When the Advance Is a Loan
MCA Contracts and State Usury Limits

A usury argument begins where the classification argument ends. Once counsel concludes the advance functions as a loan, the governing statute decides which charges count, how time is measured, and what remedy follows. None of those answers travels with the label.

Establish the Loan Character First

In 2020, the Second Department examined an MCA agreement for the markers of absolute repayment: a reconciliation provision, a finite term, and recourse should the merchant enter bankruptcy. The opinion in LG Funding v United Senior Properties treated those markers as one picture of risk rather than three separate tests. The transaction, the court recalled, must be judged by its real character rather than by the name the parties gave it.

And that character turns on facts rather than arithmetic. A large spread between funds disbursed and the total collection amount invites a usury discussion without completing one, since the discussion requires a loan finding first and a governing statute second. Counsel should examine and assess the agreement, the amendments, and the actual response to declining receipts before any rate is computed.

Opposing counsel in these cases tends to open the first conference call with the purchase label, as if repetition could settle characterization. It cannot, though the argument will be made with professional courtesy and full knowledge of the case law. That is the question the documents must answer: where the risk went.

Simply totaling the debits leaves the legal question untouched. Preserve the ledger, the requests for adjustment, and the responses beside the contract itself.

Identify the Governing Rule

Review governing law and forum provisions with counsel before selecting a statute. The business location is relevant without resolving every choice of law question, and borrower type, transaction amount, and lender status can each affect which rule applies. Rarely does a funding sheet disclose the framework that would judge it.

Ask which statute the proposed defense relies upon and why it reaches this transaction. A familiar percentage can be accurate in one setting and inapplicable in another, so resist the urge to treat a figure found online as the rule for the agreement on the desk. The distinction between an estimated comparison and a statutory calculation is extremely consequential, and the attorney should identify the rule before any inputs are chosen.

A rate that looked commercial on the funding sheet can look different under the governing statute.

The New York appellate opinion concerning MCA repayment addresses characterization and the procedural treatment of defenses rather than supplying a universal interest calculation. A favorable passage about a defense should not be detached from an opinion that rejected a separate counterclaim, since criminal usury in that jurisprudence operates as an affirmative defense rather than as the basis for an affirmative claim. The complete disposition changes the practical advice, a point the concurrence in the later appellate decision on revenue based financing illustrated when it noted merchants paying $360,000 at $3,500 per day as a purported twenty five percent of daily receivables.

Counsel should ensure the framework is identified before inputs are selected. That order takes more work than running the numbers first, though it determines whether the result can be presented to anyone besides the owner.

Measure Charges and Time Under That Rule

A factor rate is not an annual percentage rate. Treating the two as interchangeable can produce an incorrect argument even where the financing is expensive, and a creditor may characterize a charge in order to move it outside the sums the statute counts. The label on the fee requires examination under the governing rule rather than acceptance by either side.

Compare the face amount with the amount disbursed and identify deductions taken before funding. Retain and organize the dated payment record, the origination statement, and any payoff demand, since they can measure different stages of the obligation. Keep the original sales message rather than a later paraphrase, since a duration estimate mentioned, even briefly, during underwriting can resurface as the denominator of a disputed calculation.

The LG figures show why inputs matter. A stated purchase price of $100,990 against a purchased amount of $129,267.20 yields arithmetic near 1.28, though the opinions do not employ the commercial label for that ratio. The arithmetic balanced to the penny. The legal premise behind the arithmetic remained unexamined until counsel placed it under the applicable rule.

A spreadsheet totals with the confidence of a witness that never saw the events. Whether a court would apply the same arithmetic to a transaction with amended payment terms is a question worth carrying into the conference.

Separate the Defense From the Remedy

Ask what relief the law permits if the argument succeeds. A defense may defeat or limit enforcement, while an affirmative claim seeks relief on its own legal basis, and the business should not assume that arguing usury creates a right to recover prior payments.

An attorney should ensure any proposed position accounts for fees deducted before funding and for amendments affecting the obligation, since missing data can change the result. Preserve court deadlines and formal notices alongside the calculation.

The calendar controls until counsel changes it.

Carry the Assessment Into Negotiation

You price the advance on Monday and you learn its legal cost years later. There is an incongruous precision in a payoff figure stated to the cent on an obligation whose legal character remains disputed, while positions counsel advances, or abandons, in correspondence determine what survives of the analysis.

Delancey Street offers a free confidential initial review of MCA debt concerns. Its debt settlement services can provide a place to examine negotiation while independently licensed counsel addresses usury and classification questions. The company is not a law firm; confirm eligibility and availability.

A potentially relevant defense can inform a discussion without guaranteeing a creditor concession, and the business should still measure any proposed payment against operating cash. It is extremely useful to distinguish a preliminary opinion from a court determination or a written settlement. Rates describe the price of money. The papers decide its legality, and legality is determined one agreement at a time.