7 Signs Your MCA Is Actually a Disguised Usurious Loan

Most business owners who take an MCA, don’t realize what they actually signed. They think they took financing. On paper, it’s a purchase of future receivables. In reality, a lot of these deals are loans wearing a costume. And if a court decides your MCA is actually a loan, the entire thing can be void for usury. In New York, criminally usurious loans (over 25%) are unenforceable, the principal and the interest. You walk away owing nothing.

Short answer: If your MCA has a fixed daily payment, no real reconciliation, a personal guarantee that triggers on business failure, and an effective rate north of 100% APR — you probably don’t have an MCA. You have a loan. And it’s probably illegal.

Here are the 7 signs.

1. The payment is fixed, and never actually adjusts

A real MCA is a purchase of future receivables. Which means, when your sales go down, the payment should go down too. That’s the whole legal theory the MCA industry is built on. The funder is buying a percentage of what comes in, so they share the risk with you.

But look at your agreement. Is the daily debit a flat number? $847 every business day, no matter what? That’s not a purchase of receivables. That’s a loan payment. Courts have caught onto this, and in cases like Haymount Urgent Care v. GoFund Advance, judges started calling these deals what they are.

2. The reconciliation clause is a trap

Most MCA agreements include a reconciliation clause — if your revenue drops, you can request an adjustment to the daily payment. Sounds fair. It’s not.

In practice, the reconciliation is written so it’s almost impossible to actually use. You have to submit a written request, with bank statements, and the lender has sole discretion, and they can demand additional documents, and the process can take weeks, during which the full daily payment continues. Some agreements require you to be current on payments to even request reconciliation, which is obviously insane, because the whole reason you need reconciliation is that you can’t make the payments.

If the reconciliation exists on paper but has never actually been granted to anyone, it’s a fig leaf. Courts are starting to see through it.

3. There’s a personal guarantee that triggers on business failure

This is the big one. A true MCA, the funder accepts the risk that your business might not generate the receivables they bought. That’s the deal. You’re not promising to pay them back — you’re selling them a slice of future revenue.

So why is there a personal guarantee? And more importantly, why does the personal guarantee trigger the moment your business fails or closes?

Think about that. If the funder really bought receivables, and the business fails, they lose — that’s the risk they took. But if the PG kicks in the second the business goes under, they haven’t bought anything. They’ve made a loan, to you personally, with the business as a pass-through. That’s called a loan, in every jurisdiction in America.

4. The “term” is actually fixed

Look at your contract. Does it have an estimated payoff date? 8 months, 12 months, 18 months? A real receivables purchase has no term, because it depends on how fast the receivables come in. If sales are slow, it takes longer. If sales are fast, it’s faster.

But most MCA’s have an implied or stated term. And when you divide the total payback, by that term, you get an effective interest rate. Which the funder doesn’t want you to calculate, because the number is usually horrifying.

5. The effective APR is north of 100%

Do the math. Take the total payback, subtract the funded amount, that’s your cost of capital. Divide by the funded amount, that’s your factor rate as a percentage. Now annualize it based on the actual repayment period.

A typical MCA — $100,000 funded, $140,000 payback, 10 month term — works out to roughly 96% APR. Some are worse. I’ve seen deals that annualize to 200%, 300%, even 400% APR, when you factor in the origination fees, the ACH fees, the various “program” fees stacked on top.

In New York, civil usury caps at 16%, and criminal usury caps at 25%. Most states have similar caps on loans. MCA’s get around this by not being loans. But if a court decides they are loans, every single one of these deals is criminally usurious. Which means unenforceable.

6. The funder doesn’t actually monitor the receivables

A real receivables purchaser, would care about your receivables. They’d want reporting, they’d want to verify the sales, they’d want visibility into your actual revenue, because that’s what they bought.

Most MCA funders don’t do any of this. They set up the ACH, and they debit your account, and that’s it. They don’t care if your sales went up, they don’t care if they went down, they don’t reconcile against actual receivables. They just take the daily number until the total is paid.

That’s not a purchase. That’s a loan with autopay.

7. The contract has loan language hiding in plain sight

Read the agreement carefully. Is there language about “default,” “acceleration,” “maturity,” “interest,” “prepayment”? These are loan terms. A pure receivables purchase agreement, doesn’t need them, because there’s no debt to accelerate, no maturity to reach, no interest to charge.

Some MCA agreements are written carefully to avoid this language. A lot of them aren’t. You’d be surprised how many agreements still say “borrower” and “lender” in them, because the drafting attorney copied from a loan template and missed the find-and-replace.