7 Signs Your MCA Is Actually a Disguised Usurious Loan

This is the single biggest indicator. A real merchant cash advance ties repayment to a percentage of your actual daily sales. Your revenue goes down, your payment goes down. That's the whole premise — the funder is purchasing a slice of your future receivables, which are inherently variable.

But look at your agreement. Are you paying the same fixed amount every single day regardless of whether you had a $10,000 day or a $200 day? If the answer is yes, that's not a receivable purchase. That's a fixed repayment obligation. That's a loan.

Courts have been very clear on this point. The LG Funding test — which has been adopted across multiple jurisdictions — looks at whether payments fluctuate with revenue as one of the three primary factors in determining if an MCA is actually a disguised loan.

Reconciliation is the mechanism that's supposed to make an MCA not a loan. It means if your business revenue drops significantly, the funder is supposed to reduce your daily payment to match the percentage they originally purchased.

Here's what actually happens: either your agreement doesn't have a reconciliation clause at all, or it has one that's been written to be practically impossible to trigger. Some agreements require you to submit 3 months of bank statements, tax returns, a written request by certified mail, and then give the funder 60 days to "review." By which point you've already defaulted.

And even when business owners do request reconciliation — many lenders simply ignore it. They don't respond. They don't adjust. They keep pulling the same fixed amount out of your account every morning.

This matters enormously. If reconciliation exists only on paper and was never honored in practice, courts are treating the entire agreement as a loan. And if it's a loan with an effective APR of 200%, it's a usurious loan.

In a true purchase of future receivables, the MCA funder is supposed to be taking on real business risk. If your business fails and there are no more receivables to collect, the funder is supposed to absorb that loss. That's the tradeoff for the high factor rate. They're paying a premium because the deal could go sideways.

But then you look at your agreement and there's a personal guarantee.

A personal guarantee means if the business can't pay, you personally are on the hook for the entire remaining balance. Your personal bank accounts. Your house. Your assets. The funder's risk just dropped to near zero — because even if your business dies tomorrow, they're coming after you individually.

Courts have flagged this repeatedly. Personal guarantees that survive business closure fundamentally change the nature of the transaction. The funder isn't buying your future receivables anymore. They're lending you money and using a personal guarantee as collateral. That's a loan structure, period.

A confession of judgment (COJ) is a clause buried in your MCA agreement that says if you default — or if the funder claims you defaulted — they can go directly to a court, without notifying you, and obtain a judgment against you and your business. No hearing. No defense. No chance to explain.

In practice, this means the funder can freeze your bank accounts within days of deciding you're in default. They file the COJ in New York (where most MCA agreements are governed), get a judgment, and then domesticate it in your home state. You find out when your bank account is locked and your business can't make payroll.

New York banned the use of COJs against out-of-state borrowers in 2019. But plenty of older agreements still have them. And in 2024 and 2025, courts began vacating COJ-based default judgments that were improperly obtained. The New York Attorney General specifically targeted COJ abuse in the Yellowstone settlement.

If your agreement has a COJ clause and the funder used it — or is threatening to use it — that's another indicator the transaction was structured to eliminate your rights in a way that looks far more like predatory lending than a commercial receivables purchase.

You were quoted a factor rate. Maybe 1.30, maybe 1.45. That sounds like 30% or 45%, which is high but not insane. Except that's not how factor rates work, and the MCA company knows it.

A factor rate is not an annual interest rate. It's a flat multiplier applied to the total advance. When you factor in how quickly the money is being collected — daily debits over 3 to 8 months — the effective APR can be 70% to 350% or higher. Federal Reserve data found that 60% of online lending borrowers said the costs exceeded what they expected. This is why.

And here's the thing nobody told you: buried inside that factor rate is a broker commission of 5% to 20%. That means a chunk of what you're "repaying" never went to you in the first place. You received less than the advance amount, but you're paying back the full purchased amount plus the factor rate applied to the original number.

New York's Commercial Financing Disclosure Law (CFDL), effective since August 2023, now requires MCA providers to disclose the estimated APR, total repayment amount, and payment terms upfront — similar to Truth in Lending requirements for consumer loans. If your MCA was funded before that law, or if the funder never gave you those disclosures, that's a red flag.

Pull your agreement apart and ask one question: what happens if your business fails?

In a legitimate MCA, the answer should be: the funder loses money. They bought future receivables that no longer exist. That's the risk they took. That's why they charged a premium.

But if your agreement includes any combination of the following — fixed daily payments, a personal guarantee, no meaningful reconciliation, a confession of judgment, UCC liens on all business assets, and the right to intercept payments from your customers and credit card processor — then the funder has zero risk. Every single escape route is blocked. Every recovery mechanism is locked in before you ever miss a payment.

That's not a purchase of future receivables. That's a fully collateralized loan with guaranteed repayment at a rate that would be illegal under usury laws — if it were properly classified as a loan.

Courts are connecting these dots. The three-factor test that bankruptcy courts and state courts are using looks at the agreement as a whole: are payments truly variable, does reconciliation actually function, and does the funder bear genuine risk? If the answer to all three is no, the MCA gets reclassified. And once it's reclassified, every payment you made on a void usurious obligation becomes potentially recoverable as a fraudulent transfer in bankruptcy.

This is the one that should make you pause. If your MCA agreement has language that says "this is not a loan," "this transaction is a purchase of future receivables and not a lending arrangement," "usury laws do not apply to this agreement" — pay attention.

Legitimate financial products don't need to tell you what they're not.

When a bank gives you a business loan, the agreement doesn't say "this is definitely a loan and not a securities offering." It's just a loan. The repeated insistence that an MCA is not a loan exists because the entire legal structure of the MCA industry depends on maintaining that classification. The moment it's reclassified, the factor rate becomes an interest rate. And the interest rate is almost always illegal.

The MCA industry built itself in a regulatory gap — commercial transactions, not consumer loans, so no federal Truth in Lending Act, no state usury caps, no 30-day grace periods, no consumer protection framework. But regulators and courts are closing that gap, fast. New York's CFDL requires APR-equivalent disclosures. California's SB 362 cracks down on deceptive rate terminology. Bankruptcy courts are reclassifying MCAs as dischargeable debt. The Tenth Circuit's 2026 Weiser ruling is letting states apply their own interest rate ceilings even against out-of-state funders using rent-a-charter structures.

The legal landscape is shifting away from the funders and toward the business owners who signed these agreements without understanding what they actually cost.

If you're reading this and checking off multiple items on this list — fixed payments, no real reconciliation, personal guarantee, triple-digit effective APR, confession of judgment — you may not actually owe what the MCA company says you owe. The agreement you signed may be legally voidable under usury laws.

This doesn't mean you walk away from the debt. It means you have leverage you didn't know you had. A recharacterization argument can be used to negotiate a significant reduction, challenge a lawsuit, vacate a judgment, or support a bankruptcy filing where the MCA gets treated as dischargeable debt rather than an enforceable receivables purchase.

But you need to move before the funder does. They know this legal landscape is shifting. They're accelerating collections because the window where they can operate without scrutiny is closing. If you're behind on payments, if you've already been threatened, if your bank accounts have been frozen — the worst thing you can do is sit there and hope it resolves itself.

It won't.