MCA Laws in Tennessee: What Business Owners Need to Know
Tennessee does not have laws that specifically regulate merchant cash advances. The state's Department of Financial Institutions oversees banks and licensed lenders, but MCAs are structured as purchases of future receivables rather than loans, which puts them outside the scope of Tennessee's lending regulations.
This guide covers how existing Tennessee laws apply to MCAs and what steps business owners should take to protect themselves.
Current MCA Regulations in Tennessee
Tennessee has not enacted any legislation targeting MCAs directly. The Tennessee Department of Financial Institutions licenses and regulates traditional lenders, but MCA companies are generally not required to hold a license in the state.
Because MCAs are classified as commercial transactions, they are not subject to Tennessee's usury statute, which caps interest rates on loans at specific thresholds depending on the type of loan. This classification allows MCA companies to charge factor rates that, when converted to an APR equivalent, can far exceed what would be allowed for a traditional loan.
No Disclosure Requirements
Tennessee does not require MCA companies to provide standardized cost disclosures. There is no state mandate for MCA providers to show you the APR, total cost of financing, or a breakdown of fees. This means you are largely on your own when it comes to understanding the true cost of an MCA.
Before signing any MCA agreement, make sure you ask for the total repayment amount, the factor rate, all fees, and the expected repayment timeline. Then calculate the APR equivalent yourself to compare with other financing options.
Confession of Judgment Rules
Tennessee law restricts confessions of judgment. Under Tennessee Code Section 25-2-101, a confession of judgment (also called a cognovit note) is generally not enforceable in Tennessee courts. This is a meaningful protection for Tennessee business owners.
If you sign an MCA agreement with a COJ clause and the MCA company obtains a judgment against you in another state (like New York), they would need to domesticate that judgment in Tennessee to enforce it. Tennessee courts would likely scrutinize the judgment and could decline to enforce it based on the state's policy against cognovit notes.
This does not mean you should ignore a COJ clause in an MCA contract. Even with Tennessee's protections, dealing with an out-of-state judgment can be expensive and stressful. Consult an attorney if you encounter a COJ clause.
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Tennessee Secretary of State to establish their interest in your future receivables. These filings are public records.
What you need to know about UCC filings in Tennessee:
- You can search for UCC filings against your business through the Tennessee Secretary of State website
- UCC filings in Tennessee are effective for five years from the date of filing
- After you pay off an MCA, the funder must file a UCC-3 termination statement within 20 business days of receiving your written demand
- If the funder fails to file a termination after receiving your demand, you may have a claim for damages under Tennessee's version of the Uniform Commercial Code
Multiple UCC filings from different MCA companies can hurt your ability to secure traditional financing. Check your filings regularly and make sure paid-off MCAs are properly released.
Consumer Protection Laws That Apply
Tennessee's Consumer Protection Act (Tennessee Code Section 47-18-104) prohibits unfair or deceptive acts or practices in trade or commerce. While this law is designed primarily for consumer transactions, certain provisions can apply to commercial dealings.
If an MCA company misrepresents the terms of an advance, hides fees, or uses high-pressure tactics to get you to sign, the Consumer Protection Act may provide a remedy. The Tennessee Attorney General's Division of Consumer Affairs handles complaints and can investigate deceptive practices.
Additionally, the Tennessee Department of Financial Institutions can provide guidance if you believe a financial company is operating improperly in the state.
Recent Legislation and Court Cases
- No pending MCA legislation. Tennessee has not introduced any bills to regulate MCAs or require commercial financing disclosures as of early 2026.
- Usury arguments. Tennessee courts have occasionally considered whether specific MCA agreements should be reclassified as loans. If an MCA has fixed daily payments with no true reconciliation based on actual receivables, a court could potentially find that it is a loan subject to Tennessee's usury limits.
- National enforcement. FTC enforcement actions against MCA companies for deceptive practices apply nationwide, including in Tennessee.
- Industry growth. MCA use continues to grow among Tennessee small businesses, particularly in industries like hospitality and retail, which increases the likelihood of future regulatory attention.
What Tennessee Business Owners Should Do
If you are considering an MCA in Tennessee or already have one, take these steps:
- Request a full cost breakdown. Ask the MCA company for the total repayment amount, factor rate, all fees, and an APR estimate. Calculate the true cost yourself and compare it with SBA loans, lines of credit, and other options.
- Check for confession of judgment clauses. Tennessee restricts COJs, but you should still review your contract carefully. If a COJ clause is present, discuss it with an attorney to understand the risks.
- Search your UCC filings. Visit the Tennessee Secretary of State website to check for active UCC liens on your business. Ensure that old liens from paid-off MCAs have been terminated.
- Verify reconciliation rights. A genuine MCA should adjust your payment amount if your revenue drops. If the contract requires fixed daily payments regardless of your sales, the agreement may actually be a loan, which could give you additional legal protections.
- Contact the SBDC for alternatives. The Tennessee Small Business Development Center offers free counseling and can help you explore less expensive financing options.
Helpful Resources
- Tennessee Department of Financial Institutions for banking and lending regulatory information
- Tennessee Attorney General, Division of Consumer Affairs for complaints about unfair business practices
- SBA Tennessee District Office for alternative financing resources
- Tennessee Small Business Development Center for free business counseling
Frequently Asked Questions
Are MCAs regulated in Tennessee?
Are confessions of judgment enforceable in Tennessee?
Does Tennessee require MCA companies to disclose financing costs?
Where can I get help with an MCA dispute in Tennessee?
Sources
- Tennessee Department of Financial Institutions. Regulatory oversight of financial institutions in Tennessee.
- Tennessee Secretary of State, UCC Filings. Search for UCC liens filed against your business.
- SBA Tennessee District Office. Federal small business resources for Tennessee businesses.
- Tennessee Small Business Development Center. Free counseling and resources for Tennessee small businesses.