Usury: Meaning in a Merchant Cash Advance
Usury is charging interest above the maximum rate a state's law allows on a loan. Because a true merchant cash advance is a purchase of receivables rather than a loan, state usury laws generally don't apply to it, unless a court recharacterizes it as a loan.
What does usury mean?
Most states cap the interest rate on certain loans. Charging more than the cap is usury, and the consequences for whoever made the loan can be severe. The high estimated APR on many advances would exceed those caps if the advance were a loan. That's why the true sale structure matters so much to funders, and why merchants sometimes argue in court that their advance was a disguised loan.
Why does usury matter to your business?
Usury comes up mainly in disputes. If you believe your advance was a loan in everything but name, an attorney can tell you whether a usury argument is realistic in your state. For comparison shopping, it's a reminder that APR figures on advances aren't directly comparable to loan interest caps.
How is civil usury different from criminal?
Some states have both civil usury limits and higher criminal limits. The rules and caps vary widely, and many states exempt business loans above certain sizes.
What does it mean for comparing offers?
When you see a high APR on an advance, it isn't evidence of usury by itself. It reflects a fixed cost over a short term. The more useful question is whether the dollar cost is worth what the money does for your business.
Where will you see it?
In state statutes on interest rates, in court cases about MCAs and in legal commentary.
Is this legal advice?
This is general information, not legal advice. Usury law is state specific and fact specific.
Which terms are related to usury?
The full list is in the glossary. Owners ask about this in What should I do if I get a demand letter from an MCA funder?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.