Can MCA Companies Charge Any Interest Rate?

To some extent, yes. In practice, merchant cash advance rates are unconstrained because:

1. no state has put a limit on them;
2. in Texas, state law passed in 2025 explicitly prohibits the state from doing so; and
3. usury laws only apply to loans, and advances are written as purchases of future receivables.

That said, New York and California have passed laws requiring MCA funders to disclose an estimated APR.

Is there an MCA interest rate limit in any state?

To our knowledge, no state has directly capped the interest rate for a merchant cash advance. Texas's 2025 law explicitly prohibits the Texas Finance Commission from placing a cap on MCA rates. See Tex. Fin. Code § 398.005(d) (the commission "may not adopt a maximum annual percentage rate, finance charge, or fee for commercial sales-based financing transactions").

Why don't usury laws cap merchant cash advance rates?

Usury laws apply to loans, but merchant cash advances are written as purchases of a business's future receivables. In New York, usury laws apply to the "loan or forbearance" of money. N.Y. Gen. Oblig. Law § 5-501; see also N.Y. Penal Law § 190.40. A New York appellate court has held: "Where there is no loan, there can be no usury, however unconscionable the contract may be." LG Funding, LLC v. United Senior Props. of Olathe, 181 A.D.3d 664 (2d Dept 2020).

Whether a merchant cash advance is a loan or a purchase of receivables is a separate question. Even if it is considered a "loan," a New York business gets little protection, because corporations may not raise the defense of usury in a civil action. See N.Y. Gen. Oblig. Law § 5-521 ("No corporation shall hereafter interpose the defense of usury in any action."). The criminal usury cap of 25% does not apply to loans of $2,500,000 or more. The federal Truth in Lending Act does not apply to credit "primarily for business, commercial, or agricultural purposes." 15 U.S.C. § 1603(1). That's why MCA paperwork carries no federal APR disclosure.

What is the APR for a given factor rate?

A factor rate's APR can be quite high, often starting around 60% per year (for a 6-month advance) and can go well over 100%. If you take a $50,000 advance at a factor rate of 1.35, you will pay back $67,500, a fixed dollar amount that does not vary with time. An APR is time-based, and New York and California use the "actuarial method" in Appendix J of Regulation Z. As a rough approximation, the APR is about two times the (factor rate minus 1) divided by the number of years.

Approximate APRs (assuming debit transactions occur on weekdays and ignoring any fees):

The APR increases as the term becomes shorter. Unless the funder gives you an early payment discount, paying faster raises your effective rate. Almost any MCA with a factor rate of 1.1 (or greater) and a term of less than one year will have an APR of more than 25%. As the New York Attorney General said in January 2025, Yellowstone Capital's advances "functioned as short-term loans with ultra-high interest rates of up to 820 percent per year," with repayment periods that often lasted just 60 or 90 days.

Which states require MCA companies to disclose an APR?

Only 2 states require merchant cash advance funders to provide an estimated APR on a disclosure form: New York and California. New York's Commercial Finance Disclosure Law, NYS Financial Services Law 803, applies to sales based financing of $2.5 million or less and became effective on August 1, 2023. Under 23 NYCRR Part 600, the APR must be disclosed on a page with the heading "OFFER SUMMARY," on the second row of the form, denoted "Estimated Annual Percentage Rate (APR)."

California's disclosure law, Cal. Financial Code 22802, applies to offers of $500,000 or less and became effective December 9, 2022. The California legislature then passed SB 362, effective January 1, 2026, which states that when a specific offer is given and the provider quotes a charge or pricing metric, they must restate the APR.

Connecticut, Florida, Georgia, Missouri, Texas, Utah and Virginia require a total dollar cost and some payment and prepayment information. Kansas also has a disclosure law. None of the 10 states with a disclosure law have a price cap. Exempt providers, like banks, or in New York funders doing 5 deals or less a year, do not have to give the disclosure. In states with no disclosure law, like Pennsylvania, you must calculate the APR yourself using our usury and disguised loan self check.

Frequently Asked Questions

Does a high APR on my disclosure make the MCA illegal?

A high APR does not make a merchant cash advance illegal. It is only for comparing funding costs, and New York's form states "APR is not an interest rate." Only if a court finds a merchant cash advance to be a loan will usury law apply. Even an APR of 150% is a signal to look closer at the contract, not proof that it is unlawful.

Why does my APR change from what is on the disclosure form?

The disclosed APR is an estimate based on projected sales. If sales go up or down, the advance is repaid quicker or slower and the APR changes. In New York, the historical method bases the APR on average monthly sales over a 4 to 12 month lookback period. In California, the provider is not liable if the actual APR changes so long as the APR was properly estimated.

Is New York going to cap MCA rates?

New York has not passed a cap on merchant cash advances. Senate Bill S1726 would make the usury law apply to merchant cash advances and define all fees as interest. The bill was re-referred to the Senate Judiciary Committee in January 2026 and has not passed either house.

Do the laws vary based on the size of the merchant cash advance?

Yes. In New York the civil usury limits do not apply to loans of $250,000 or more, the criminal usury law does not apply to loans of $2.5 million or more, and the disclosure law does not apply to offers over $2.5 million. Disclosure laws apply to offers of $250,000 or less in Connecticut, $500,000 or less in California and Missouri, and less than $1 million in Texas.