Why MCAs Are Legal: The "Sale, Not a Loan" Structure
An MCA isn't a loan in the legal sense. The lender (called a "funder") buys a percentage of your future credit card or bank deposits at a discount. You then deliver those receivables over time as customers pay you.
Because it's a purchase of an asset rather than a loan, MCAs aren't subject to state usury caps. Courts have repeatedly upheld this structure when the agreement is properly written — particularly when repayment is contingent on actual revenue.
How MCAs Are Regulated
- UCC Article 9: Governs the security interest in your receivables.
- State commercial financing disclosure laws: California, New York, Utah, Virginia (and a growing list of others) now require lenders to disclose APR-equivalent costs upfront.
- FTC oversight: The Federal Trade Commission has authority over deceptive or unfair practices, including misrepresentation in MCA marketing.
- Confession of judgment limits: New York banned out-of-state confessions of judgment in 2019 — many other states followed.
When Is an MCA Treated as a Loan (and Therefore Possibly Usurious)?
Courts will recharacterize an MCA as a loan if certain factors are present:
- Fixed daily payment regardless of revenue: A true MCA must allow reconciliation when revenue dips.
- No reconciliation provision: The contract must let you adjust if sales decline.
- Personal guarantee on the entire balance: Some courts view this as loan-like rather than receivables-purchase.
If a court recharacterizes the MCA as a loan, state usury laws apply — and the entire agreement may become unenforceable.
💡 What to look for in a contract: A reconciliation clause, language describing the transaction as a sale of receivables, and clear disclosure of the funded amount, total purchased amount, and percentage of revenue. Avoid contracts with confessions of judgment in your state if banned.
Frequently Asked Questions
Related: What Is an MCA? · MCA Rates Explained · MCA Stacking Risks