How to Structure a Merchant Cash Advance Agreement in Florida Without Triggering Usury Laws
Florida does not set a statutory “usury cap” on a true Merchant Cash Advance (MCA) because a properly structured MCA is a purchase of receivables—not a loan. But if the agreement functions like a loan with a guaranteed repayment and fixed term, Florida’s civil usury (generally 18%/25% thresholds depending on amount) and criminal usury (45%+) risks can apply. This article explains how to draft Florida MCA terms to support “true sale” treatment and avoid usury recharacterization.
Why Florida Usury Law Becomes an MCA Problem
In Florida, “usury” applies to loans or forbearances of money—not to bona fide purchases of assets. A merchant cash advance (MCA) is typically marketed as the purchase of a portion of a merchant’s future receivables at a discount, with repayment collected as a percentage of daily or weekly sales. When an MCA is respected as a true sale of receivables, Florida’s interest-rate limits generally do not apply because there is no “interest” on a loan.
The litigation risk arises when the contract’s economics and remedies make repayment effectively guaranteed, time-bound, and independent of the merchant’s receivables performance. Florida courts look beyond labels. Calling a deal an “MCA” or “purchase” will not prevent recharacterization if the agreement functions like a loan with a fixed repayment obligation.
Florida’s usury framework is commonly discussed in tiers: civil usury thresholds (often described as 18% for smaller amounts and 25% for larger principal amounts) and criminal usury at 45%+ per annum. The exact applicability depends on the structure and amount. The critical point for MCA drafting is this: if the arrangement is recharacterized as a loan, the “factor rate” can translate into very high implied APRs—creating leverage for rescission, affirmative claims, and defense to enforcement.
Core Principle: Draft for “True Sale,” Not Disguised Credit
Most usury challenges to MCAs turn on three themes:
- Is repayment contingent on receivables? A true sale requires meaningful risk that the buyer may not collect the purchased amount if sales decline.
- Is there a fixed term or fixed payment? Fixed installments or a guaranteed end date can look like loan amortization.
- Do remedies create an unconditional obligation? Confessions of judgment (not available in Florida), broad personal guarantees, or “default” triggered by ordinary revenue fluctuations can undermine sale characterization.
Florida counsel structuring MCAs typically focus on aligning contract language, payment mechanics, and default remedies with receivables-contingent performance—then matching operational behavior to the paper.
Key Florida Usury Touchpoints (What to Avoid If Recharacterized)
Because the primary defense is “this is not a loan,” you still draft with the backup plan in mind: if a judge views it as credit, what does the effective rate look like and are the terms defensible?
Common red flags that invite a “loan” finding include:
- “Purchased amount” that must be repaid regardless of sales.
- A hard repayment deadline (e.g., “Merchant shall repay in 180 days”).
- Fixed daily debits that do not adjust with revenue.
- Default triggered by mere slowing of sales or normal cash-flow volatility.
- Personal guarantees that guarantee payment rather than performance covenants.
- Security interests in all assets that look like collateral for a loan rather than protections for a receivables purchase.
Clauses That Support a Florida “True Sale” MCA
1) Clear Purchase and Sale Language (But Don’t Stop There)
Start with unambiguous purchase terms:
- Purchase Price: the upfront amount paid to the merchant.
- Purchased Receivables Amount: a defined dollar amount of future receivables being purchased.
- Specified Percentage: the agreed percentage of each batch/settlement to be remitted until the purchased amount is delivered.
Drafting tip: avoid “loan,” “interest,” “principal,” “APR,” “amortization,” and “maturity date” vocabulary. Use “purchase price,” “purchased amount,” “remittance,” and “delivery of receivables.”
2) A Genuine Reconciliation Provision (Not Cosmetic)
A reconciliation clause is often the most important anti-usury feature. It should allow remittances to adjust up or down based on actual receivables. If the merchant’s revenue declines, the remittance should decline proportionally, and the buyer should not treat slower delivery as a default.
Best practices for Florida MCA reconciliation language:
- Automatic or prompt adjustment on reasonable notice (e.g., merchant submits recent statements; buyer adjusts within a defined number of business days).
