A merchant cash advance (MCA) gives you a lump sum upfront in exchange for a portion of your future sales. Instead of monthly loan payments, you’ll repay the advance through daily or weekly deductions as a fixed amount or a percentage of your card-based revenue.
This setup can be appealing for gig workers, small business owners, and retailers who need fast access to funds but don’t meet the criteria for traditional bank loans. However, merchant cash advance agreements come with different rules and risks, especially when it comes to repayment and regulation.
That’s why understanding the legal landscape of MCAs in 2025 is more important than ever.
Key Takeaways
- MCAs are legal in 2025 but aren’t regulated like traditional loans, so the rules can vary depending on your state.
- Unlike regular business loans, MCAs are repaid through a percentage of your daily or weekly sales instead of fixed monthly payments.
- States like New York, California, and Virginia now require clearer disclosures and stronger borrower protections.
- While MCAs can provide fast funding with flexible repayment, they often come with high costs, hidden clauses, and risks like debt stacking or UCC liens.
- Always read the full contract, ask direct questions, and consider talking to a business attorney before signing a merchant cash advance agreement.
Are Merchant Cash Advances Legal?
Yes, merchant cash advances are legal—but they’re not regulated like standard business loans. That’s where things can get complicated.
MCA providers avoid many lending laws because these advances aren’t classified as loans under federal law. Instead, they fall under commercial finance transactions, which means they aren’t subject to interest rate caps, Truth in Lending Act protections, or standard loan disclosure requirements.
Because of this loophole, MCA loan defaults can lead to aggressive collection tactics, and some business owners only realize the risks after signing a merchant cash advance agreement.
As of 2025, merchant cash advance regulation is being handled at the state level. States like California and New York have begun enforcing stricter rules around disclosures, fees, and repayment transparency. However, regulations still vary widely, so where you do business can affect your legal protections.
How Merchant Cash Advances Are Regulated
Merchant cash advance regulation doesn’t look the same as it does for traditional loans, but that doesn’t mean there are no rules. While MCAs fall outside typical lending laws, several legal protections still apply.
Federal Oversight
MCAs may not be classified as loans under federal law, but agencies like the Federal Trade Commission (FTC) still step in when providers cross the line. The FTC can take legal action against companies that mislead borrowers, hide fees, or use aggressive collection tactics, especially in cases of MCA loan default.
A few key federal laws apply:
- Federal Trade Commission Act (FTCA): Prohibits deceptive or unfair business practices. If a provider lies about repayment terms in a merchant cash advance agreement, they could face serious consequences.
- Gramm-Leach-Bliley Act (GLBA): Protects your financial privacy and prevents providers from tricking you into sharing sensitive banking information.
- Section 1071 of the Dodd-Frank Act: Requires certain commercial lenders (including some MCA providers) to report credit application data to the Consumer Financial Protection Bureau (CFPB), improving transparency and oversight.
So, while MCA loans are legal, providers who ignore these rules may face fines, lawsuits, or even a ban on doing business.
Uniform Commercial Code (UCC)
Many merchant cash advance agreements are backed by a Uniform Commercial Code (UCC) filing. This isn’t a federal law, but it is a widely adopted legal framework that governs commercial transactions in most states.
When you sign an MCA, the provider may file a UCC lien against your business assets. It doesn’t mean they can seize your equipment right away, but it gives them the legal right to do so if you fall behind on payments. After repayment, make sure the lien is removed to protect your credit and prevent future issues.
Voluntary Self-Regulation
Some providers follow ethical standards like the Small Business Borrowers’ Bill of Rights, a voluntary code backed by the Responsible Business Lending Coalition. While it’s not part of official merchant cash advance regulation, it sets a higher bar for transparency and borrower protection.
Key principles include:
- Clear pricing and terms
- Fair collection practices
- Responsible underwriting
- Equal access to funding
- Honest, reputable partnerships
If you’re offered an MCA, ask whether the provider follows these guidelines. It won’t guarantee a perfect experience, but it’s a positive sign.
