Are Merchant Cash Advances Legal in All States? A 2025 Legal Breakdown

Merchant cash advances (MCAs) give small firms quick capital by selling a slice of future card sales to a funder. The product is marketed as “not a loan,” yet owners still ask, Are MCA loans legal everywhere? In 2025, the answer is “mostly yes, but under a fast-growing patchwork of state rules. 

Roughly a dozen states now have a dedicated merchant cash advance regulation on the books or in the works, each with its own disclosure forms, caps, and registration duties.

What Is an MCA?

An MCA is a type of purchase agreement where the provider gives a lump sum upfront and then collects either a fixed amount or a percentage of daily sales until the full amount of agreed-upon receivables is repaid. 

For a full breakdown of the pros, cons, and red flags, read our blog on Is a Merchant Cash Advance for Small Businesses a Good Idea?

Because the contract is framed as a sale, traditional usury ceilings and Truth in Lending Act rules usually do not apply. Virginia’s statute, for example, defines “sales-based financing” exactly this way.

Why Legality Varies

Whether an MCA is treated as a lawful sale or a disguised high-interest loan depends on state law, court precedent, and enforcement mood. 

Some legislatures now say every fee in an MCA counts as “interest,” while others still exempt the product from lending codes. The result is uneven compliance burdens, and ongoing merchant cash advance legal issues in the U.S. create confusion for both funders and small businesses

2025 State-by-State Snapshot

State	2025 Status	Key Takeaway
Texas	House Bill 700 and Senate Bill 2677—filed May 2025—would force MCA providers to give standardized cost disclosures, register brokers, and apply state usury rules to every fee.	First bill to call MCA charges “interest” under Texas law.
Virginia	The Sales-Based Financing Providers Act has required MCA firms to register and give plain-English APR, payment, and fee tables since July 1, 2022.	Early mover; enforcement handled by the Bureau of Financial Institutions.
Utah	The Commercial Financing Registration and Disclosure Act took effect Jan 1, 2023. Providers that fund Utah businesses must register with DFI and issue cost sheets before closing.	Covers any deal with a Utah resident—location of funder is irrelevant.
New York	Broad Commercial Finance Disclosure Law effective Aug 1, 2023. Applies to MCA deals ≤ $2.5 million; Truth-in-Lending-style tables and “estimated APR” are mandatory.	Largest market now requiring APR-style numbers.
California	SB 1235’s disclosure rules became enforceable Dec 9, 2022; DFPI may also penalize unfair or abusive MCA practices under 2023 regulations.	First state to adopt consumer-style MCA disclosures.
Illinois	The 2025 Small Business Financing Transparency Act is pending; it would register MCA providers and compel APR and fee disclosures similar to NY and CA.	Indicates momentum, although not yet a law.

Why MCAs Remain Controversial

• Sky-high mca interest rates. Predatory cases still surface. In January 2025, Yellowstone Capital agreed to a $1 billion settlement after rates allegedly climbed past 800 percent APR.

• Confession of judgment clauses. A confession of judgment allows funders to win a court judgment and freeze bank accounts without notice. The FTC’s 2023 enforcement order permanently banned one MCA owner from the industry for using COJs to seize assets.

• Aggressive collections and broker misconduct. Uneven oversight lets bad actors stack daily debits, double-fund, or misstate costs, fueling calls for uniform rules. If you’re facing these issues, explore your options by reading Understanding the Process of MCA Settlements

Tips to Protect Your Business

• Read every disclosure. Even in unregulated states, ask the provider to show total payback, factor rate, and an estimated APR so you can compare real costs.

• Refuse a confession of judgment. Cross out the COJ text or negotiate a substitute security.

• Check registration. In VA, UT, CA, NY, and other states, you can verify whether an MCA provider is licensed or registered online.

• Model cash flow. Daily withdrawals can exceed 20 percent of sales; run worst-case scenarios before signing.

• Get counsel early. A lawyer familiar with MCA disputes can spot hidden fees and negotiate better terms.

Conclusion

So, are MCA loans legal in all 50 states? Yes, as this guide suggests, no legislature has banned them outright, but legality today is entwined with where your business is located and how your contract is written. A Texas café may soon receive stronger interest-rate disclosures than a Nebraska auto shop, while a New York deli already gets full APR tables. 

High costs, mca interest rates that can soar beyond triple digits, and the lurking risk of a COJ mean an MCA should still be a last-resort option. Treat every advance like any other form of credit: shop around, verify every line, and if red flags appear, talk to an attorney at Business Debt Counsel before you sign. That’s really important and can save you from legal trouble. A short consultation can save your company—and your peace of mind—later.