Merchant Cash Advance
A merchant cash advance is structured as a purchase of a business’s future receivables rather than a loan. The funder pays a lump sum and collects a larger fixed amount through daily or weekly debits from the merchant’s bank account. Most of these contracts choose New York law and New York courts, and most require the owner to sign a personal guaranty. When the debits outpace sales, the funder typically declares a default, sues, and tries to reach bank accounts. For an Ohio business owner, the honest answer to the question is that it depends on the stage of the dispute. Early on, the lawyer who matters most is often one admitted in New York, not one nearby.
Disclosure Law for Commercial (or Sales-based) Financing
Law for Disclosure of Commercial Financing in Ohio. As of September 2026, 11 states had passed a disclosure law for commercial (or sales-based) financing: California, Connecticut, Florida, Georgia, Kansas, Louisiana, Missouri, New York, Texas, Utah and Virginia. Ohio is not one of those states and there is no pending bill for such a law at the time of this writing. The New York Commercial Finance Disclosure Law has not filled the gap. The New York State Department of Financial Services drafted regulations to implement the New York Commercial Finance Disclosure Law (23 NYCRR Part 600) and limited the applicability of the regulation to those who received the commercial financing for use in their business “principally directed or managed” in New York. An Ohio business who conducts business from an Ohio based company generally has no legal requirement in Ohio to require a disclosure of costs when entering into a commercial financing agreement and has no claim for the lack of such a disclosure.
Usury as a Defense
Ohio usury laws provide little protection for a business. Ohio Revised Code Section 1343.01 caps interest on written instruments at 8% per year. That law also allows parties to agree to a higher rate if the principal exceeds $100,000 or if the loan is made to a business borrower such as a company, partnership or sole proprietor. Another statute, Section 1701.68, prohibits corporations from asserting usury as a defense at all. There is no known Ohio appellate decision treating a merchant cash advance as a disguised loan. The best-known recent Ohio appeal of a merchant cash advance funder was S T Bank v. Advance Merchant Services, 2024, which arose from a bank’s check-kiting losses. In that appeal, the court reinstated fraud and conspiracy claims against most of the funders, without ruling on usury.
Since the contracts are governed by New York law, the characterization of the advance as a loan is usually determined by New York law. In LG Funding v. United Senior Properties of Olathe (2020) the New York appellate court noted three questions.
- Is the contract capable of being adjusted for actual sales?
- Is there a fixed term?
- Can the funder collect despite the merchant’s bankruptcy?
A reconciliation clause subject to the funder’s “sole discretion” was enough to preserve the usury defense. In Adar Bays v. GeneSYS ID (2021), New York’s highest court held that corporations may assert criminal usury, defined as interest exceeding 25%. Any loan exceeding that rate is void ab initio. New York law treats usury as a defense, not a counterclaim, so these arguments have to be carefully presented in a New York case.
Cognovit Judgment
The issue of confessions of judgment (or “cognovit” judgments in Ohio) is a separate issue. Until August 30, 2019, funder companies routinely executed signed confessions of judgment in various counties in New York against businesses who were not doing business in New York. New York amended its CPLR 3218. The confession can only be filed in the county of the defendant’s residence when signed and not in New York against an Ohio merchant. If a New York confessed judgment is filed against an Ohio company after August 30, 2019, it may be subject to challenge. However, the amendment only eliminated New York courts; you can still get a cognovit judgment in Ohio for business debts.
Under Ohio’s cognovit statute (Section 2323.13), the confession must be filed in the municipal court having jurisdiction over the amount for the division in which the signer resides or the confession is signed, if that division can hear the amount in controversy. If not, it must be filed in a court in that county, which cannot be changed by agreement. Also, the declaration must prominently inform the person signing near his or her signature or the warrant of attorney will not be valid. Cognovit provisions in consumer transactions are void, but a business contract with a merchant is generally not covered by that prohibition. After it enters judgment, the court must notify the defendant. This is often the first notice the merchant has of the lawsuit, and a motion to vacate the judgment requires an attorney licensed to practice in the local Ohio court.
The New York Forum Clause
Ohio courts tend to enforce the New York forum clause. In Kennecorp Mortgage Brokers v. Country Club Convalescent Hospital (1993), the Ohio Supreme Court held that a forum clause in a commercial agreement between businesses will be enforced unless the merchant can demonstrate fraud or overreaching on the part of the funder, or that the enforcement of the forum clause would be “clearly unreasonable and unjust.” It also held that it did not matter if the business had no contacts with the state chosen. Therefore, if an Ohio merchant brings suit against the funder in Ohio, it may have to enforce the contract and sue the funder in New York. A merchant sued in New York is unlikely to have the case thrown out just because the business is in Ohio.
(6) A case involving an Ohio merchant could be filed in any of three courts.
- In a New York state court: due to the forum selection clause.
- In an Ohio state court: either a municipal court (judgment by cognovit) or a county court of common pleas (if the funder has sued in Ohio, or the funder files the New York judgment).
- In a federal court. The Northern District of Ohio has chambers in Cleveland, Akron, Toledo and Youngstown. It also has a bankruptcy court with chambers in Akron, Canton, Cleveland, Toledo and Youngstown, and jurisdiction over the state’s 40 northernmost counties. The Southern District of Ohio has chambers in Cincinnati, Columbus and Dayton. It also has its own bankruptcy court. Appeals from both the Northern and Southern Districts are to the Sixth Circuit.
Uniform Enforcement of Foreign Judgments Act
In order to attach funds held in bank accounts in Ohio, the Judgment Creditor invokes Ohio’s Uniform Enforcement of Foreign Judgments Act. Under the statute, Section 2329.022, the Creditor presents an authenticated copy of the New York judgment to the clerk of court of any common pleas court of Ohio. The filed judgment has the same effect and is subject to the same procedures, defenses and proceedings for reopening, vacating or stay as a judgment of the court of Ohio in which it is filed, and may be enforced or satisfied in like manner. Under Section 2329.023, the Creditor must also file an affidavit stating the address of both parties, the clerk will send a notice of filing, and no enforcement action will occur until 30 days after the filing.
Under Section 2329.024, the Court will stay enforcement if a New York appeal or stay is pending and a stay bond has been posted. Enforcement may also be stayed for any reason that would stop an Ohio judgment. After 30 days, the Creditor may invoke Ohio Revised Code Section 2716.11 to attach funds held by third-parties such as banks.
Ohio’s Exemptions
A personal guarantor may use Ohio’s exemptions under Section 2329.66. The homestead exemption is for up to $182,625 of the value of a dwelling from April 1, 2025, through March 31, 2028. Tools of trade exemption is up to $3,200. The wildcard exemption is up to $1,675 of any property. The state has opted-out of the federal bankruptcy exemptions, so the Ohio exemptions apply if the owner files personal bankruptcy in the federal bankruptcy court where the owner resides. These exemptions and timing of any transfers safely must be individually advised under Ohio law.
The Key Lawyer
Who to hire depends on where the case stands. If the funder has sued in New York or won a default there, the key lawyer must be admitted in New York, because that is where vacatur motions and usury defenses are decided. If a cognovit judgment was entered in an Ohio municipal court, or a New York judgment was filed with an Ohio clerk, an Ohio lawyer matters most, and the 30-day enforcement window sets the pace. If no suit has been filed yet, a settlement negotiator may be able to restructure the debits, but a negotiator who is not a lawyer cannot appear in court. If several stacked advances are draining the account, bankruptcy counsel in the Northern or Southern District is often the better first call, because a bankruptcy filing halts collection in every court at once.
