Is a merchant cash advance legal in Canada?

Merchant cash advances are not prohibited. We have not identified a licensing regime aimed at purely commercial advances to businesses in Ontario, British Columbia or Alberta, although provincial rules differ and high-cost credit licensing applies where a product is offered to consumers, and the advance is structured as a purchase of future receivables rather than a loan. What the law does regulate is the cost of credit: since January 1, 2025 the Criminal Code makes it an offence to agree to receive, or to receive, interest above 35% APR, with a commercial exemption that allows up to 48% APR on advances of more than $10,000 and up to $500,000 to a corporation. An advance that is in substance a loan can be tested against those thresholds.

What is the maximum interest rate on a business loan in Canada?

The criminal rate is 35% APR. Federal regulations exempt commercial credit to a borrower that is not a natural person where the amount is more than $10,000 and up to $500,000 and the APR does not exceed 48%, and exempt commercial credit of more than $500,000 entirely. There is no exemption for a sole proprietor or an individual borrower, or for advances of $10,000 or less.

Can a merchant cash advance company sue me personally?

If you signed a personal guarantee, yes. The guarantee is a separate promise by you as an individual, and a judgment on it is enforced against your personal property. In Ontario that means a writ of seizure and sale, which reaches a home. Guarantees are also read strictly against the funder that drafted them, and a material change to the deal made without your consent can release you.

What happens if I stop paying a merchant cash advance?

Most agreements treat a missed or bounced debit as a default. The funder can demand the full remaining amount, enforce any security it registered against the business, call on the personal guarantee, and sue. Whether it is entitled to everything it claims depends on the agreement: the true cost of the advance, whether the reconciliation clause was honoured, and whether the amount claimed includes charges that count as interest under the Criminal Code.

Is a confession of judgment enforceable in Canada?

A confession of judgment is a United States device that lets a funder enter judgment without a hearing. Since August 30, 2019 New York law does not allow one to be entered against a debtor who lived outside New York when it was signed. A funder that obtains a foreign judgment must still ask a Canadian court to recognise it, and the court will consider whether the foreign court had a real and substantial connection to the dispute and whether the defences of fraud, natural justice and public policy apply.

Can a lawyer make a merchant cash advance go away?

Usually not entirely, and any page that promises that should be treated with caution. If a court finds an advance is really a loan at a criminal rate, the Supreme Court of Canada has held that judges choose from a range of remedies and often read the rate down to the legal maximum rather than cancelling the debt. Depending on the agreement and the facts, the questions a review can put in issue include the amount actually owing, the charges above the legal rate, and whether the guarantee binds you. Outcomes depend on the specific terms and facts.

Guide

Merchant Cash Advances in Canada: Is Yours Legal, and Is It Enforceable?

Reviewed by Angelos Spingos, Principal Lawyer, Spingos Law · Licensed by the Law Society of Ontario · Last reviewed September 21, 2026

A merchant cash advance is sold as a purchase of your future sales, not a loan, and of twenty Canadian-facing funders we reviewed in September 2026, none published an annual rate for one. Since January 1, 2025 the Criminal Code caps interest at 35% APR, with a 48% APR ceiling for most business advances to a corporation. Converted to an annual rate, a short, high-factor advance can sit far above both. Here is how these agreements work, when the criminal-rate rules reach them, what a personal guarantee exposes, and what a lawyer actually looks for.

How a merchant cash advance works

The funder advances a lump sum. In exchange it takes a fixed, larger amount back, either as a set percentage of every card sale (a holdback) or as fixed daily or weekly debits from the business account. The price is a factor rate: a 1.35 factor on $100,000 means $135,000 is repaid. Published Canadian factor rates run from about 1.07 to 1.5, terms from three to twenty-four months, and daily debits are the norm. Of twenty Canadian-facing funders we reviewed in September 2026, none published an annual percentage rate, and every one that addressed the point said an advance is not a loan and so has no interest rate.

The agreement usually adds three more things. A personal guarantee by the owner. A general security agreement registered under the provincial personal property security legislation, giving the funder a claim on the business's assets. And, with some United States funders, a confession of judgment for a court outside Canada. A reconciliation clause, which is supposed to lower the debits when sales drop, is what separates a genuine purchase of receivables from a fixed-payment loan, and it is often the clause that matters most later.

