Why state usury caps almost never protect a business borrower

Most states have a usury statute. Almost none of them constrain what a business pays for working capital. The reasons are structural, they repeat from state to state, and once you see the pattern you stop expecting a rate cap to save you.

Exemption one: the size of the deal

New York State's General Obligations Law § 5-501 sets a general rate ceiling and then disapplies it. Loans of $250,000 or more are outside the civil usury limit, except where secured primarily by a one- or two-family residence. Loans of $2.5 million or more are outside it entirely.

Florida runs the same architecture at a different number. Under Fla. Stat. § 687.03 the general ceiling is 18% per annum simple interest, and for loans exceeding $500,000 that cap does not apply — a different section governs instead. The statute is careful to catch loans that exceed $500,000 at any point during the term, even if the balance later falls.

So the moment a facility gets big enough to matter, the cap stops applying.

Exemption two: the borrower is a company

New York's General Obligations Law § 5-521 says it about as directly as a statute can: no corporation shall interpose the defense of usury in any action. Incorporating removes the defence.

There is a carve-out. Subdivision 3 preserves a corporation's ability to raise a defence of criminal usury as described in Penal Law § 190.40, which makes it a class E felony to knowingly charge, take or receive interest on a loan at a rate exceeding 25% per annum or the equivalent for a longer or shorter period, without authorisation by law. That is the floor a New York corporate borrower is left with — a criminal threshold, not a commercial one.

Exemption three: it is not a loan

Usury law applies to loans. A sale of future receivables, on its face, is not one.

Louisiana settled this by statute. R.S. 9:3137.10, added by Act 198 of 2025, defines a revenue-based financing transaction, states that it is not a transaction for the use, forbearance or detention of money, and provides that amounts charged — whether in the nature of a fee, a discount or otherwise — are not interest.

Elsewhere the question has been argued case by case, and the answer typically depends on whether repayment is genuinely contingent on the business's revenue or is fixed in substance. That is a fact-specific inquiry and an article cannot tell you how it comes out for your contract.

Exemption four: the lender is licensed

Several states exempt licensed lenders from general usury ceilings, on the theory that licensing supervision substitutes for a rate cap. Texas made the same policy choice explicitly in its sales-based financing law: HB 700 prohibits the Finance Commission from setting a maximum annual percentage rate, finance charge or fee for the products it covers.

What that leaves

A business borrower in most states faces this reality: the general usury cap is out of reach because the deal is too large, or the borrower is a company, or the product is not structured as a loan, or the funder is licensed, or some combination. What remains is a criminal usury threshold in some states, which is a very high bar and a matter for prosecutors and courts rather than a shopping tool.

Which is why the disclosure laws exist. Eleven states as of 2026 have decided the answer is not to cap the price but to make it visible before you sign. That shifts the work onto you.

The arithmetic to do instead of hoping for a cap

Take every offer and reduce it to two numbers.

1. Cost per dollar received. Total repayment minus the amount actually disbursed to your account, divided by that disbursed amount. Use disbursed, not the face amount — fees withheld at funding are money you repay and never held.
2. Time. How many months until the total repayment is made, on a realistic revenue assumption rather than the funder's.

Only with both can you compare anything. A factor rate has no time dimension at all, so it cannot be compared against an APR without converting it, and converting it requires the term. Illustrative only — a 1.35 factor on $50,000 is $17,500 of cost; repaid over five months that is an entirely different annualised burden from the same $17,500 over eighteen, even though the factor rate printed on both term sheets is identical.

Choice of law does not settle it either

Every one of these agreements names a governing state, and the named state is frequently one whose law is most favourable to the funder. That choice is usually respected between sophisticated commercial parties, and it is not absolute.

Courts asked to apply a chosen law have generally looked at whether the chosen state has a substantial relationship to the parties or the transaction, and whether applying it would contravene a fundamental public policy of a state with a materially greater interest in the question. Usury is one of the areas where that second limb gets argued, because some states treat their rate ceilings as exactly that kind of policy. How it comes out depends on the states involved, the facts and the forum, and no article can tell you the answer for your contract.

What follows practically is narrow but useful. A governing law clause is not a guarantee that the named state's law will apply to every issue, and it is also not something to rely on in your favour. Read it, note which state it names, and treat it as one more fact to hand a lawyer if a dispute ever starts — not as a reason to assume either that you are protected or that you are not.

Before you rely on any of this

Usury statutes are amended, thresholds move, and the treatment of receivables purchases is being litigated and legislated in parallel. Read the current text of the statute in your own state, and if the question is whether a particular contract is enforceable, that is a question for a lawyer looking at the document — not one this article answers or should.

This is general information and not legal advice for your situation.