A merchant cash advance is pitched as the purchase of a business’s future receivables, instead of a loan. A merchant cash advance funder typically debits the merchant’s bank account on a daily or weekly basis to collect. The vast majority of merchant cash advance funders are headquartered in New York or the area surrounding New York. Their forms generally elect New York law and require lawsuits to be filed in New York. A business located in Birmingham, Huntsville, Montgomery or Mobile is, therefore, potentially subject to litigation in two different states. Which attorney the merchant will most likely need depends on which state the fight gets to. Alabama does not have a commercial financing disclosure law and does not license merchant cash advance funders. As of March 2026, ten states required some form of cost disclosure regarding commercial financing: California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah and Virginia. Two of Alabama’s neighboring states (Florida and Georgia) are on the list. An Alabama merchant is not entitled to a statement of what a commercial financing transaction truly costs. A merchant who later fights over such a transaction has no Alabama disclosure violation on which to hinge a lawsuit.
The Alabama usury law provides little protection to the merchant either. Section 8-8-1 of the Alabama Code, as amended, caps the annual rate on written contracts at eight percent. Section 8-8-12 then provides that a usurious lender may collect nothing more than the principal. Exceptions for a principal of $2,000 or more are provided by section 8-8-5. Thereafter, the parties may agree to any rate, and the borrower and any guarantor will have no usury defense. That just leaves unconscionability, and the version of the statute in the Mini-Code relates to consumer transactions.
The disguised-loan argument is far stronger under the New York law chosen by most contracts. Under New York Penal Law § 190.40, a loan with a rate greater than 25% per year is criminally usurious and the loan is void. A 2020 New York appellate decision, LG Funding v. United Senior Properties of Olathe, considered the three following factors: (1) whether the merchant can require the parties to reconcile payments with actual sales; (2) whether the agreement is for a fixed term; and (3) whether the funder can collect payment in the event the merchant declares bankruptcy.
In June 2023, the federal Second Circuit affirmed a determination that the advance in Fleetwood Services v. Richmond Capital Group constituted a usurious loan. In February 2026, the New York First Department determined that the advances made by Richmond Capital were loans subject to usury limitations. The New York clause may provide a usury defense for an Alabama merchant that it would not have under Alabama law.
There are limits on confessions of judgment in both states. Alabama Code section 8-9-11 voids any agreement to confess judgment in Alabama made before an action is brought. It also voids any agreement to be sued in a county other than the one specified in Alabama’s venue statutes. A judgment entered in violation must be set aside upon motion of the debtor within six months. Because the statute applies to Alabama courts, its applicability to a judgment entered in New York is unclear. New York amended CPLR 3218 on August 30, 2019. A confession must now state the New York county where the debtor resided or did business when it signed and be filed in that county. An Alabama business which does not have any location in New York cannot therefore have a later confession entered in New York. At least one New York court has viewed the amendment as applying only to confessions signed after August 30, 2019, so judgments entered on earlier confessions may still be enforceable.
A forum-selection clause typically determines the jurisdiction for an Alabama merchant’s action. In Professional Insurance Corp. v. Sutherland (1997), the Alabama Supreme Court disavowed its longstanding rule that an out-of-state forum-selection clause was void. The clause is now enforceable unless there is evidence that enforcement would be unreasonable or unfair, such as evidence of fraud, undue influence, overweening bargaining power, or a chosen forum that is so gravely difficult and inconvenient that it is essentially unreasonable. There’s no difference in a federal court. Under Atlantic Marine Construction v. U.S. District Court (2013), a valid clause should be given “controlling weight” in a forum-transfer analysis and the merchant’s choice of forum for litigation is given no weight. A merchant suing the funder in the U.S. District Court for the Northern, Middle or Southern District of Alabama may have the case transferred. If the forum-selection clause selected a New York state court, the suit may be dismissed.
A New York judgment cannot be collected on an Alabama bank account until the funder registers it in Alabama. Under Alabama’s adoption of the Uniform Enforcement of Foreign Judgments Act, section 6-9-232, the funder files an authenticated copy with the clerk of any Alabama circuit court. The funder also files an affidavit, and the clerk mails notice to the merchant. Section 6-9-233 provides that no process of collection may issue until 30 days after filing. The funder may then garnish the account: the funder files an affidavit, the bank must hold the funds, and the bank has 30 days to respond. The state garnishment form indicates that up to $7,500 of personal property, including bank accounts, may be exempt in some cases. Section 6-6-430 provides that the debtor may post a bond to release the garnished funds.
This 30 day window is the Alabama merchant’s best chance for some kind of retaliation on the local front. Once the New York judgment is registered it is the same as an Alabama circuit court judgment and can be reopened, vacated or stayed in the same way. Under section 6-9-234, a stay is required if there is a pending appeal in New York and security has been posted. In Nix v. Cassidy (2004) the Alabama Court of Civil Appeals has held that the correct procedure for challenging a registered foreign judgment is a Rule 60(b) motion. The court allowed a Rule 60(b) motion brought more than 4 years after judgment because it alleged the judgment was void. For our purposes a void judgment is one where the original court lacked jurisdiction or offended due process. Being wrong on the merits is not grounds to void a judgment. In Shumate v. Berry Contracting (2025) the Alabama Supreme Court dealt with the question of relief when an out of state judgment is reversed on appeal. This will be important if the judgment is first vacated in New York.
The Northern District of Alabama (Birmingham, Tuscaloosa, Anniston and Huntsville), Middle District of Alabama (Montgomery, Opelika, Dothan), Southern District of Alabama (Mobile). Alabama and North Carolina are the only two states that are not part of the U.S. Trustee Program. An Alabama business has the right to challenge an advance as a loan in a bankruptcy proceeding in the federal court in their home state.
For an Alabama entrepreneur the answer is “not for all cases” and often the most important lawyer will be in New York. If the funder has sued in the New York Supreme Court the litigation will be in New York and the important lawyer will be admitted to practice in New York. He can argue usury under LG Funding and descendants or complain that the confession of judgment is defective. An Alabama lawyer becomes important once the judgment has been docketed or the garnishment process has been served on the Alabama bank as the stays and Rule 60 (b) motions will be filed in the Alabama circuit court. Where daily debits are “out of control” and the business is strangling before a suit has been filed the correct lawyer to call might be one that can make a deal. Where a business has had a series of advances and has run out of cash flow the correct lawyer to call first might be an Alabama bankruptcy lawyer.
