Ny Usury Law Commercial Loans Explained

In New York, usury laws regulate the interest rates that lenders can charge on commercial loans. The maximum interest rate for commercial loans in New York is 16% per annum.

Commercial loans in New York can have varying interest rates depending on the loan type and lender. Some commercial loans may have fixed interest rates, while others may have variable interest rates tied to market conditions.

To qualify for a commercial loan in New York, borrowers typically need to demonstrate a good credit history and a solid business plan. Commercial lenders in New York often require financial statements, tax returns, and other documentation to assess the borrower's creditworthiness.

The New York Department of Financial Services regulates commercial lenders in the state, ensuring they comply with usury laws and other consumer protection regulations.

In New York, the courts consider the true nature of a financial agreement, not just the terminology used, when determining if it's a loan or a purchase of receivables.

The Appellate Division of the Supreme Court of New York has ruled that a transaction can be considered a criminally usurious loan even if it's structured as the purchase of future receivables, as seen in LG Funding, LLC v. United Senior Properties of Olathe, LLC.

To determine if a transaction is usurious, the agreement must be analyzed in its entirety to discern its real character. The essence of usury requires the existence of a loan with absolute repayment obligations.

A reconciliation provision in the agreement and the risk assumed by the buyer in potential non-payment scenarios are critical in assessing if the agreement constitutes a loan. The court in LG Funding, LLC v. United Senior Properties of Olathe, LLC emphasized this point.

A motion to dismiss based on documentary evidence can only be granted if the evidence conclusively establishes a legal defense that refutes the plaintiff's claims as a matter of law. This means that the court will carefully review the evidence before making a decision.

Here are the key factors to consider when evaluating a commercial loan agreement:

These factors can help determine if a transaction is usurious and if the agreement constitutes a loan or a purchase of receivables.

Merchant cash advances often carry high APRs due to the lack of regulatory oversight, allowing providers to set high interest rates.

The risk associated with lending to ventures that have higher default probabilities also contributes to these elevated rates. This means businesses may end up paying a lot more than the initial amount borrowed.

High APRs can escalate quickly, especially as repayments accelerate with increased sales, impacting the overall cost of the advance.

Here are some key facts about high APRs and interest rates:

High APRs can be a major concern for businesses, especially those with poor credit or in risky industries. This is because MCAs often carry high APRs due to the lack of regulatory oversight.

The risk associated with lending to ventures that have higher default probabilities also contributes to these elevated rates. This means lenders charge more to compensate for the increased risk.

The speed of your sales can significantly influence your repayment amount, potentially increasing the APR further. If your business is booming, you'll need to pay back the advance faster, which can lead to higher APRs.

In fact, the fees associated with MCAs can be relatively higher compared to other financing options like business lines of credit or venture debt. This is another reason why APRs for MCAs can be so high.

Here are some factors that contribute to high APRs in MCAs:

In New York, there's a strong public policy against usury, which means lenders can't charge interest rates that are too high. The state has a criminal usury rate limit of 25% for loans under $2.5 million.

If a lender tries to get around this policy by including a choice-of-law provision in the loan agreement, the court will reject it. This means that even if the loan agreement says a different state's laws apply, New York courts will still enforce the state's usury laws.

Usurious loans are void under New York law, which means they're not enforceable. This is true even if the loan agreement contains a "usury savings clause" that's supposed to make the loan valid.

Here's a quick rundown of New York's usury laws: