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. According to all of these sources, MCAs are not loans, but are instead purchases of future receivables at a discounted rate. 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 was held up in courts for roughly twenty years.
The problem is that this consensus got applied uniformly across two structurally different products. CC split MCAs have held up reasonably well in court, because their repayment comes from a fixed percentage of daily card sales. On slow days the business pays back less in total dollar amount than it does on busy days, but the percentage always remains the same. ACH MCAs are a different story, because fixed daily debits go out regardless of what the business earned. For example, a business could end up paying $200/day regardless of how business went that week. We've covered the legal record in detail in a separate piece, but this one 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, and the easiest way to see why the consensus is so durable is to follow what it's worth to everyone who profits when an MCA closes.
If an ACH MCA is legally a loan, it becomes subject to state usury laws. In most states, these laws cap interest rates between 6% and 36% APR depending on the loan type and borrower profile. Factor rates for ACH MCAs are typically 1.25x to 1.5x or higher over terms of three to six months, which 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. Without those disclosures, factor rates were presented as multipliers rather than annualized costs, which made it harder for business owners to compare the factor rate against a true APR.
The incentive chain
Funders need "not a loan" verbiage to operate without usury exposure. Brokers earn commissions when deals close, so they have a financial interest in products that close easily. Products that sound cleaner close easier. Publishers (finance sites, affiliate bloggers, and comparison platforms) earn referral fees when traffic converts to applications. Everyone in the chain benefits when the product is presented as uncomplicated.
None of this requires a conspiracy. Each actor is just behaving rationally — funders deploy capital, brokers earn commissions when deals close, publishers earn referral revenue when traffic converts. The collective result is that an industry worth tens of billions has kept its central claim simple long after the law stopped being simple, because nobody with a financial stake had a reason to introduce the complexity.
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Talk to NickWhat Changed in 2025
The consensus cracked publicly on January 22, 2025, when the New York Attorney General announced a $1.065 billion settlement with Yellowstone Capital. This was the largest such consent judgment in NY AG history at the time. The allegation 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. Yellowstone settled without admitting or denying the allegations. Separately, a growing number of states — nine, plus Virginia for sales-based financing specifically — have passed commercial financing disclosure laws requiring APR-equivalent figures on MCA offers, several in 2024 and 2025. These don't reclassify MCAs as loans, but they signal that the regulatory environment has been tightening for some time.
None of this makes MCAs illegal. The settlement was jurisdiction-specific and structure-specific. But it did break something the industry had treated as settled. 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.
The "not a loan" shorthand became useful because it was true enough, often enough, for long enough. What happened is simpler than dishonesty: the shorthand outlasted the legal reality it was summarizing, specifically for ACH-structured MCAs (the dominant structure in the market).
Our position is that 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. We'll also tell you what courts have actually decided about the product you're considering. If that costs us some deals, we think it's the right trade.
In practice that means we separate ACH funding from CC split in every product description rather than lumping them together, we cite government and news sources whenever we make a legal or regulatory claim, we say plainly when we earn a commission on something we're writing about, and we'll point you toward a term loan, a line of credit, or invoice factoring when one of those genuinely fits better than an MCA.
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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.