LG Funding v. United Senior Properties of Olathe (2020): The Three-Factor MCA Loan Test

LG Funding, LLC v. United Senior Properties of Olathe, LLC is one of the most cited New York decisions on merchant cash advances. In it, the Appellate Division, Second Department, set out the three factors New York courts now routinely use to decide whether an MCA is a true purchase of receivables or a loan that can be subject to usury laws. The decision did not hold that the agreement was a loan. It held that the funder had not shown it was entitled to win without a trial, and that the merchant’s usury defenses could go forward.

Last updated: October 6, 2026 · Reviewed by: Credible Law Editorial Team under our editorial standards · Part of the MCA Case Law Library

Background

LG Funding entered into an agreement with United Senior Properties of Olathe, LLC, under which the funder advanced money in exchange for the right to collect a portion of the business’s future receivables through fixed weekly debits until it received $129,267.20. The agreement was supported by personal guaranties and a confession of judgment. LG Funding later sued to collect. The defendants argued that the agreement was really a criminally usurious loan, raised that argument as an affirmative defense, and also asserted it as a counterclaim.

LG Funding moved to dismiss the usury defenses and the counterclaim and asked for summary judgment on its complaint. The Supreme Court in Kings County denied the motion, and LG Funding appealed.

The Question

The appeal turned on whether the transaction was a loan. Under New York law, usury applies only to loans, and a transaction is not a loan unless the principal is repayable absolutely. The Appellate Division therefore had to decide whether LG Funding had shown, as a matter of law, that it bore real risk and was not guaranteed repayment.

The Three Factors

The court explained that, in deciding whether repayment is absolute, courts weigh:

Reconciliation at the funder’s discretion

The agreement allowed the funder, upon request, to “adjust the amount of any payment due under this Agreement at [its] sole discretion.” A reconciliation provision that leaves adjustment entirely to the funder does little to shift risk away from the funder’s guaranteed recovery.

Bankruptcy as a default

The agreement listed the merchant’s bankruptcy or insolvency as an event of default. On default, the full uncollected amount became due immediately, and the funder could enforce the personal guaranties and the confession of judgment. Those terms suggested the funder did not bear the risk that the business would fail.

The term

The agreement called for weekly debits until the full purchased amount was collected. The court considered the agreement’s terms as a whole in finding that factual questions remained about whether repayment was absolute.

What the Court Held

On the funder’s request for summary judgment, the court concluded:

The court also agreed that the usury defenses should not be dismissed. On the counterclaim, however, it reversed, explaining that although the defendants “may assert criminal usury as an affirmative defense,” they “may not assert criminal usury as the basis for a counterclaim.” The order was modified to dismiss the counterclaim and otherwise affirmed.

What the Court Did Not Decide

• It did not hold that the agreement was a loan. It held only that the funder had not proven, without a trial, that the agreement was not a loan.
• It did not hold that MCAs in general are usurious. The analysis depends on each agreement’s terms.
• It did not let the business sue for usury. For a corporate merchant, criminal usury functions as a shield against the funder’s claim, not a basis for an affirmative claim for damages.

How Later Courts Have Applied It

New York courts now regularly apply the LG Funding factors, and results vary with the contract. In NewCo Capital Group LLC v. SPE Trading, Inc. (App. Div. 4th Dept. June 26, 2026), the court cited LG Funding and held that an agreement was a revenue purchase and not a usurious loan where it “had two reconciliation provisions,” “did not have a finite term or payment schedule,” and the funder “did not have recourse” if the merchant declared bankruptcy. Read together, the two decisions show that a well-drafted agreement with genuine reconciliation can be enforced, while discretionary reconciliation and bankruptcy-default terms can open the door to a usury defense.

What This Means for Business Owners

• Read the reconciliation clause closely. Note whether adjustments are mandatory or left to the funder’s discretion, and whether the funder actually honored any request you made.
• Check the default provisions. Terms that make bankruptcy or insolvency a default, accelerate the balance, or trigger a guaranty or confession of judgment are relevant to the analysis.
• Keep records of reconciliation requests. Written requests and the funder’s responses can become important evidence.
• Usury is a defense, not a lawsuit. For a business entity, criminal usury is typically raised in response to a funder’s claim.
• If the agreement is found to be a criminally usurious loan, New York’s highest court has held such loans void from the start. See the summary of Adar Bays v. GeneSYS ID.

Credible Law’s article on New York MCA usury red flags covers related warning signs, and the MCA defense attorney guide explains how these defenses fit into a broader strategy.

Frequently Asked Questions

What is the LG Funding three-factor test?

In LG Funding, LLC v. United Senior Properties of Olathe, LLC (App. Div. 2d Dept. 2020), the court said that to decide whether an MCA funder is absolutely entitled to repayment, courts weigh whether there is a reconciliation provision, whether the agreement has a finite term, and whether the funder has recourse if the merchant declares bankruptcy.

Did LG Funding hold that merchant cash advances are loans?

No. The court held that the funder had not shown it was entitled to summary judgment because factual questions remained about whether the agreement was a criminally usurious loan. It did not decide that the agreement was a loan.

Can a business sue an MCA funder for criminal usury in New York?

Under LG Funding, a corporate defendant may assert criminal usury as an affirmative defense but may not use it as the basis for a counterclaim.

Why did the reconciliation clause matter in LG Funding?

The agreement let the funder adjust payments at its “sole discretion.” A reconciliation provision that leaves adjustment to the funder does not meaningfully shift risk to the funder, which supports the argument that repayment was effectively guaranteed.

Do courts still use the LG Funding factors?

Yes. New York appellate courts continue to apply them. In NewCo Capital Group LLC v. SPE Trading, Inc. (App. Div. 4th Dept. 2026), the court applied the factors and held the agreement was a purchase, not a loan, because it had genuine reconciliation provisions, no finite term, and no recourse in bankruptcy.

Sources: LG Funding, LLC v United Senior Props. of Olathe, LLC, 181 AD3d 664, 2020 NY Slip Op 01607 (2d Dept 2020); NewCo Capital Group LLC v SPE Trading, Inc., 2026 NY Slip Op 04057 (4th Dept 2026).

Credible Law is a legal resource and attorney referral network, not a law firm, and does not provide legal advice. This summary describes a published court decision for general information. It may not reflect later decisions or the law in your jurisdiction, and the outcome of any case depends on its specific facts and contract terms. Use of this site does not create an attorney-client relationship. Information reflects sources reviewed as of October 6, 2026.