In commercial litigation, the boundary line between a legitimate Revenue Purchase Agreement (RPA)—often referred to as a Merchant Cash Advance (MCA)—and an illegal, criminally usurious loan remains a fiercely contested battleground.
On June 26, 2026, the New York State Supreme Court, Appellate Division, Fourth Department issued a ruling in NewCo Capital Group LLC v. SPE Trading, Inc. (2026 NY Slip Op 04057). The court unanimously affirmed summary judgment in favor of the funder, offering critical takeaways for litigation strategies surrounding alternative business finance contracts.
Key Legal Findings
1. Revenue Purchase vs. Usurious Loan
Defendants commonly argue that merchant cash advance transactions are unenforceable because they exceed New York's criminal usury cap. Under New York law, usury prohibitions apply strictly to loans, not purchases of future receivables.
To determine whether repayment is absolute (a loan) or contingent (a true purchase), New York courts evaluate three core factors:
- Presence of a Reconciliation Provision: Allows the merchant to adjust daily/weekly remittances to match actual fluctuations in revenue.
- Indefinite Term: The duration of the arrangement depends on the pace of the merchant's business generation rather than a fixed calendar deadline.
- Recourse in Bankruptcy: Whether a merchant declaring bankruptcy triggers a default or automatic personal guarantee liability.
In NewCo Capital Group, the Fourth Department affirmed that the contract contained valid, non-illusory reconciliation terms requiring the funder to adjust weekly remittances based on proven merchant receipts. Consequently, the transaction was deemed a legitimate revenue purchase rather than a usurious loan.
2. Failure of the Unconscionability Defense
The defendants also argued that the agreement was unconscionable. Under New York law, unconscionability generally requires showing both procedural elements (unfairness during contract formation, such as a lack of meaningful choice) and substantive elements (overly harsh terms).
The court rejected the defense for a procedural deficit: the defendants failed to provide evidence or plead in their answer that they lacked a meaningful choice when entering into the agreement.
3. Evidentiary Standards for Summary Judgment
The decision also confirmed that an affidavit from a company manager confirming personal familiarity with record-keeping practices and procedures satisfies the CPLR 4518(a) business records exception, providing sufficient documentary foundation to establish default and damages.
Businesses should not be deterred by this particular decision as it points to the fact that MCA litigation matters are reviewed by the court on a case-by-case basis. In our experience defending these matters, the facts and scenarios vary from case to case and lender to lender. Unlike this matter, we have found that few MCA lenders are able to meet all of the three prongs discussed above.