Merchant Cash Advances
A merchant cash advance (or “MCA”), unlike a loan, is sold as a purchase of future receivables. A funder may demand daily or weekly withdrawals from the business owner’s bank account. Most merchant cash advances are governed by the laws of the State of New York, and provide for a New York court. This answer will most likely apply to a merchant owner that lives in Honolulu, Hilo, or Kahului. However, the answer will depend largely on the circumstances and stage of any dispute. Many Hawaii business owners will find the first lawyer they need is one admitted in New York, and will not need a Hawaii attorney until the funders start coming after a Hawaii merchant’s assets, or the business owner needs bankruptcy protection.
Commercial Financing Disclosure Law
Hawaii has no commercial financing disclosure law. A March 2026 survey found ten states that require providers to state the cost of business financing before signing: California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah and Virginia. Hawaii was not on the list. No comparable measure appears to have moved through the Hawaii Legislature’s 2026 session. Its business-finance bills that year dealt with matters like card processing fees and a micro-lending credit program. A Hawaii merchant therefore cannot use a missing state-mandated disclosure as leverage the way a merchant in Texas or California sometimes can.
Usury Argument
Hawaii’s usury law gives a business owner less help than many people expect. Under HRS § 478-4, the 12 percent cap (24 percent for financial institutions) covers consumer credit, credit card agreements and “home business loans.” A home business loan is credit of $250,000 or less secured by a mortgage on someone’s principal home. For other deals, the same section lets the parties agree in writing to any rate not otherwise banned by law. Criminal usury under HRS § 478-6 carries a fine of up to $250, up to a year in jail, or both. Even if a Hawaii court did recharacterize a typical MCA, Hawaii’s commercial rule would rarely make it usurious.
A Hawaii merchant’s usury argument works most often under New York law. In LG Funding v. United Senior Properties of Olathe (2020), a New York appeal court examined three factors: (1) Does the contract contain a genuine reconciliation provision, meaning that payments will be adjusted based on actual sales? (2) Does the contract have a fixed termination date? (3) Can the funder collect if the merchant files for bankruptcy? In Fleetwood Services v. Ram Capital Funding, a Manhattan federal court ruled in 2022 that an MCA was a loan at a 99.8% annual rate. Under New York law, a loan above the 25% criminal usury rate is entirely invalid. The U.S. Second Circuit Court of Appeals upheld the district court’s decision in 2023, as well as RICO damages awarded to the merchant.
Confession of Judgment
Confession-of-judgment clauses are less of a threat to a Hawaii merchant than ever. New York made changes to CPLR 3218 on Aug. 30, 2019, under Chapter 214 of the 2019 New York laws. A confession of judgment may be filed only in the New York county where the defendant was living when he signed the document or where the defendant is living when the confession is filed. A business entity is deemed to reside in any county in which it maintains a place of business. A retailer on Maui with no New York place of business can’t have a confession submitted to a New York clerk, at least for affidavits filed after that date. Hawaii statutes void confession-of-judgment clauses only in credit sale contracts (HRS § 476-15) and residential leases (HRS § 521-34).
Various Court Options
There are various court options for a Hawaii merchant in an MCA litigation. The funder will most likely sue in New York state court, per the forum provision in the agreement. A defense in that forum will require a New York-licensed attorney. If the funder decides to sue in Hawaii, then Hawaii law determines which court has jurisdiction (HRS § 604-5). Hawaii district courts have jurisdiction over civil cases up to $40,000, except that no jury will be present in the trial. District courts have exclusive jurisdiction over civil cases involving up to $10,000. If the value of the claims exceeds $40,000 or the demand for a jury is asserted, then jurisdiction belongs in circuit court. The case may also proceed in the United States District Court for the District of Hawaii. A Hawaii company may file a business bankruptcy case in the District of Hawaii Bankruptcy Court.
A Judgment Registered in Hawaii
A judgment from a New York court does not by itself allow a funder to lock up an account with a Hawaii bank. A funder must record it in Hawaii under the Uniform Enforcement of Foreign Judgments Act (HRS chapter 636C). A creditor files an exemplified copy of the judgment, a sworn affidavit that contains the names of the judgment debtor and judgment creditor and their last known addresses, and pays $100 to file. The clerk then gives notice of the filing to the merchant. The judgment has the same effect as a judgment issued by a Hawaii court, and a lien may be created and the judgment enforced in the same manner. A federal judgment requires a different procedure. 28 U.S.C. 1963 allows a federal judgment to be registered in the District of Hawaii when it becomes final.
Second, at the domestication stage, a local Hawaii lawyer gets his cut. Pursuant to chapter 636C, a judgment registered in Hawaii may be reopened, vacated or stayed in the same manner as a Hawaii judgment. A Hawaii attorney may assert these defenses in the court where the funder is attempting to enforce the judgment. That lawyer may assert the personal property exemptions of HRS chapter 651, including § 651-121. The personal property exemptions can be critical where an owner signed a personal guaranty and the funder now seeks to collect against home goods. A Hawaii lawyer, however, cannot appear in the New York proceeding that resulted in the judgment without being admitted there or appearing with co-counsel in New York.
The New York case deadlines are applicable if the merchant is a Hawaii business or a merchant in another state. Under LG Funding, the merchant must plead criminal usury as a defense. The court did not permit the merchant to plead a counterclaim. A late filing means that the Hawaii business may have a default judgment which has been registered in Hawaii under chapter 636C. Reviewing the reconciliation clause, the term, and the funder’s rights in bankruptcy also requires a lawyer who litigates these types of contracts in New York courts.
A Hawaii Lawyer Is Needed
A Hawaii business may want to call a lawyer in Honolulu if it has a stack of advances, and it is apparent that there is no way to meet them. Subchapter V bankruptcy for small businesses is currently limited to $3.424 million in debt. H.R. 7730 was passed by the Senate on September 28, 2026, and raised that debt limit to $7.5 million. It has not been signed by the President as of October 3, 2026. It would only apply to cases filed after it goes into effect. A Hawaii merchant that has not been sued, and does not have a judgment on file, may want to call a settlement negotiator. There is no disclosure law in Hawaii, and there is no limit to commercial usury in Hawaii.
A lawyer may seek to leverage New York law regarding recharacterization, and the delay and expense a funder would incur for having to file suit in New York, domesticating the judgment in Hawaii, and then filing on any Hawaii bank account. A lawyer who litigates in New York courts is needed after the merchant receives a summons. A Hawaii lawyer is needed after a judgment is filed in Hawaii, or if the merchant is facing bankruptcy.
