Your merchant cash advance (“MCA”) is an illegal loan if, and only if, (i) the MCA is in fact a loan because the funder is entitled to repayment regardless of whether you make any sales and (ii) the MCA charges interest in excess of the applicable usury cap (which varies by deal size and state).
To answer the question “Is my MCA illegal?” you will need the MCA documents, the funding confirmation showing any funding fees, and 3 to 6 months of bank statements.
Is My MCA Illegal for Being Too Expensive?
MCA funding is expensive, but that alone does not make it illegal. For usury to apply, there must be a loan. “Where there is no loan, there can be no usury, however unconscionable the contract may be.” LG Funding v United Senior Props., 2020 NY Slip Op 01607 (2d Dept 2020). However, over 3,000 MCAs were found to be usurious loans in People v Richmond Capital, aff’d, 2026 NY Slip Op 00990 (1st Dept Feb. 2026). In contrast, MCA funding was found to be a true sale in Principis in 2022.
How Do I Calculate the APR on My MCA?
To calculate the APR on your MCA, you need to know:
- the amount advanced (i.e., purchase price);
- any fees withheld from the advance (i.e., origination, underwriting);
- the amount purchased (i.e., amount you have to pay back);
- the fixed debit amount; and
- the number of debits per week (i.e., weekdays vs. weekly).
As the court in Richmond Capital explained, “absent reconciliation, the usurious interest rates can readily be calculated based on the information provided on the face of the MCAs.” To get the number of debits, divide the amount purchased by the fixed debit amount. After deducting fees from the advance, enter in a spreadsheet: =RATE(number of debits, -fixed debit, net amount advanced). Multiply the result by 260 for weekday debits or by 52 for weekly debits.
By way of example, consider a $40,000 advance with a 1.38 factor, so the business pays back $55,200. If there is a $1,000 fee deducted from the advance and the funder debited $460 per weekday, then the term is 120 debits (about 24 weeks). While the simple APR is roughly 82% ((factor - 1) / term in years), the actuarial APR is actually around 147%. With the funding fee, the APR is approximately 159%.
What APR Makes an MCA Usurious?
For businesses, the usury cap is generally 25% per annum for criminal usury pursuant to New York Penal Law 190.40. Most MCAs choose New York law, so that cap generally applies. Here is the factor rate needed to trigger the 25% cap (assuming weekday debits and no fees):
| Term | Factor Rate to Trigger 25% APR |
|---|
| 3 months | about 1.03 |
| 6 months | about 1.06 |
| 9 months | about 1.10 |
| 12 months | about 1.13 |
Almost any MCA with a factor of 1.1 or higher and a term under one year will exceed 25% APR. You can read more about how factor rates, disclosed APRs, and state usury caps interact.
What MCA Contract Terms Make an MCA a Loan?
Look at the contract terms. The question is: who bears the risk if the receivables are not paid? Score the items below:
- Reconciliation: Does the contract state that the funder will reconcile “at its sole discretion” or does it say the funder “shall” reconcile? The former is more indicative of a loan. In Richmond Capital, a “shall” clause the funder never actually performed still weighed in favor of a loan.
- Payment: Multiply the holdback % by the amount of your actual deposits. So if you’re paying 12% on $45,000 of deposits per month, your daily payment is really $249. A $460 debit that didn’t change when your sales were down may be evidence that the payment was fixed, like a loan.
- Term: Is there a term? If not, divide the amount purchased by the amount you’re debited.
- Default Provisions: Does the contract list events of default such as bankruptcy, closing your business, or admitting you can’t pay, with acceleration of the entire amount due?
- Guaranty: What triggers the guaranty? Courts have held that a “performance” label does not shield an overly broad guaranty.
- Collateral: Does the funder take a blanket lien on all of your assets? The mere filing of a UCC is not dispositive in either direction, as sales of accounts are covered under UCC 9-109.
Each factor is covered in depth in the 5 signs your MCA is really a disguised loan.
Does Usury Law Apply to My Type of Business?
In many cases usury law simply does not apply. In New York, the civil usury caps do not apply if $250,000 or more was advanced, see General Obligations Law 5-501(6), and there is no usury cap at all if $2,500,000 or more was advanced.
In Pennsylvania, the state’s usury cap of 6% does not apply to “business loans of any principal amount,” see 41 P.S. 201(b).
What Do I Do If My Answers Indicate a Loan?
This gives you leverage in a dispute with the funder, but mind the contract’s default provisions. Request a reconciliation in writing, including your bank statements, and save every email. In a 2025 case, a merchant who never requested one could not argue that the reconciliation provision was illusory. See our article on how to raise usury and disguised loan defenses in Court.
Frequently Asked Questions
Can an LLC assert New York’s civil usury cap in a lawsuit with an MCA funder?
No. New York General Obligations Law 5-521 bars a corporation from raising usury as a defense, with one exception: criminal usury of greater than 25%.
The funder provided an offer summary with an estimated APR. Should I use this?
Start with this number, then calculate your own based on the amount actually debited and how long payoff took. The New York form states that the estimated APR is based on projected sales and is not an interest rate.
I never asked the funder to reconcile. Does that hurt my case?
Yes. In a September 2025 Second Department case, a merchant who never requested a reconciliation could not argue that the provision was illusory, and the funder prevailed. If you have not requested one in writing, do so now and include your bank statements.
Your worksheet indicates my MCA is a disguised loan. Can I stop paying?
Generally, a missed payment is an event of default under the contract, and one Court held that a single missed sweep entitled the funder to accelerate the entire amount due. A good worksheet may give you leverage in a dispute, but you should not stop making payments.