury cap. See General Obligations Law 5-501 (6% base rate unless the Banking Law prescribes another); Banking Law 14-a ("The maximum rate of interest provided for in section 5-501 ... shall be sixteen per centum per annum"); General Obligations Law 5-521 ("No corporation shall hereafter interpose the defense of usury in any action," except a defense of criminal usury). Penal Law 190.40 makes it a class E felony to knowingly charge interest "at a rate exceeding twenty-five per centum per annum or the equivalent rate for a longer or shorter period."
Under General Obligations Law 5-501(6), all interest rate laws (except the criminal usury law) do not apply to loans of $250,000 or more, and no interest rate laws apply to loans of $2,500,000 or more. Therefore, a $300,000 merchant cash advance may be criminally usurious if it exceeds 25% per annum, but a $3,000,000 merchant cash advance cannot be usurious under New York law. Interest is defined as "any and all amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender," so fees retained by the funder may be considered interest.
Does Pennsylvania's Usury Law Apply to Merchant Cash Advances?
Generally, no. Under the Loan Interest and Protection Law (Act 6 of 1974), the usury cap is 6% for loans of $50,000 or less, but under section 201(b)(3) that cap does not apply to "business loans of any principal amount." Sources citing a $10,000 floor for that exception are out of date; it was removed in 2008.
Pennsylvania's Corrupt Organizations statute, 18 Pa.C.S. 911, makes it racketeering, a felony of the first degree, to collect a debt from lending "at a rate of interest exceeding 25% per annum or the equivalent rate for a longer or shorter period, where not otherwise authorized by law." Whether the exemption in Act 6 qualifies as "otherwise authorized by law" is unsettled, and we have not found a Pennsylvania case deciding it. However, as most merchant cash advance contracts are governed by New York law, a Philadelphia merchant would usually argue New York criminal usury rather than Act 6.
What Factor Rate Constitutes 25% Per Annum in a Merchant Cash Advance?
Because most MCA terms are short, even a small factor rate can exceed 25% a year. Our calculation assumes debits on every business day, spread equally over the term, and no other fees:
Factor rate at which an MCA reaches each annual rate
| Term | 16% (NY civil cap) | 25% (NY and PA criminal line) |
|---|
| 3 months | 1.020 | 1.032 |
| 4 months | 1.027 | 1.043 |
| 6 months | 1.041 | 1.064 |
| 9 months | 1.062 | 1.097 |
| 12 months | 1.082 | 1.131 |
Accordingly, a merchant cash advance with a factor rate of 1.35 and a term of 6 months has an approximate annual rate of 126%, almost five times the criminal usury cap. Even a factor rate of 1.15 with a term of twelve months comes to approximately 28.5%, which fees netted out of the advance could push higher, while a slower actual payoff could pull it under the cap. Courts have not settled how to calculate an MCA's rate, though the First Department observed in People v Richmond Capital Group (2026) that rates "can readily be calculated based on the information provided on the face of the MCAs." To check your own deal, see our usury/disguised loan self check.
What happens if a Court rules that an MCA is criminally usurious?
In Adar Bays v GeneSYS ID (N.Y. 2021), the NY Court of Appeals held that where a corporate borrower raised the defense of criminal usury, the loan was void ab initio and the funder faced losing principal and interest. Generally, a corporation can raise criminal usury only as a defense. See our article on usury and the MCA disguised loan defense.
Regulators are not bound by that limit. In Richmond Capital, the First Department affirmed a judgment holding the defendants liable for usury on over 3,000 MCAs, though it vacated the $77,289,631 award for recalculation excluding principal and considering offsets. In January 2025, the NY Attorney General announced a $1.065 billion judgment against Yellowstone Capital, which had charged rates of up to 820% per year, and canceled over $534 million of debt. Finally, if your company files for bankruptcy and the funder files a proof of claim, you can object to it. In Williams Land Clearing v Apex Funding Source (Bankr. E.D.N.C. 2025), the court applied New York law and found the MCA void ab initio due to an effective interest rate of 101.1% per year.
Frequently Asked Questions
Can an MCA for more than $250,000 be considered usurious in New York?
Yes, as long as it is considered a loan and less than $2,500,000. GOL 5-501(6) provides that once an MCA reaches $250,000, the civil usury caps do not apply, but criminal usury still applies until the deal reaches $2,500,000. At that point, no New York rate law applies.
If an MCA is criminally usurious, does the borrower still owe the principal amount advanced?
Not necessarily. Under Adar Bays v GeneSYS ID (N.Y. 2021), a criminally usurious loan is void ab initio when a corporate borrower raises the defense, so the funder can lose principal and interest.
Can my company bring an action for usury against a funder?
Generally, a corporation can only raise criminal usury as a defense to an action brought by a funder. In LG Funding the defense survived and the usury counterclaim was dismissed. However, this does not apply to actions brought by the New York Attorney General, who has obtained usury rulings against MCA funders.
Has New York passed legislation that applies its usury caps to MCAs?
Not yet. Senate bill S1726, the End Loan Sharking Act, would apply New York's usury law to financing arrangements like MCAs and deem all finance charges as interest. The bill was re-referred to the Senate Judiciary Committee on January 7, 2026 and has not been made into law.