How Courts Examine MCAs as Possible Usurious Loans: 5 Questions Behind Recharacterization

Calling the transaction a purchase does not conclude the inquiry. A court examining an MCA may look at whether the funding party assumes a genuine risk tied to receipts or requires repayment in substance regardless of what the business earns.

1. Start With Applicable Law and the Actual Agreement

In LG Funding v. United Senior Properties of Olathe, a New York appellate court discussed reconciliation, finite duration, and bankruptcy recourse when assessing whether repayment was absolute. The decision supplies a framework for relevant New York disputes, not a universal declaration that MCAs are loans.

Counsel must determine which law applies and how the complete contract operates. A favorable phrase from an opinion should not be detached from its legal setting or treated as a result already established for another company.

Simply gather every incorporated document and amendment. The legal argument concerns the obligation the parties created, which may be more complicated than the first page or the product description suggests.

2. Examine Whether Reconciliation Changes the Risk

A reconciliation provision may allow collections to adjust to actual receipts. The important questions concern the procedure, conditions, timing, and effect of the adjustment. Counsel should examine whether the mechanism has substance within the complete arrangement.

Preserve evidence of requests and responses. What the business supplied and what the funding party did can matter to understanding the dispute. A written clause and its practical operation are related facts, though one should not be assumed from the other.

Before asserting that the contract is a loan, before relying on a denied request as proof of the entire claim, examine the stated reason for refusal and the supporting record. The denial may reflect a disputed requirement, missing information, or another issue requiring legal analysis.

The reconciliation inquiry may be extremely consequential without being sufficient on its own. Other terms can affect whether repayment is absolute, including duration and recourse when the business fails. The agreement needs to be read as a whole.

The appellate court permitted the criminal usury defenses to remain and denied the funder summary judgment, while dismissing the criminal usury counterclaim. That combination matters when the owner asks what the opinion actually permits. A court's analysis also depends on the procedural question before it. An opinion discussing a viable claim or unresolved factual issue should not be described as a final judgment invalidating every similar transaction. That distinction changes what the authority actually supports.

3. Separate Recharacterization From the Usury Conclusion

Determining that an arrangement should be treated as a loan is not the same as completing every element of a usury analysis. Applicable thresholds, exceptions, parties, and remedies require legal review under the relevant jurisdiction.

The business should ask counsel what additional findings would be needed and what relief could follow. An extremely confident statement that the debt disappears can obscure the difference between an argument, a legal conclusion, and an enforceable judgment.

We should ensure the factual record supports each position. Ask the attorney to ensure quotations and references reflect the actual holding rather than a dissent or a broader interpretation. Legal lineage earns its place when it clarifies the issue the court must decide.

4. Preserve the Procedural Position

If a lawsuit is pending, identify the required response and retain the complete papers. A potential characterization defense does not itself extend a deadline. The business may need to act while the contract analysis remains incomplete.

Review and analyze the correspondence without altering originals. Keep statements, withdrawals, adjustment requests, and contract versions together. The file should allow counsel to trace an asserted fact to the document that establishes it.

5. Consider Delancey Street for the Commercial Alternative

Delancey Street offers an MCA focused settlement review and a free confidential initial conversation. It describes coordination with independently licensed counsel for legal matters. The company is a debt relief business, not a law firm.

The review can explore a negotiated resolution while counsel evaluates the characterization issue. Confirm eligibility, fees, and responsibility for any proceeding. A settlement proposal should not assume that the existence of a possible defense guarantees acceptance by the funder.

Resist the urge to choose between negotiation and legal analysis before understanding how they interact. A business may need both, with clear limits on what each adviser controls. The appropriate approach depends on the contract, available funds, and the posture of the dispute.

Delancey's initial conversation begins with the actual agreement and collection history. Recharacterization matters because law examines substance, but the company still needs a response supported by its own facts. A borrowed conclusion from another case cannot perform that work.