What Makes an MCA Legally Unenforceable?

Merchant cash advances (MCAs) are often marketed as fast, no-hassle funding for small businesses. A lender deposits cash upfront and takes back repayment through daily or weekly withdrawals. On the surface, it seems simple—but many business owners quickly discover that the cost can rival triple-digit interest rates. When sales dip, those fixed daily pulls don’t stop, creating cash-flow shocks and a cycle of debt.

So, when does an MCA cross the line into becoming legally unenforceable? Courts have ruled that if an MCA is structured like a loan rather than a true purchase of receivables, it must follow state usury laws. In other words, if fixed payments are required regardless of sales performance, the deal often looks like a loan with an illegal interest rate.

Lender misconduct can also void an MCA. Examples include:

• Confessions of Judgment (COJs): Allowing lenders to seize assets without trial is banned in many states.

• Abusive collections: Harassing calls, threats, or interference with your card processor.

• Predatory terms: Factor rates and repayment schedules so extreme that they “shock the conscience.”

When these tactics are exposed, courts may rule that the MCA is unenforceable, protecting businesses from aggressive collections.

The good news is that defenses exist. A skilled MCA defense attorney can argue usury violations, challenge vague terms, and negotiate significant debt reductions. In some cases, stacked MCAs can be restructured into a single manageable payment plan or handled through Chapter 11 Subchapter V.

Just because a lender says you owe doesn’t mean the contract is valid. Many MCA agreements collapse under legal scrutiny.

👉 Want the full breakdown of lender misconduct and borrower defenses? Read the complete guide here