How States Are Regulating Merchant Cash Advances in 2025
While legality of merchant cash advances depends heavily on where you operate, many are tightening rules to protect small business owners. Some treat MCAs like sales agreements, while others require full disclosures, registration, and limits on how much can be collected.
California
Since December 2022, Senate Bill 1235 requires MCA providers to disclose total costs, estimated APR, and fees. State regulators now have stronger enforcement power under Senate Bill 825, targeting unfair merchant cash advance agreement terms and practices.
New York
The state’s Commercial Finance Disclosure Law (effective August 2023) requires MCA providers to clearly disclose key details upfront. This includes the APR, total amount financed, finance charges, and a breakdown of repayment terms—when and how payments will be collected. These disclosures must also follow a strict layout, including specific font sizes and structured rows and columns.
In early 2025, New York authorities secured a $1 billion settlement against a now-defunct MCA firm accused of operating a large-scale fraudulent lending scheme. The company reportedly used a network of 25 shell companies to issue illegal advances to small businesses. These so-called “loans” came with inflated rates and aggressive collection tactics, pushing many borrowers into an MCA loan default and forcing them to shut down.
Virginia
Since mid-2022, HB1027 requires MCA providers to register and disclose the total advance, finance charges, estimated payments, and any non-finance fees. This helps reduce confusion and risk of an MCA loan default for small business owners.
Utah
Under the Commercial Financing Registration and Disclosure Act (effective January 2023), providers must register and outline key figures like the total funding amount, repayment total, and payment schedule, ensuring better transparency in merchant cash advance agreement terms.
Texas
In May 2025, House Bill 700 and Senate Bill 2677 were introduced to enforce standard disclosures and cost breakdowns. The proposed laws would also bring MCAs under state usury guidelines, adding a new layer to merchant cash advance regulation in Texas and raising fresh questions like, “Are MCA loans legal,” under stricter lending standards.
Weighing the Pros and Cons of MCAs
Merchant cash advances can be tempting when you need funding fast, but they’re not without risks. Here’s what to weigh before signing a merchant cash advance agreement.
The Pros
Speedy Access to Capital
MCAs are known for how fast they fund. Once approved, many providers deposit funds within 24 to 48 hours. That makes a huge difference when you’re trying to cover emergency repairs, stock up on inventory during a sale, or take on a time-sensitive project. You won’t need to wait on slow bank approvals or a long underwriting process.
Repayment That Moves With Your Sales
Rather than fixed monthly payments, MCAs are repaid as a percentage of your daily or weekly revenue. That means payments are lower when sales are slow, which can soften the blow during off-seasons or slower weeks. Payments shrink when your sales do, so you’re not stuck making the same high payment during slower periods.
No Collateral or High Credit Score Required
Unlike traditional loans that often require collateral like property or equipment, most MCAs are unsecured. That reduces the risk of losing assets if things go south. Approval is also based on revenue, not your credit score, which is a plus for newer businesses or independent workers with limited credit history.
Helpful for Businesses with Seasonal or Fluctuating Revenue
If your income comes in waves—like during the holidays or busy summer months—this model is easier to manage. Instead of struggling with the same large loan payment every month, your repayment adjusts automatically. For many businesses, this offers more breathing room during leaner times.
The Cons
Extremely High Cost of Capital
MCAs might not charge traditional interest, but the total repayment amount is often much higher than what you’d owe on a regular loan. When you calculate the effective APR, it can exceed 100%. That’s why people frequently ask, “Are MCA loans legal?”—especially when costs start to feel predatory. A few months of fast cash can turn into a long-term financial drain.
Confession of Judgment Clauses
Some merchant cash advance agreements include a legal clause that allows the provider to go straight to a court judgment if you default without warning or a hearing. This can result in frozen bank accounts or asset seizures. Not all states allow this practice, but it’s still common in unregulated jurisdictions.
