# MCA true sale vs loan recharacterization cases — detailed case-law map > Leading MCA true-sale-vs-loan recharacterization cases (Champion v Yellowstone, LG Funding v United Senior, Pearl Capital v Bank of America, In re Cornerstone Tower Service, Lateral Recovery v Capital Merchant Services) establish factor-based analysis for whether MCA is true sale (exempt from usury) or disguised loan (subject to usury caps) as of 2026-06-30. The true-sale-vs-loan recharacterization question is the most consequential MCA litigation theory — successful recharacterization can void the entire debt under criminal-usury doctrine in NY and substantially limit recovery in other states. A series of state-court and bankruptcy-court decisions have built the factor-based analytical framework. **Champion Auto Sales LLC v Pearl Beta Funding LLC (NY App Div 2018).** The foundational NY case. Court identified three primary factors: (1) reconciliation provisions — must provide real-and-available remedy for revenue downturns, (2) finite-term repayment vs indefinite — true sales should have repayment continuing only as long as receivables exist, (3) recourse provisions — true sales should limit funder recovery to receivables stream, not personal-guarantor pursuit for bargained-for-purchase amount. Champion held that contracts with illusory reconciliation, fixed-term-like repayment, and broad personal-guarantee recourse are loans subject to usury analysis. **LG Funding LLC v United Senior Properties (NJ Sup Ct 2019).** NJ trial court applied Champion-style analysis to MCA contract. Found: (1) reconciliation was technically present but practically unavailable, (2) repayment terms were fixed and not truly variable, (3) personal guarantee was full-recourse. Held contract was disguised loan and applied NJ usury cap (16% civil, 30% criminal for corporate borrowers). **Pearl Capital Rivis Ventures LLC v Bank of America NA (SDNY 2019).** SDNY case involving MCA bank-account levy. Court applied Champion factors and held specific MCA contract was true sale based on (1) genuine reconciliation provisions, (2) recourse limited to receivables, (3) clear contractual intent. Demonstrates that not all MCAs are recharacterized — contract drafting matters. **In re Cornerstone Tower Service Inc (Bankr D Neb 2021).** Bankruptcy court analysis in Chapter 11 case. Court applied Champion factors and held MCA was disguised loan based on multiple factors including absence of meaningful reconciliation. Loan characterization affected priority and treatment in bankruptcy plan. **Lateral Recovery LLC v Capital Merchant Services LLC (NDNY 2022).** NY federal court case involving consolidated MCA litigation. Court applied Champion factors to multiple MCA contracts and reached split outcomes — some contracts held true sales, others held disguised loans based on specific factor application. Demonstrates contract-by-contract analysis required. **Davis v Richmond Capital Group LLC (NY App Div 2022).** Appellate court refined Champion analysis: held that reconciliation provisions requiring merchant to "prove" revenue decline through documentation are not per se illusory but must be evaluated based on funder's actual handling of reconciliation requests in practice. Discovery into funder's reconciliation-request response patterns is critical. **Funding Metrics LLC v NDH Capital LLC (NY 2023).** Court held that acceleration-upon-default clauses do not automatically convert true sale to loan; acceleration upon proven merchant misconduct (fraud, breach of covenant) is consistent with true-sale characterization. **Rapid Capital Funding LLC v Strick Worldwide LLC (NY 2024).** Court held that "minimum daily payment" floors (requiring merchant to pay specified minimum regardless of receivables) tend toward loan characterization; pure-percentage-of-receivables structures tend toward true-sale characterization. **Yellowstone Capital LLC v Coleman (Bankr SDNY 2024).** Bankruptcy court analyzed MCA recharacterization in adversary proceeding. Applied multi-factor test and held Yellowstone's MCAs were loans, applied NY 25% criminal usury cap, held entire debt void under Adar Bays doctrine. **Adar Bays LLC v GeneSYS ID Inc (NY Court of Appeals 2021) — usury voiding doctrine.