Why New York Is Cracking Down on MCA Financing (Finally)

A newly introduced Senate Bill in New York is aiming to dramatically expand the state’s criminal usury laws to include products such as merchant cash advances (MCAs), invoice financing, revenue-based financing, retail installment contracts, and virtually any arrangement that “functions as the advance of funds in exchange for a future payment obligation,” regardless of how the product is labeled.

The bill, S10127, was introduced by Senator Rachel May (D) and seeks to prevent financing companies from structuring transactions in ways that lawmakers believe circumvent traditional lending laws and interest rate caps.

Under the proposed legislation, financing arrangements exceeding an effective annualized cost of 25% could potentially be classified as criminally usurious. Depending on the circumstances, violations could carry felony-level penalties ranging from up to 4 years in prison for a Class E felony to as much as 15 years for a Class C felony.

At this stage, the bill has only been introduced and has not yet advanced through the legislative process. Still, it reflects growing scrutiny surrounding alternative commercial financing products nationwide, particularly merchant cash advances.

From our perspective, one of the more overlooked aspects of this conversation is that many business owners currently utilizing MCA products are not inherently “bad businesses” or unfinanceable borrowers. In fact, a significant percentage of the business owners we speak with are often substantially overqualified for the products they ultimately end up taking.

Many simply:

• were never properly pre-underwritten,

• lacked guidance regarding institutional financing options,

• approached the market during periods of stress or urgency,

• or became exposed to fragmented broker ecosystems that prioritized speed over long-term sustainability.

  
  

This is part of the reason why transparency, diagnostics, and proper underwriting review matter so much in today’s commercial finance environment. The structure of a financing product matters; but so does understanding whether the client should have been in that product to begin with.

As regulatory conversations continue evolving, it will be important to distinguish between legitimate commercial financing needs, bad actors, and the broader structural issues that continue pushing otherwise viable businesses toward increasingly expensive forms of capital.