The Industry Consensus: Twenty Years of "Not a Loan"
Search "are merchant cash advances loans" and you'll find near-unanimous agreement across funders, brokers, finance publishers, and legal guides: MCAs are not loans. They are purchases of future receivables — not borrowed money with a repayment obligation. This framing isn't invented marketing language. It was developed by lawyers, grounded in real case law, and held up in courts for roughly twenty years.
The problem is that the consensus was applied uniformly across two structurally different products. CC split MCAs — where repayment is a genuine percentage of daily card sales — have held up reasonably well in court. ACH MCAs — where a fixed daily debit goes out regardless of what the business earned — are a different story. We've covered the legal record in detail separately. This piece is about why that distinction has been so slow to reach the mainstream — and who benefits from keeping it that way.
Follow the Money
The "not a loan" classification isn't just a legal position — it's a business model enabler. To understand why the consensus is so durable, it helps to understand what it's worth.
If an ACH MCA is legally a loan, it becomes subject to state usury laws — interest rate caps that most states set between 6% and 36% APR depending on the loan type and borrower profile. The factor rates that make ACH MCAs economically viable — 1.25x to 1.5x or higher on terms of three to six months — translate to APR equivalents that routinely exceed 50%, 80%, or more. Under usury analysis, agreements at those rates could be voided in many states.
"Not a loan" also historically meant exemption from the federal Truth in Lending Act, which requires lenders to disclose APR and total cost in standardized terms. Several states have now passed disclosure laws that close this gap — more on that below. Without those disclosures, factor rates were presented as multipliers rather than annualized costs, making the product's pricing harder to compare against alternatives.
The incentive chain
Funders need "not a loan" to operate without usury exposure. Brokers earn commissions when deals close, so they have a financial interest in products that close easily — and products that sound cleaner close easier. Publishers — finance sites, affiliate bloggers, comparison platforms — earn referral fees when traffic converts to applications. Everyone in the chain benefits when the product is presented as uncomplicated.
This is not a conspiracy. There is no coordinated effort to deceive borrowers. Each actor is individually rational: funders deploy capital, brokers earn commissions, publishers earn traffic revenue. The collective result is that an industry worth an estimated tens of billions of dollars has maintained a legal position — applied uniformly across both MCA structures — that is now under serious challenge in at least one major jurisdiction.
The incentive to keep the framing simple doesn't require bad intent. It just requires that nobody with a financial stake in the product has a strong reason to introduce complexity — or to lead with "courts have started examining this more closely."
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Get a Free EstimateWhat Changed in 2025
The consensus cracked publicly on January 22, 2025, when the New York Attorney General announced a $1.065 billion consent judgment against Yellowstone Capital — the largest in NY AG history at the time. The finding was specific: Yellowstone's ACH MCAs had fixed daily debits with no genuine reconciliation mechanism, making them loans in substance regardless of how the contracts were labeled. Separately, over the past several years, nine states plus Virginia for sales-based financing have passed commercial financing disclosure laws requiring APR-equivalent figures on MCA offers — predating the Yellowstone ruling, and not a reclassification, but a signal that the regulatory environment has been tightening for some time.
None of this makes MCAs illegal. The ruling was jurisdiction-specific and structure-specific. But it broke something the industry had treated as settled — and for a product that depends on "not a loan" being accepted without scrutiny, that matters. For the full legal analysis — the reconciliation test, the factoring comparison, the state-by-state disclosure table — see our companion piece on what courts have actually decided.
Where Pezzula Stands
A note on our position
Pezzula earns commissions when businesses take MCAs. We have the same financial incentive every other broker and finance publisher has to present the product cleanly and close deals. We are not a disinterested party. We're writing this anyway — and we think that's worth something — but you should know the conflict going in.
The "not a loan" shorthand became useful because it was true enough, often enough, for long enough. We don't think everyone who's repeated it has been dishonest. We do think the shorthand outlasted the legal reality it was summarizing — specifically for ACH-structured MCAs, which are the dominant structure in the market.
Our position: CC split MCAs remain on defensible legal ground and can accurately be described as purchases of future receivables. ACH MCAs operate in a more contested legal environment since January 2025, and presenting them to business owners without that context is now incomplete at best.
We think the business case for transparency and the ethical case happen to be the same here. Clients who understand what they're signing make better decisions. Better decisions produce better outcomes. Clients with good outcomes come back and refer others. Clients who feel they weren't given the full picture don't.
We broker MCAs. We'll continue to broker MCAs. We'll also tell you when a term loan, a line of credit, or invoice factoring is a better fit — and we'll tell you what courts have actually found about the product you're considering. If that costs us some deals, we think it's the right trade.
The standard we're trying to hold ourselves to:
- Distinguish ACH funding from CC split in all product descriptions
- Cite government and news sources when making legal or regulatory claims
- Acknowledge our conflict of interest when writing about products we sell
- Recommend alternatives when they genuinely fit better
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Written by
Nick
Founder · Pezzula
Nick founded Pezzula to help small business owners cut through the noise around alternative funding. He works directly with business owners to match them with the right product — MCA, term loan, SBA, or otherwise — based on their actual numbers, not a sales pitch.
Work With Someone Honest
We'll explain what you're signing before you sign it
No hard credit pull. No pressure. If an MCA makes sense for your situation, we'll tell you why. If it doesn't, we'll tell you that too.