MCA Laws in Kentucky: What Business Owners Need to Know
Kentucky does not have laws specifically regulating merchant cash advances. The Kentucky Department of Financial Institutions (DFI) oversees banks, credit unions, and licensed non-bank lenders, but because MCAs are structured as purchases of future receivables rather than loans, they fall outside the DFI's regulatory framework.
This guide explains what Kentucky business owners need to know about the current lack of MCA regulation and what steps you can take to protect your business.
Current MCA Regulations in Kentucky
Kentucky does not classify MCAs as loans, which means they are not subject to the state's lending laws, licensing requirements, or interest rate caps. MCA companies do not need to register with or obtain a license from the Kentucky Department of Financial Institutions to offer advances to Kentucky businesses.
There are no Kentucky statutes requiring MCA providers to disclose APR, total financing cost, or repayment terms in any standardized format. The MCA agreement you sign is the primary document governing the transaction, and its terms are largely dictated by the MCA company.
Kentucky Usury Limits
Kentucky Revised Statutes (KRS) Chapter 360 sets interest rate limits for various types of loans. The general legal rate of interest in Kentucky is 8% per year for amounts under a certain threshold, with higher rates allowed for licensed lenders. However, because MCAs are not classified as loans, these usury limits do not apply. There is no legal cap on the effective cost of an MCA in Kentucky.
Confession of Judgment Rules
Kentucky law addresses confessions of judgment under the Kentucky Rules of Civil Procedure. Kentucky courts have traditionally required that COJs meet procedural requirements to be valid, and the state provides some safeguards against their abuse.
Important considerations for Kentucky business owners:
- Kentucky courts require that a person confessing judgment do so knowingly and voluntarily
- If you signed an MCA agreement with a COJ clause and did not understand what it meant, you may have grounds to challenge a resulting judgment
- COJ judgments entered in other states (commonly New York) must be domesticated in Kentucky under the Uniform Enforcement of Foreign Judgments Act (KRS 426.950 et seq.) before they can be enforced against your Kentucky assets
- The domestication process allows you to raise defenses and objections to the original judgment
- Contact a Kentucky attorney immediately if an MCA company threatens to enforce a COJ against your business
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Kentucky Secretary of State to secure their interest in your future receivables. These filings are public records and can significantly impact your ability to obtain other financing.
What you need to know about UCC filings in Kentucky:
- You can search for UCC filings against your business through the Kentucky Secretary of State online portal
- UCC filings in Kentucky are effective for five years from the date of filing
- After paying off an MCA, the funder must file a UCC-3 termination statement within 20 days of receiving your written demand
- If the funder fails to file the termination, you may have remedies under Kentucky's version of UCC Article 9 (KRS Chapter 355, Article 9)
Multiple UCC filings from different MCA companies are a sign of MCA stacking and will make it very difficult to qualify for a traditional bank loan or SBA financing.
Consumer Protection Laws That Apply
Kentucky's consumer protection laws may provide some recourse for business owners dealing with deceptive MCA companies.
Kentucky Consumer Protection Act
The Kentucky Consumer Protection Act (KRS 367.110 et seq.) prohibits unfair, false, misleading, or deceptive acts or practices in trade or commerce. While this statute is primarily designed for consumer transactions, its language is broad enough that it may apply in situations where an MCA company engages in clear fraud or material misrepresentation.
If an MCA company lied about the cost, terms, or structure of your advance, you may be able to bring a claim under the Consumer Protection Act. The Kentucky Attorney General's office enforces this statute.
Department of Financial Institutions
While the Kentucky DFI does not directly regulate MCAs, you can still contact them to report concerns about a company claiming to be a lender. If an MCA arrangement is actually functioning as a loan (with fixed payments and no true reconciliation), the DFI may have jurisdiction. Visit the Kentucky DFI website for more information.
Recent Legislation and Court Cases
Kentucky has not enacted any MCA-specific legislation as of early 2026, and the state legislature has not introduced bills targeting MCA regulation.
- No pending MCA legislation. The Kentucky General Assembly has not introduced bills requiring MCA companies to obtain licenses or provide standardized disclosures.
- Court activity. Kentucky courts have not produced significant published opinions on the classification of MCAs as loans versus commercial transactions.
- Neighboring state trends. Virginia, which borders Kentucky, enacted commercial financing disclosure requirements in 2022, which could influence future Kentucky legislative action.
- Federal outlook. Federal MCA regulation has been proposed but not enacted. Any federal legislation would apply to Kentucky businesses.
What Kentucky Business Owners Should Do
Given the lack of MCA-specific protections in Kentucky, take these steps to protect your business:
- Figure out the true cost. Kentucky does not require MCA companies to disclose APR. Convert the factor rate into an annualized cost yourself or with the help of a financial advisor. A factor rate of 1.30 on a 4-month advance can translate to an APR above 90%.
- Reject COJ clauses. If your MCA agreement contains a confession of judgment provision, ask the company to remove it. If they will not, seek another provider or consult a Kentucky attorney before signing.
- Search for existing liens. Check the Kentucky Secretary of State website for any UCC filings against your business. Taking on a second or third MCA when you already have active liens creates serious financial risk.
- Get legal advice. Have a Kentucky business attorney review the MCA agreement before you sign. Pay attention to choice-of-law provisions, personal guarantee clauses, and default triggers.
- Consider cheaper alternatives. Contact the Kentucky Small Business Development Center for free counseling on SBA loans, bank lines of credit, and other financing that is likely much less expensive than an MCA.
Helpful Resources
- Kentucky Department of Financial Institutions for financial regulation and oversight
- Kentucky Attorney General for consumer protection complaints
- SBA Louisville District Office for alternative financing resources
- Kentucky Small Business Development Center for free business counseling
Frequently Asked Questions
Does Kentucky regulate merchant cash advances?
Are confessions of judgment enforceable in Kentucky?
Is there a cap on MCA costs in Kentucky?
Where can I report an MCA company in Kentucky?
Sources
- Kentucky Department of Financial Institutions. State regulatory agency for banking and financial services in Kentucky.
- Kentucky Legislature. KRS Chapter 360. Kentucky's interest and usury statutes.
- SBA Louisville District Office. Federal small business resources for Kentucky businesses.
- Kentucky Small Business Development Center. Free counseling and resources for Kentucky small businesses.