On June 26, 2026, the New York Appellate Division, Fourth Department, issued an important decision in NewCo Capital Group LLC v. SPE Trading, Inc. that will be welcome news for merchant cash advance (MCA) companies doing business in New York.
The dispute arose after NewCo Capital advanced funds to SPE Trading under a revenue purchase agreement. Under that agreement, NewCo purchased 7% of the merchant’s future receivables in exchange for an upfront payment. The agreement included a weekly remittance amount that represented a good-faith estimate of the purchased percentage of future revenues. When the merchant’s bank account began returning payments for insufficient funds and no timely reconciliation request was made, NewCo declared a default and sued for breach of contract.
SPE argued that the transaction was not truly a purchase of future receivables, but instead was a disguised loan charging a criminally usurious interest rate. They also argued that the agreement was unconscionable and therefore unenforceable.
The appellate court rejected those arguments and affirmed judgment in favor of NewCo. The court’s reasoning focused on a fundamental principle of New York law as well as the law of most other states, namely that usury laws apply only to loans. If a transaction is a true purchase of future receivables rather than a loan, usury laws do not apply.
To determine whether the agreement was a loan or a receivables purchase, the court examined three factors that have become central in MCA litigation:
- Whether the agreement contains a meaningful reconciliation provision.
- Whether the agreement has a fixed repayment term.
- Whether the funder has recourse if the merchant files bankruptcy.
The court found that all three factors favored NewCo.
First, the agreement contained genuine reconciliation provisions allowing the merchant to request adjustments based on actual revenue. If revenues declined, remittances could be reduced accordingly. The court rejected the argument that these provisions were illusory.
Second, the agreement did not contain a fixed repayment period. Because remittances could increase or decrease based on actual revenue, the duration of the agreement was uncertain. This indicated that repayment was contingent rather than absolute.
Third, the agreement expressly provided that bankruptcy, business slowdowns or collection delays would not automatically constitute defaults. As a result, NewCo bore the risk that future receivables might never materialize. This risk is inconsistent with a traditional loan.
The court also rejected the defendants’ unconscionability defense, noting that they failed to present evidence showing they lacked a meaningful choice when entering the agreement or that the contract formation process was unfair.
The decision is significant because it reinforces a growing body of case law in many states throughout country holding that properly drafted MCA agreements are enforceable revenue purchase transactions rather than loans. For funders, brokers and participants in the equipment finance and commercial finance industries, the case underscores the importance of including real reconciliation rights, avoiding fixed repayment obligations and allocating the risk of business failure to the purchaser of receivables. When those features are present, New York and other state, courts continue to view these agreements as legitimate purchases of future revenue rather than usurious lending arrangements.
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