Most merchant cash advance agreements are loans. The label changes nothing. When a funder structures repayment as a fixed daily withdrawal from a business checking account, ignores fluctuations in revenue, and retains the right to pursue a personal guarantor if the merchant closes, the transaction bears every hallmark of a loan except the word itself. And in courtrooms across New York and beyond, judges have started saying so.
The distinction matters because loans carry regulatory weight that purchase agreements do not. Usury caps, licensing requirements, disclosure obligations. A true purchase of future receivables sidesteps all of that. Which is precisely why so many funders insist on the MCA label even when the economics say otherwise.
The Fixed Daily Withdrawal
A legitimate merchant cash advance ties repayment to a percentage of actual credit card receipts or revenue. When receipts decline, remittances decline. That is the foundational bargain of a receivables purchase. But in practice, a significant number of MCA contracts establish fixed daily debits withdrawn from the merchant’s bank account regardless of what the business earned that day, that week, or that month.
This was central to the New York Attorney General’s case against Yellowstone Capital and its affiliated entities in 2025, where the state secured a judgment exceeding one billion dollars. The court found that Yellowstone’s agreements operated as loans because repayment bore no meaningful relationship to actual receivables. Payments came out of the account on a schedule. Revenue was irrelevant.
If your MCA agreement specifies a fixed dollar amount withdrawn daily or weekly, with no mechanism for adjustment, that is the first and most telling signal. The funder is not purchasing your future sales. The funder is lending you money and collecting on a schedule.
No Reconciliation or a Reconciliation That Exists Only on Paper
Reconciliation is the process by which a merchant requests that remittance amounts be adjusted to reflect actual revenue. In a genuine receivables purchase, reconciliation is the mechanism that keeps the percentage honest. Without it, the percentage is fiction.
Some contracts include a reconciliation clause but surround it with conditions so burdensome that no merchant could satisfy them. Requirements to produce months of bank statements within days, demands for tax returns mid-quarter, provisions that allow the funder to deny reconciliation at its sole discretion. The clause exists to survive judicial scrutiny. It does not exist to function.
One reads the reconciliation provision and imagines it was drafted not for the merchant but for the judge who might one day review it.
Courts have grown attuned to this. In several bankruptcy proceedings, including In re JPR Mechanical and In re Williams Land, judges examined whether the reconciliation mechanism was real or decorative. A provision that the merchant cannot practically invoke is no provision at all.
Personal Guarantees and Confessions of Judgment
When a funder purchases future receivables, the risk travels with the business. If the business fails, the funder’s recovery depends on whatever receivables remain. That is the nature of the purchase. The funder accepted business risk in exchange for a discount on future revenue.
A personal guarantee reverses that calculus. If the merchant signs a guarantee, the funder has recourse against the individual regardless of what the business produces. The funder has not purchased receivables. The funder has extended credit, secured by the merchant’s personal assets, future earnings, and whatever else the guarantee reaches.
Confessions of judgment compound the problem. Before New York banned them for out of state merchants in 2019, funders routinely included COJ provisions that allowed them to obtain a judgment against the merchant without notice or hearing. The practice persists in modified forms. Some agreements contain consent to jurisdiction clauses and pre-negotiated stipulations of default that accomplish the same result with different language.
If your agreement includes a personal guarantee, ask what exactly the funder purchased. Future receivables belong to the business. A guarantee that reaches your personal bank account, your home, your other assets suggests the funder always regarded this as a loan.
The Effective Rate
True MCAs do not carry interest rates because they are not loans. They carry factor rates, typically expressed as a decimal. A factor rate of 1.3 on an advance of one hundred thousand dollars means the merchant repays one hundred thirty thousand. Simple enough in isolation.
But when that repayment occurs over ninety days through fixed daily withdrawals, the effective annualized cost reaches territory that would violate usury statutes in virtually every state. Some of the Yellowstone agreements, the Attorney General found, carried effective rates exceeding eight hundred percent annually. New York’s civil usury cap sits at sixteen percent.
This is where the disguise frays. A funder who structures repayment to extract triple digit annualized returns while insisting the transaction is not a loan is relying on a legal fiction that courts are increasingly unwilling to honor. The rate itself does not prove the agreement is a loan. But when combined with fixed payments, absent reconciliation, and personal guarantees, the rate reveals what the transaction always was.
Recourse After Business Closure
The final signal is the simplest. What happens when the business closes?
In a genuine receivables purchase, the answer should be straightforward. No business, no receivables, no further obligation. The funder’s investment is gone, the same way any purchaser of a future asset bears the risk that the asset never materializes.
But many MCA agreements contain provisions that allow the funder to accelerate the full remaining balance upon default, pursue the personal guarantor, freeze bank accounts through restraining orders, and file suit for the unpaid purchase price as though it were an unpaid debt. That last phrase is worth reading twice. An unpaid debt is a loan concept. A purchase price for receivables that will never exist is a contradiction in terms.
Courts in New York have recognized this contradiction in multiple proceedings. When a funder’s remedies upon default mirror those of a lender collecting on a note, the agreement functions as a loan regardless of the title page.
The merchant cash advance industry has operated for years in the space between contract language and economic reality. The language says purchase. The economics say loan. For businesses caught in that gap, the consequences are severe: rates that dwarf any regulated lending product, collection tactics that bypass normal procedural protections, and agreements that strip merchants of the defenses they would possess if the transaction were honestly labeled.
Recognizing these signals is the first step toward reclaiming those defenses. A consultation is where that process begins, and it costs nothing to start the conversation.
