NY Court Reclassifies $10.8M in MCAs as Loans: What It Means for Your Business Debt

If you're a business owner making daily payments on what you thought was a merchant cash advance, a recent court ruling should be on your radar. According to deBanked, a New York bankruptcy judge just issued a 36-page decision reclassifying 19 MCAs totaling $10.8 million as loans, not advances on future receivables.

What the Court Decided

The ruling came from a Chapter 7 bankruptcy case involving Kossoff PLLC. As reported by deBanked, the trustee argued that the MCA funder's agreements, made between 2016 and 2020, were actually loans and potentially criminally usurious. The judge agreed, determining that the structure and terms of these 19 agreements didn't function as true merchant cash advances.

This isn't just legal hairsplitting. The distinction between an MCA and a loan carries real consequences, especially when interest rates and repayment terms come under scrutiny. When courts reclassify MCAs as loans, they can apply usury laws that cap interest rates, potentially voiding agreements that exceed legal limits.

Why This Matters to Business Owners

Many business owners turn to MCAs during cash flow crunches, attracted by the promise of fast funding and flexible repayment tied to sales. But the reality often looks different. Daily or weekly debits can strangle cash flow, making it nearly impossible to recover. If drafts are squeezing you right now, our guide on whether you can stop daily MCA payments covers the options that exist before things reach a default. And when multiple MCAs stack up, the situation becomes dire.

This court decision highlights a growing tension in the alternative funding industry. While MCAs are marketed as purchases of future receivables (not loans), courts are increasingly looking past the paperwork to examine how these agreements actually function. If it walks like a loan and quacks like a loan, judges may rule it's a loan, regardless of what the contract calls it.

The Real Cost of MCA Debt

Business owners often don't realize what they're signing until the daily debits start. Factor rates can translate to triple-digit APRs. Miss your targets, and some funders still take their cut. Stack two or three MCAs, and you're caught in a cycle where new funding just covers old debits, with nothing left to actually run your business.

If this sounds familiar, you're not alone. Business Debt Adjusters has spent over a decade helping business owners work through exactly this situation, and you can read what past clients say on Trustpilot.

What Are Your Options?

If you're buried in MCA debt, court rulings like this one reported by deBanked underscore an important point: not all funding agreements are created equal, and not all are enforceable as written. But navigating these legal complexities on your own while trying to keep your business afloat is overwhelming.

Business debt settlement offers a path forward. Rather than continuing to make payments you can't afford or watching your bank account get drained daily, you can work with professionals who negotiate directly with funders to reduce what you owe and restructure terms you can actually manage. Every case is different, funders are not required to accept any proposal, and no outcome can be guaranteed, but negotiated resolutions remain common because funders generally prefer a recovery to a prolonged fight.

Take the First Step

You don't have to figure this out alone. The first step is understanding exactly where you stand. What do you actually owe? What are your legal obligations? What leverage do you have?

Book a free consultation with Business Debt Adjusters to see where you stand. There's no obligation, just honest answers about your situation and what options exist.

Court decisions like the one from New York show that the MCA industry is evolving, and scrutiny is increasing. If your business is caught in the MCA cycle, the sooner you understand your position, the more options you tend to have.

Frequently asked questions

Does this ruling mean my MCA is actually a loan?

Not automatically. The decision covered 19 specific agreements in one bankruptcy case, and courts look at how each individual contract is structured and how it functioned in practice. Only a licensed attorney can tell you how rulings like this might apply to your agreement.

Can usury laws cancel my MCA debt?

If a court reclassifies an MCA as a loan, state usury caps may come into play, and agreements that exceed legal limits can be challenged. Whether that applies to any given contract depends on its terms, the state, and the facts. Outcomes vary case by case and no result can be guaranteed.

What should I do if daily MCA payments are hurting my business?

Start by reviewing your agreement and documenting your financial position. Some funders will discuss revised schedules directly, and negotiated restructuring or settlement is often possible. If you have received a default notice or lawsuit, speak with a licensed attorney promptly.

This article is general information, not legal or financial advice. Every MCA contract is different, and state laws vary. Review your agreement and speak with a licensed attorney before acting on anything here.

State regulators are moving in the same direction: Texas begins registering MCA providers under Chapter 398 on September 1, 2026.