- No punitive fees for requesting reconciliation in good faith.
- Objective documentation requirements (processor statements, bank statements, POS reports).
- Mechanism for true-up if over-collected due to higher-than-expected debits.
A clause that says “Buyer may reconcile in its sole discretion” but never does in practice can become Exhibit A in a recharacterization claim. Operational compliance matters.
3) No Fixed Term or Guaranteed Delivery Date
A true receivables purchase generally avoids specifying a fixed payoff date. You may include an estimated delivery period as a projection, but not as a contractual deadline.
Drafting approach: “The parties acknowledge delivery of Purchased Receivables is dependent on Merchant’s future sales; any time estimate is non-binding and provided solely for illustration.”
4) Define “Receivables” Carefully and Tie Remittance to Actual Sales Streams
Define receivables to include the merchant’s payment card settlements and other specifically identified revenue streams, and clarify how remittance is calculated (e.g., a percentage of each settlement). The tighter the tie to actual receivables, the stronger the “sale” story.
Where possible, align remittance with the processor split or ACH debits that reflect real settlement activity, and draft around predictable anomalies (chargebacks, refunds, seasonal sales).
5) Default Provisions Must Target Misconduct, Not Business Performance
Default triggers should focus on behavior that undermines the buyer’s ability to receive the purchased receivables—such as fraud, intentional diversion of receivables, false reporting, or shutting down processing without notice.
Avoid drafting defaults that effectively guarantee repayment, such as:
- “Any decline in revenue”
- “Failure to deliver the purchased amount by X date”
- “Insufficient funds” occurrences without a reconciliation opportunity
Better: an NSF event can be a notice-and-cure item coupled with a reconciliation review (e.g., switch to a different collection method only after documented diversion or repeated bad-faith obstruction).
6) Personal Guarantees: Use Narrow “Bad Acts” Guarantees
A broad personal guarantee that ensures the purchased amount is paid “no matter what” is a loan-like feature. If you use a guaranty at all, Florida practitioners often prefer a limited guarantee tied to “bad acts”—fraud, intentional misrepresentation, diversion of receivables, bankruptcy filings in bad faith, or breach of specific covenants (such as maintaining processing or providing statements).
This keeps the risk of business downturn on the buyer (consistent with a sale) while still protecting against manipulation.
7) UCC Filings and Security Interests: Be Precise
Receivables buyers often file a UCC-1 to perfect an interest in the purchased receivables. Overreaching collateral descriptions (e.g., blanket liens on all assets) can make the transaction look like secured lending.
Consider limiting collateral to the purchased receivables and identifiable proceeds, and ensure the agreement explains the filing as a perfection tool consistent with a purchase. Work with Florida counsel to align the collateral package with the deal thesis and the merchant’s operational reality.
Concrete Example: Structuring Remittance Without Creating a “Fixed Payment”
Assume a Florida restaurant receives $60,000 in monthly card sales. A buyer pays a $40,000 purchase price in exchange for $56,000 of future receivables (a discounted purchase). The agreement sets a 12% specified percentage of card settlements to be delivered until $56,000 is delivered.
What supports “true sale”: if monthly sales fall to $30,000 due to construction next door, the remittance drops automatically with sales (12% of settlements). Delivery takes longer, but there is no default simply because time passes. The buyer’s risk is real.
What undermines “true sale”: a fixed daily debit calibrated to finish in 6 months, refusal to reduce debits when sales decline, or an immediate acceleration clause that converts the purchased amount into a fixed debt upon revenue fluctuation.
Operational Compliance: Papering the Deal Is Not Enough
Even a well-drafted Florida MCA agreement can be attacked if the parties behave like it’s a loan. Common operational missteps include:
- Declining reconciliation requests reflexively or delaying them unreasonably.
- Collecting fixed debits that do not reflect actual receivables.
- Issuing “payoff letters” with a fixed balance due by a date certain (without tying to receivables delivery mechanics).
- Training sales staff to pitch the product as “short-term working capital loan” with “no interest.”
Align marketing, onboarding scripts, and servicing policies with the legal structure. Consistency reduces recharacter
