How Courts Examine MCAs as Possible Usurious Loans: 5 Questions Behind Recharacterization

Calling the transaction a purchase does not conclude the inquiry.

After the funding posts, after the daily debits begin, a court examining an MCA may look past the label to whether the funding party assumed genuine risk tied to receipts or required repayment in substance regardless of what the business earned (the answer varies by contract and by jurisdiction). The label opens the analysis. It does not supply the result.

The Label and the Substance

In LG Funding v. United Senior Properties of Olathe, a New York appellate court examined reconciliation, finite duration, and bankruptcy recourse when assessing whether repayment was absolute. The full appellate opinion on MCA repayment characterization supplies a framework for relevant New York disputes, not a universal declaration that funded advances are loans in every state.

Counsel must determine which law applies and how the complete contract operates. A favorable phrase lifted from an opinion should not be detached from its legal setting or treated as a result already established for another company. Simply gather every incorporated document and amendment, since the legal argument concerns the obligation the parties created, which may prove more complicated than the product description suggested.

Reconciliation Provisions Under Examination

A reconciliation provision may allow collections to adjust to actual receipts. The important questions concern the procedure, the conditions, the timing, and the practical effect of the adjustment. Counsel should examine whether the mechanism has substance within the complete arrangement or exists mainly as reassurance in the marketing conversation.

Preserve evidence of requests and responses as the dispute develops. What the business supplied and what the funding party did can matter to understanding the disagreement, and the clerks in the commercial parts see these exhibits often enough to recognize a complete record at a glance. A written clause and its practical operation are related facts, though one should never be assumed from the other.

And the denial of a reconciliation request proves less than owners wish it proved. The refusal may reflect a disputed requirement, missing information, or another issue requiring legal analysis rather than the entire claim in miniature. There are outcomes here, though in practice they tend to narrow rather than expand the options.

A reconciliation clause that cannot be invoked resembles a fire escape bolted from the inside: present in the inspection photograph, unavailable on the night it matters. The image overstates only slightly, which is why owners remember it and why counsel should test the mechanism against the contract conditions before repeating the comparison outside this article.

The clause describes a right. The correspondence shows whether the right existed.

The reconciliation inquiry may prove extremely consequential without deciding anything on its own. Other terms affect whether repayment is absolute, including duration and recourse when the business fails, and the agreement needs to be read as a whole rather than mined for a single favorable sentence. That whole reading is where most recharacterization arguments are won or lost before briefing begins.

Duration, Recourse, and the Agreement as a Whole

Finite duration points toward an absolute obligation when the contract requires full payment by a date regardless of receipts. Bankruptcy recourse points the same direction when the funding party retains claims that survive the collapse of the business. No single factor controls the analysis in the decision discussed above, and counsel should resist assigning any one provision the weight of the entire dispute.

But the ledger tells a story the provisions only summarize. Bank records showing fixed daily withdrawals through months of declining revenue support an argument that risk remained with the business whatever the documents recite. Most funding parties understand exactly what such a ledger demonstrates. They prefer it examined late.

Whether courts in other states will weigh these factors the same way is a question worth holding open while the governing law is confirmed.

Procedural Posture and Later Discussion

A decision denying summary judgment can mean that factual questions require further proceedings. It does not necessarily establish the ultimate validity of the obligation. Later appellate discussion of MCA characterization, including a 2025 decision accompanied by a dissent, should be read with the majority and dissenting views kept separate. The later appellate discussion with majority and dissenting views deserves counsel review before any owner borrows language from either opinion.

Ask counsel which procedural stage the business has reached and what must be shown there. Evidence sufficient to preserve an issue may not obtain a final ruling.

From Recharacterization to a Usury Conclusion

Determining that an arrangement should be treated as a loan is not the same as completing every element of a usury analysis. The applicable rate limits, the exemptions, and the remedies each require separate proof under the governing law (the statute is not entirely clear on some of these points, which is part of the problem owners face when pricing litigation).

In the appellate decision above, the court permitted criminal usury defenses to remain and denied the funder summary judgment, while dismissing the criminal usury counterclaim. That combination matters when the owner asks what the opinion actually permits, and a court analysis always depends on the procedural question before it. An opinion discussing a viable claim should not be described as a final judgment invalidating every similar transaction.

Delancey Street MCA service description gives owners a commercial forum for applying these distinctions. Delancey Street is a debt relief company, not a law firm, and it provides a free confidential initial review of MCA obligations while independently licensed counsel evaluates characterization arguments. We ensure the negotiation position reflects what the ledger shows and what the governing opinions actually held, and the objective is to ensure no settlement is accepted on the basis of what the contract calls itself rather than what it does.

Purchases transfer risk. Loans retain remedies. The documents reveal which bargain the parties struck, and the documents repay the attention the funding process never allowed.