Limited Oversight in Some States
Although merchant cash advance regulation is increasing, many states still treat MCAs as commercial transactions, not loans. That means fewer protections, limited transparency requirements, and little recourse if the provider acts unfairly. If you’re in a state without strict rules, it’s easier for shady operators to exploit vague contract terms.
Debt Trap Risk
Because repayments are automatic and frequent (often daily), you can fall behind fast if your sales drop. Some businesses end up taking a second MCA to cover the first, and then another, leading to a stacking cycle that’s hard to escape. The repayment pressure builds quickly and can push even healthy businesses toward default.
No Credit Building Benefits
One of the biggest downsides: most MCA providers don’t report to credit bureaus. So even if you pay back your advance on time, it won’t boost your credit score or help you qualify for better funding down the line. This limits your ability to grow financially.
Want a smarter path? Giggle Finance reports to Experian and TransUnion, so you don’t just repay a cash advance, you build credit while you do it.
Need fast funding without long-term damage? Apply today and get support designed for independent workers who want to grow.
Smart Legal Steps Before Signing a Merchant Cash Advance Agreement
Getting fast funding might sound appealing, but a merchant cash advance agreement can come with serious legal and financial consequences if you’re not prepared. Taking the right steps beforehand helps protect your business, avoid risky contracts, and stay out of MCA loan default.
Research the Provider Before You Apply
Before signing anything, research the MCA company thoroughly. Don’t rely on a flashy website or a pushy sales rep. Look up reviews from verified sources, check for past legal complaints, and confirm whether the provider is registered or licensed in your state (if required).
Even in states without specific merchant cash advance regulation, trustworthy companies should be transparent about their qualifications.
Tip: Ask for the estimated APR or cost of capital, even though MCA loans aren’t technically loans. This will help you compare offers better.
Review the Entire Contract—Not Just the Summary
Some MCA contracts contain clauses that can catch you off guard. Don’t skip over the legal language. Pay special attention to:
- Confession of judgment clauses – These allow the provider to bypass court and seize your funds or freeze accounts if you miss payments.
- Rate fluctuation terms – Some contracts allow fee increases without much notice.
- UCC filings – These grant the provider a legal claim to your business assets if you default.
Reading every word of your merchant cash advance agreement might take time, but it can protect you from serious consequences later.
Ask Direct, Specific Questions
If a provider can’t answer basic questions, that’s a red flag. Before agreeing to anything, make sure you clearly understand:
- The total repayment amount (not just the advance)
- Daily or weekly holdback percentage from your revenue
- APR equivalent for comparison
- All applicable fees—especially hidden ones
- Whether you’re pledging collateral or granting a UCC lien
These questions can help you identify risky terms and avoid unintentionally walking into a merchant cash advance regulation grey area.
Speak With a Business Attorney
If your agreement includes anything unclear or legally sensitive—like a confession of judgment, asset claim, or unfamiliar fee structure—get a lawyer’s input. A quick contract review can help you steer clear of potential violations or a future MCA loan default.
Your Smarter Path to Business Funding
Are merchant cash advances legal? Yes—but in 2025, the landscape is getting more complicated. New merchant cash advance regulation is rolling out across multiple states, and vague contract terms like confession of judgment clauses can lead to unexpected risks. If you don’t understand what’s in your agreement, you could end up in MCA loan default or dealing with long-term financial strain.
That’s why more freelancers and small business owners are choosing Giggle Finance.
At Giggle, we keep things simple. Our application takes minutes, there are no hard credit checks, and you’ll always see the total cost before signing anything. We don’t bury fees in the fine print or make you jump through hoops. You get the cash you need—fast—with flexible repayments that work with your income.
If you want a cash advance that’s transparent, fast, and built for the way you actually work, Giggle Finance is ready when you are.
Disclaimer: Giggle Finance provides Revenue-Based Financing programs for business purposes only. Any mention of any loan product(s), consumer product(s), or other forms of financing is solely for marketing and educational content purposes and to help distinguish Giggle Finance’s product from other comparable financing options available in the markets.