Loan or sale? Why the label is not the end of the question

Canadian courts characterise a transaction by its substance, not its name. The questions are the ones that decide any true-sale analysis: who bears the risk that the receivables never arrive, whether repayment is fixed regardless of revenue, what recourse the funder has against the business and its owner, and whether the business can buy the receivables back. Fixed debits that continue whatever the sales, a guarantee that makes the funder whole if collections fail, and default triggers tied to the owner's conduct all push the risk back onto the merchant, which is what a lender bears, not a purchaser.

The Supreme Court of Canada has dealt with a credit package documented in part as receivables factoring. In Transport North American Express v. New Solutions Financial (2004), a $500,000 facility came with an accounts receivable factoring agreement the parties departed from from the outset, a promissory note, a general security agreement and personal guarantees, and the Court held that every payment other than repayment of principal counted as interest. The sale-or-loan question was not in issue there, and we have found no reported Canadian decision applying the substance test to a modern merchant cash advance, which is worth knowing before anyone tells you the answer is settled either way.

The criminal interest rate since January 1, 2025

Section 347 of the Criminal Code now makes it an offence to enter into an agreement to receive interest at a criminal rate, or to receive a payment of it, and since 2025 also to offer or advertise credit at one. The criminal rate is an annual percentage rate above 35%. Before 2025 the ceiling was a 60% effective annual rate, roughly 48% APR, so the cut is real but smaller than the headline suggests. The requirement for the Attorney General's consent to prosecute was separately repealed in July 2024.

Three features of the section matter for an advance:

"Interest" is almost everything but principal. Fees, commissions, penalties, default charges and any other charge paid for the advancing of credit all count; a short list of items (insurance charges, official fees, overdraft charges) is excluded. "Credit advanced" is the net amount you actually received, so a fee deducted at funding raises the rate twice.
The commercial exemption has edges. The Criminal Interest Rate Regulations (SOR/2024-114) take a commercial loan outside s. 347 only where the borrower is not a natural person, the purpose is business or commercial, and either the amount is more than $10,000 and up to $500,000 at an APR of no more than 48%, or the amount is more than $500,000. A sole proprietor, a partner or an individual borrower gets no exemption at all. Neither does an advance of $10,000 or less.
The period that counts is the real one. For receiving criminal interest, the rate is measured over the period the credit is actually repaid (Degelder Construction v. Dancorp, 1998). A reconciliation clause that is honoured lowers the realised rate. One that exists only on paper is evidence that repayment was fixed.

What a factor rate looks like as an annual rate

The figures below are internal-rate-of-return calculations on a $100,000 advance repaid in equal instalments, expressed on the monthly-compounded convention that Justice Canada uses for the 35% figure, and the rows are ordered by annual rate. They are illustrations, not a reading of anyone's agreement.

Factor rate	Term	Debits	Total repaid	Approximate APR	Against the thresholds
1.10	12 months	Weekly	$110,000	19%	Below 35%
1.14	12 months	Weekly	$114,000	27%	Below 35%
1.30	12 months	Weekly	$130,000	55%	Above 48%
1.25	9 months	Weekly	$125,000	62%	Above 48%
1.20	6 months	Weekly	$120,000	75%	Above 48%
1.35	8 months	Weekly	$135,000	95%	About double 48%
1.50	4 months	Business daily	$150,000	289%	Six times 48%

Two things follow. A long, low-factor advance can be lawful credit even if it is treated as a loan. A short, high-factor advance repaid daily converts to an annual rate well above both thresholds on any ordinary assumption. Which side of that line your agreement falls on depends on the net amount advanced, the debit schedule, every fee, and how the reconciliation clause worked in practice, which is why the calculation has to be done on your documents rather than read off a table.

What happens if a court finds a criminal rate

Not what most people hope. In Transport North American Express the Supreme Court held that an agreement at a criminal rate is not automatically void. Judges choose from a spectrum of remedies, from voiding an exploitive loan-sharking arrangement at one end to notional severance, reading the rate down to the legal maximum, at the other. Four factors guide the choice: whether severance would defeat the purpose of s. 347, whether the parties had an illegal purpose, their relative bargaining positions, and whether the borrower would receive an unjustified windfall, and the list is not closed. In 2257573 Ontario Inc. v. Furney (2022), private mortgages rather than an advance, the lender conceded the interest was at a criminal rate; the motion judge chose notional severance rather than voiding the loans, and Ontario's Court of Appeal held that remedial choice was discretionary and entitled to deference. The principal remained payable.

So the honest framing is a defence to the excess, not a cancelled debt: the amount above the legal rate, the default charges, and the fees that count as interest come off, and the negotiation changes accordingly. Where the funder has also breached the reconciliation clause or overstated the balance, the difference can be substantial. Where the advance was long and cheap, there may be nothing to sever.

