Tennessee offers almost no statutory protection against merchant cash advance abuse. That single fact shapes every decision a business owner in Memphis, Nashville, or Knoxville will confront once the daily debits begin to hollow out their operating account.
What follows are five legal realities that govern how MCA agreements operate under Tennessee law, and why the absence of regulation is itself a kind of regulation.
1. Tennessee Has No MCA Disclosure Statute
California, New York, Virginia, Utah, and Connecticut have all enacted commercial financing disclosure laws requiring MCA funders to present something resembling a truth in lending statement. Tennessee has not. No statute compels a funder to disclose the annual percentage rate, the total cost of capital, or the effective interest rate hidden inside a factor rate of 1.35 or 1.49. The funder presents a purchase agreement, the business owner signs, and the daily withdrawals commence.
Under TCA Section 45-2-1107, Tennessee banks and trust companies must comply with federal Truth in Lending Act disclosures. But MCA funders are not banks. They structure their products as purchases of future receivables, and that distinction places them outside the reach of TILA and its Tennessee analogue. The consequence is a disclosure vacuum.
One encounters this pattern across the Southeast, but Tennessee’s silence is more complete than most. Georgia at least enacted its own commercial financing disclosure law. Tennessee’s General Assembly has considered similar measures and, as of early 2026, has not advanced them past committee.
2. Usury Laws Exist but Rarely Apply
Tennessee’s usury statute, codified at TCA 47-14-103, sets the legal maximum interest rate at ten percent per annum for transactions not governed by other provisions. Charging above that threshold constitutes usury under 47-14-117, and criminal usury above certain thresholds is a Class A misdemeanor under 47-14-112.
On paper, this seems protective. In practice, MCA funders avoid the statute entirely by characterizing their product as a purchase rather than a loan. Because the funder is buying a percentage of future receivables at a discount, no “interest” is technically charged. The effective cost of capital may translate to triple digit annualized rates, but the legal architecture of the agreement renders the usury statute inapplicable.
The only way to bring usury into the conversation is to recharacterize the MCA as a loan. Tennessee courts will examine the totality of the agreement, looking at whether the funder bore genuine risk of loss tied to the business’s actual revenue.
If the agreement guarantees the funder a fixed amount regardless of business performance, includes a personal guarantee, or requires repayment even after the business closes, a court may conclude that the transaction has the substance of a loan regardless of its label. Fleetwood Services v. Ram Capital Funding in New York established much of the analytical framework that Tennessee practitioners now borrow when arguing recharacterization.
But borrowing precedent from other jurisdictions is not the same as having it. Tennessee appellate courts have not yet produced a definitive ruling on MCA recharacterization, and until they do, the argument remains untested at the state level.
3. Confessions of Judgment Are Not Prohibited
A confession of judgment allows an MCA funder to obtain a court judgment against a business owner without filing a lawsuit, without serving process, and without providing any opportunity to respond. The borrower signs the confession at the time of funding, and the funder files it if a default occurs.
New York banned confessions of judgment in out of state transactions in 2019 after a series of investigations revealed that MCA funders were using New York courts to enter judgments against business owners in Texas, Florida, and Tennessee who had never set foot in the state. But Tennessee has enacted no comparable prohibition.
This means a Tennessee business owner who signs an MCA agreement with a confession of judgment clause remains exposed. If the funder files the confession in a jurisdiction that still accepts them, the business owner may discover a judgment has been entered only when the bank account freeze arrives.
The defense, such as it exists, involves challenging the confession’s enforceability in Tennessee courts on due process grounds. Some practitioners have achieved vacatur by arguing that the confession was buried in dense contractual language or signed under economic duress. These arguments do not always succeed.
4. UCC Liens Can Strangle Operations
Every MCA agreement in Tennessee includes a UCC-1 financing statement filed with the Tennessee Secretary of State. The filing itself is not a seizure mechanism. It is a public notice that the funder claims a security interest in the business’s receivables and, in many cases, all business assets.
The operational damage comes from perception. When a business with an active UCC lien applies for a bank loan, an SBA loan, or even a second MCA, the lien appears in due diligence. Lenders see it and hesitate. Some refuse outright. The business owner, already cash-strapped from daily ACH withdrawals, finds every alternative credit channel blocked.
A UCC-1 filing remains effective for five years under Tennessee’s adoption of Article 9 of the Uniform Commercial Code. After five years it lapses unless the funder files a continuation statement. But five years is a long time when monthly revenue cannot cover both the MCA debit and ordinary operating expenses.
Challenging a UCC lien requires either paying off the underlying obligation and demanding a termination statement, or demonstrating in court that the lien was improperly filed. In the latter category, some Tennessee business owners have succeeded by showing that the funder described the collateral too broadly or filed the statement with incorrect debtor information.
5. The Best Defenses Are Procedural
Without a dedicated MCA statute, Tennessee business owners facing aggressive collection must rely on procedural defenses and general commercial law doctrines. Several have proven effective in practice, if not uniformly so.
The reconciliation demand is the first tool. Most MCA agreements include a reconciliation clause requiring the funder to adjust daily payments if the business’s revenue declines. Funders ignore these clauses with remarkable frequency. Documenting the revenue decline and formally requesting reconciliation creates a paper trail that becomes valuable if the dispute reaches litigation.
Unconscionability is the second. Tennessee courts retain equitable authority to refuse enforcement of contracts that are procedurally or substantively unconscionable. An MCA agreement with an effective annualized rate exceeding two hundred percent, signed by a business owner who received the contract and the funds on the same day with no opportunity for legal review, presents facts that some courts have found sufficient.
Breach of the covenant of good faith and fair dealing is the third. When a funder withdraws more than the agreed percentage of receivables, debits the account on days when no revenue was deposited, or refuses reconciliation despite clear contractual entitlement, the funder may have breached this implied covenant under Tennessee law.
And the federal bankruptcy stay is the fourth. A Chapter 11 filing halts all collection, including ACH withdrawals, and provides breathing room to negotiate. The decision to file carries its own consequences, but for Tennessee businesses facing imminent account seizure, the automatic stay can preserve the operating capital necessary to continue.
The absence of protective legislation in Tennessee does not mean the absence of options. It means the options require more effort, more documentation, and, in almost every case, legal counsel who understands the intersection of commercial law and MCA practice. A first consultation with our firm costs nothing and assumes nothing beyond the value of information.
