Merchant Cash Advance isn’t a loan, they explain. It’s a purchase of future receivables. So all those goddang interest rate caps don’t apply. The contract with a business in Minnesota will almost certainly say that the law of New York applies, and that the dispute is to be settled in the courts of New York. The issue isn’t whether you should hire a lawyer. The issue is what lawyer, admitted where, and when. If you are a Minnesota business, there is a pretty good chance you should hire a New York admitted lawyer before you should hire a Minnesota admitted lawyer. A Minnesota local lawyer is very helpful if you have a judgment in this state or if a funder has sued you in Minnesota. A local lawyer is helpful if you are thinking about filing bankruptcy.
Minnesota has not enacted a commercial financing disclosure law. By September 2026, about eleven states had disclosure laws in force that reach merchant cash advances, including New York, California, Virginia, Florida, Texas and Missouri. Minnesota is not among them. No Minnesota statute requires a funder to show a business owner the total repayment, the finance charge or an estimated annual rate before signing. Minnesota did cap rates at a 50 percent all-in annual percentage rate in 2023. That cap covers consumer small loans and short-term loans, not business financing, so it does not protect a merchant taking an advance.
Minnesota’s usury rules are more useful, but only if a court first decides the advance is really a loan. Minnesota Statutes section 334.01 caps interest at 8 percent a year as the general rule. However, a written credit contract of $100,000 or more signed by the debtor has no rate limit at all. Business-purpose loans under $100,000 fall under section 334.011, which caps the rate at 4.5 points above the Federal Reserve discount rate. A lender that charges more under that section forfeits all interest, and a borrower who already paid can sue to recover twice the interest paid. The $100,000 line therefore matters a great deal: a recharacterized $150,000 advance may face no Minnesota cap, while a $60,000 advance could.
I was unable to find a published appellate court decision in Minnesota that held that a merchant cash advance is, or is not, a disguised loan. I was also unable to find a reported case in the federal court in Minnesota. Minnesota merchants are pushing the issue to the trial court level in their state.
In December 2024, MyPillow sued Cobalt Funding Solutions in Carver County District Court regarding a $1.6 million reported advance. The agreement called for 50 daily payments of a bit over $45,000, or almost $2.3 million, plus a $125,000 origination fee, and MyPillow calculated an effective rate of 409%. In January 2025, it filed a third Carver County case, against Merchant Capital. MyPillow alleged that the $2 million July 2024 deal was structured to evade the usury laws of both New York and Minnesota.
The vast majority of the contracts are governed by New York law, and so it’s likely that you’ll still end up with New York usury even if you’re a Minnesota merchant. Under New York General Obligations Law section 5-521, a corporation is prohibited from raising common law civil usury as a defense. But a corporation can raise criminal usury, which requires a rate of more than 25% annualized. In Adar Bays v. GeneSYS ID (2021), the Court of Appeals held that a criminally usurious loan is void ab initio, meaning that no principal or interest can be collected. Whether or not a merchant cash advance is a loan, however, depends on three factors: whether it actually has a reconciliation provision, whether it actually has a fixed term, and whether or not the creditor retains recourse if the merchant goes bankrupt.
Confession-of-judgment clause for a Minnesota merchant . Because New York’s CPLR 3218 was amended on August 30, 2019, a confession of judgment clause in a merchant cash advance contract has different implications for a Minnesota merchant than it did prior to that date. The amendment provides that a confession of judgment may be filed only in the New York county where the defendant lived, which means that a funder can usually not file a New York confessed judgment against a Minnesota business. The New York Appellate Division has ruled that the amendment is applicable only to judgments entered without the filing of a lawsuit, so a funder can still file suit against a Minnesota merchant in New York based on the contract. Minnesota has its own confession-of-judgment law, section 548.22, which provides that a judgment may be entered in a Minnesota district court based on a verified statement signed by the debtor and that execution may issue on the judgment immediately.
A case against a Minnesota merchant is likely to be filed in one of three courts. One: most likely it will be filed in New York State Supreme Court, as the contract calls for. The New York defendant will have 20 days (if personally delivered in New York State) or 30 days (if otherwise served) to appear. Two: it may be filed in a Minnesota district court, in which a defendant will have 21 days to answer. That will be the case if a funder files in Minnesota, or if a merchant files first, as MyPillow has. Three: it could be filed in the United States District Court for the District of Minnesota, with four district locations in Minneapolis, St. Paul, Duluth, and Fergus Falls, with appeals heard in the Eighth Circuit.
A judgment of a New York court is not enforceable in a Minnesota bank account automatically. Section 548.27 of the Minnesota Statutes requires the funder to file a certified copy of the judgment in one of the district courts in Minnesota. That court will give the judgment the same force and effect and give the same remedies as if it was rendered by a Minnesota court. The judgment is subject to the same defenses and the same rights and methods of vacating or setting aside a judgment. Section 548.28 requires the funder to file an affidavit that gives the addresses of both parties. The court administrator then mails notice to the merchant. There can be no execution or garnishment issued for 20 days after filing. Under 28 U.S.C. section 1963, a federal court judgment goes through a similar process. A final judgment for money may be registered in any federal district. It has the same effect as a judgment of the federal district court.
Proportions of Business account and guarantor guarantee Minnesota’s law protects a business bank account in a manner different from a personal account of an owner who signed a personal guaranty. Minnesota’s garnishment statute requires an exemption notice only if the debtor is an individual. A corporation or LLC can have its bank account garnished without the exemption notice that an individual guarantees receives. An individual whose bank account is garnished is sent the notice and has an opportunity to return the exemption notice while the funds are frozen. A guarantor’s home is protected by Minnesota’s homestead exemption under section 510.02 to $510,000 for a homestead that is not primarily for agricultural use and $1,275,000 for a homestead used primarily for agricultural purposes. A court’s territorial jurisdiction also varies, so you should know the status of the action or suit. If the funder has sued in New York, the lawyer to call is a New York admitted lawyer, who can meet the 20-day or 30-day deadline and argue the usury and recharacterization issues in New York. A Minnesota lawyer is important during the 20-day window after a judgment is filed with a Minnesota court, when the funder sues in a Minnesota district court, when it garnishes bank accounts, when it goes after the guarantor’s home or other personal assets. If no suit has been filed, a settlement negotiator may be able to resolve the account for less than a lawsuit. If several advances have been stacked and the business cannot pay them all, a bankruptcy attorney may be the lawyer who can help first. This would be filed in U.S. Bankruptcy Court for the District of Minnesota, which covers the entire state from its locations in St. Paul, Minneapolis, Duluth and Fergus Falls.