The personal guarantee: where the business debt reaches your home

The guarantee is the clause that turns a corporate problem into a personal one, and CFIB reports that more than half of small-business owners who borrowed in the last three years had to give one. Two rules run in the owner's favour. Guarantees are strictly construed against the funder that drafted them, and a guarantor is released where the funder and the business materially change the deal without the guarantor's consent (Manulife Bank v. Conlin, 1996), unless the guarantee clearly says otherwise. A renewal, a second advance rolled into the first, or a changed debit schedule agreed without you can matter.

One rule runs the other way. Where a guarantee is payable on demand, the limitation clock starts when the funder makes a clear demand on you, not when the business first defaulted (Bank of Nova Scotia v. Williamson, 2009), so an old default rarely time-bars the claim on its own. And once a funder has a judgment on the guarantee, enforcement is against your personal property: in Ontario a writ of seizure and sale directs the sheriff to seize and sell real and personal property, and a registered writ is a lien on your home that surfaces at sale or refinance. If you own a home, that is the reason to have the agreement read before the funder moves, not after.

Confessions of judgment and United States funders

Several US-based funders advertise to Canadian merchants, and US commentary reports that some agreements include a New York confession of judgment, a document that lets the funder enter judgment without notice or a hearing. New York narrowed that rule in 2019: CPLR 3218 now permits a confession to be filed only with the clerk of the New York county where the defendant's affidavit said the defendant resided, which on the prevailing reading means a confession signed by a debtor outside New York cannot be entered there at all. A funder that does obtain a US judgment must then ask a Canadian court to recognise it. Under Beals v. Saldanha (2003) the court asks whether the foreign court had a real and substantial connection to the dispute and whether the defences of fraud, denial of natural justice or public policy apply; under Chevron Corp. v. Yaiguaje (2015) the Canadian court needs no connection of its own to hear the recognition action, so expect to defend it here. We have found no reported Canadian decision dealing with a merchant cash advance confession of judgment, so the arguments are available but untested.

Signs an agreement deserves a closer look

None of these makes an advance unenforceable by itself. Each is a reason to have the documents read.

Fees payable before the advance is funded. Ask why, and get the answer in writing.
The price quoted only as a factor rate or "cost of capital", never as an annual rate.
A reconciliation clause that is discretionary, conditioned on documents that are never accepted, or never honoured when sales dropped.
A second or third advance layered on the first.
A confession of judgment or a forum clause for a court outside Canada.
A personal guarantee plus a security agreement over everything the business owns, on an advance of a few months.

What to do, depending on where you are

Before you sign

Ask for the total repayment amount, the debit schedule and every fee in writing, convert them to an annual rate, and read the guarantee and the security agreement as carefully as the advance. Ask what happens to the debits if sales fall by half. If the answer is not in the agreement, assume the debits do not change.

You have one and it is being repaid

Have the agreement reviewed once, on the numbers, so you know where it sits against the 35% and 48% thresholds, what the guarantee reaches, and whether the reconciliation clause is worth invoking. That knowledge is leverage if the business slows.

Debits are bouncing or the funder is calling

Do not sign a second advance to pay the first, and do not sign anything the funder sends without advice. This is the point at which the enforceability questions above become the negotiation, and the difference between a funder that thinks it can collect everything and one that knows the charges are exposed is usually the difference between a survivable payment plan and a judgment.

You have been served

Deadlines apply. In Ontario a defendant generally has 20 days from service to file a defence, whether the claim is in Small Claims Court or the Superior Court, and a default judgment can follow if nothing is filed. The statement of claim guide explains the first steps.

Two limits on what this page offers. Spingos Law does not provide insolvency services; where a consumer proposal, a Division I proposal or a bankruptcy is the realistic path, the firm says so and refers you to a Licensed Insolvency Trustee. And the free consultation is offered to business owners and guarantors in Ontario; the federal rules described above apply across Canada, but the firm's practice is Ontario.

The free consultation, and what it is

A free consultation of about 30 minutes with a lawyer, with no obligation, for business owners and guarantors in Ontario. You describe the advance, the guarantee and where things stand, and you get a preliminary view of how the agreement is likely to be tested and what the guarantee exposes. It is a preliminary view based on what you provide, not a formal legal opinion, and no lawyer-client relationship exists until a written retainer is signed. Work after the consultation is charged; the basis of the fee is explained before you commit, and disbursements and taxes are extra. There is no referral arrangement behind this page. Outcomes depend on the specific agreement and the facts, and past results are not necessarily indicative of future results.