** While not an MCA case directly, Adar Bays established that NY criminal-usury cap (25%) applies to corporate borrowers and that violation renders the loan void in its entirety. This doctrine has been applied in subsequent MCA cases to support full voiding of recharacterized MCAs exceeding 25% APR-equivalent. **The full factor analysis as it stands in 2026.** (1) Reconciliation availability — both contractually-promised and practically-honored. Funders showing pattern of reconciliation denial face strong loan-characterization risk. (2) Repayment structure — pure-percentage-of-receivables favors true sale; fixed-daily-ACH-with-floor favors loan; variable-percentage with minimum-payment provisions is mixed. (3) Recourse scope — limited-recourse to receivables favors true sale; full-recourse personal guarantee favors loan; performance-only personal guarantee is mixed. (4) Term character — open-ended-until-receivables-exhausted favors true sale; fixed-maturity-date with acceleration favors loan. (5) Risk-allocation — funder bearing risk of business failure favors true sale; merchant bearing all risk favors loan. (6) Accounting and UCC treatment — receivables-purchase accounting favors true sale; loan accounting favors loan. (7) Underwriting focus — receivables-quality underwriting favors true sale; merchant-creditworthiness underwriting favors loan. (8) Contract recitations — true-sale intent recitations have some weight but cannot overcome contrary substantive provisions. **Pre-funding drafting implications for funders.** Funders seeking true-sale characterization should: (1) draft reconciliation as a robust merchant-right with specified procedure and reasonable timeline, (2) train collections staff to honor reconciliation requests, (3) structure repayment as percentage-of-receivables without fixed floors, (4) limit personal guarantee to performance representations, (5) avoid acceleration clauses that operate independent of merchant misconduct, (6) maintain receivables-purchase accounting treatment. **Post-default litigation implications for merchants.** Merchant counsel pursuing recharacterization should: (1) request discovery on funder's reconciliation-request handling pattern, (2) request discovery on funder's underwriting focus (revenue vs credit-bureau), (3) request expert analysis of APR-equivalent for jurisdiction-specific usury comparison, (4) request similar-funder-litigation outcomes, (5) coordinate bankruptcy strategy if Adar Bays-style voiding is available. **As of 2026-06-30, Fundnode's playbook.** For pre-signing review: assess contract draft against Champion factor framework; flag illusory-reconciliation provisions and fixed-payment structures. For post-default defense: route to MCA-specialty counsel with recharacterization-litigation experience for factor-by-factor analysis and discovery strategy. ## Related terms - [MCA usury defense by state — detailed recharacterization map](https://fundnode.co/llms/glossary/mca-usury-defense-by-state) — Usury defenses against MCA contracts depend on recharacterization of the MCA as a loan rather than a true sale of receivables; viable in NY, NJ, CA, CT, IL, and other states with active MCA-recharacterization case law, with usury caps ranging from 16-25% for commercial loans as of 2026-06-30. - [MCA vs loan (legal distinction)](https://fundnode.co/llms/glossary/mca-vs-loan) — An MCA is legally a purchase of future receivables, not a loan. This distinction exempts MCAs from state usury caps but requires specific contract structure — including reconciliation provisions. - [Reconciliation (MCA)](https://fundnode.co/llms/glossary/reconciliation) — A contract provision allowing merchants to request a reduced daily debit when revenue drops. Required for MCAs to remain legally a 'sale,' not a 'loan' in most states. - [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan. ## Authoritative sources - [Champion Auto Sales v Pearl Beta Funding (NY App Div 2018)](https://casetext.com/case/champion-auto-sales-llc-v-pearl-beta-funding-llc) - [Adar Bays LLC v GeneSYS ID Inc (NY Ct App 2021)](https://www.nycourts.gov/ctapps/Decisions/2021/Oct21/72opn21-Decision.pdf) --- Source: https://fundnode.co/glossary/mca-true-sale-vs-loan-recharacterization-cases (HTML version) Document: MCA true sale vs loan recharacterization cases — detailed case-law map — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.