Have a merchant cash advance? Speak with a lawyer about the agreement, free.

A free 30-minute consultation for Ontario business owners and guarantors on how the agreement and the guarantee are likely to be tested. You do not need to have been sued.

Call 1-866-650-6375

Frequently asked questions

Is a merchant cash advance legal in Canada?: Merchant cash advances are not prohibited. We have not identified a licensing regime aimed at purely commercial advances to businesses in Ontario, British Columbia or Alberta, although provincial rules differ and high-cost credit licensing applies where a product is offered to consumers, and the advance is structured as a purchase of future receivables rather than a loan. What the law does regulate is the cost of credit: since January 1, 2025 the Criminal Code makes it an offence to agree to receive, or to receive, interest above 35% APR, with a commercial exemption that allows up to 48% APR on advances of more than $10,000 and up to $500,000 to a corporation. An advance that is in substance a loan can be tested against those thresholds.
What is the maximum interest rate on a business loan in Canada?: The criminal rate is 35% APR. Federal regulations exempt commercial credit to a borrower that is not a natural person where the amount is more than $10,000 and up to $500,000 and the APR does not exceed 48%, and exempt commercial credit of more than $500,000 entirely. There is no exemption for a sole proprietor or an individual borrower, or for advances of $10,000 or less.
Can a merchant cash advance company sue me personally?: If you signed a personal guarantee, yes. The guarantee is a separate promise by you as an individual, and a judgment on it is enforced against your personal property. In Ontario that means a writ of seizure and sale, which reaches a home. Guarantees are also read strictly against the funder that drafted them, and a material change to the deal made without your consent can release you.
What happens if I stop paying a merchant cash advance?: Most agreements treat a missed or bounced debit as a default. The funder can demand the full remaining amount, enforce any security it registered against the business, call on the personal guarantee, and sue. Whether it is entitled to everything it claims depends on the agreement: the true cost of the advance, whether the reconciliation clause was honoured, and whether the amount claimed includes charges that count as interest under the Criminal Code.
Is a confession of judgment enforceable in Canada?: A confession of judgment is a United States device that lets a funder enter judgment without a hearing. Since August 30, 2019 New York law does not allow one to be entered against a debtor who lived outside New York when it was signed. A funder that obtains a foreign judgment must still ask a Canadian court to recognise it, and the court will consider whether the foreign court had a real and substantial connection to the dispute and whether the defences of fraud, natural justice and public policy apply.
Can a lawyer make a merchant cash advance go away?: Usually not entirely, and any page that promises that should be treated with caution. If a court finds an advance is really a loan at a criminal rate, the Supreme Court of Canada has held that judges choose from a range of remedies and often read the rate down to the legal maximum rather than cancelling the debt. Depending on the agreement and the facts, the questions a review can put in issue include the amount actually owing, the charges above the legal rate, and whether the guarantee binds you. Outcomes depend on the specific terms and facts.

Sources

Criminal Code, R.S.C. 1985, c. C-46, s. 347 · Criminal Interest Rate Regulations, SOR/2024-114 · Department of Justice, Bill C-69 Division 33 (criminal rate of interest) · Transport North American Express Inc. v. New Solutions Financial Corp., 2004 SCC 7 · Degelder Construction Co. v. Dancorp Developments Ltd., [1998] 3 S.C.R. 90 · Garland v. Consumers' Gas Co., [1998] 3 S.C.R. 112 · 2257573 Ontario Inc. v. Furney, 2022 ONCA 505 · Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415 · Bank of Nova Scotia v. Williamson, 2009 ONCA 754 · Beals v. Saldanha, 2003 SCC 72 · New York CPLR 3218 · Ontario Rules of Civil Procedure forms (Form 60A, Writ of Seizure and Sale) · CFIB submission to the Competition Bureau, October 2025 (personal guarantees) · Canadian Lenders Association, lender certification · The Globe and Mail, small business borrowing guide (factor rates 1.13 to 1.28 and daily repayment) · Greenbox Capital Canada, merchant cash advances (factor rates 1.1 to 1.5) · Swoop Canada, merchant cash advance (factor rates 1.07 to 1.35) · Driven, small business financing (terms 3 to 18 months) · 2M7, merchant cash advance (no interest rate, cost of capital). The twenty-funder survey behind the APR statement is on file at the firm (September 2026). This guide is general information, not legal advice; the criminal-rate rules are federal, and the procedure described is Ontario's. Reviewed by Angelos Spingos, licensed by the Law Society of Ontario.