Is a Merchant Cash Advance Legal in Canada? What the Law Says in 2026

Yes. Merchant cash advances are legal in Canada and are offered by both established lenders and specialist funders across the country. What catches business owners out is that an MCA is not regulated the way a consumer loan is, so the protections you might assume are there, and the ones that actually apply, are not the same thing. This guide sets out the legal position in plain language, including what changed on 1 January 2025, and what to check before you sign.

This article is general information, not legal advice. If you have a specific contract in front of you, a commercial lawyer can review it in under an hour and that is money well spent.

Quick answer

A merchant cash advance is a legal commercial financing product in every Canadian province. It is structured as the purchase of a share of your future sales rather than a loan, which is why it carries a factor rate instead of an interest rate and is not covered by provincial consumer lending rules. Federal criminal interest rate rules in the Criminal Code apply to credit broadly; since 1 January 2025 the threshold is 35% APR, with commercial loans between $10,000 and $500,000 permitted up to 48% APR and loans above $500,000 outside the cap entirely. Whether a given MCA counts as a loan for those purposes depends on how the agreement is written and how it behaves in practice.

Why an MCA is not a loan, and why that matters

In a loan, you borrow a fixed sum and owe it back with interest on a fixed schedule, regardless of how your business performs. In a merchant cash advance, a funder buys a fixed dollar amount of your future receivables at a discount. You receive the purchase price now and remit a percentage of sales until the purchased amount is delivered. If sales fall, remittances fall and the term stretches. If the business genuinely fails, a properly written MCA does not become a personal debt in the way a defaulted loan does.

That structure is the reason three things are true at once:

• MCAs sit outside provincial consumer protection acts, which govern loans to individuals, because they are commercial agreements between businesses.
• They are priced with a factor rate rather than an interest rate, because there is no principal accruing interest over time. Our guide to MCA costs and factor rates explains the pricing.
• They are not licensed products in the way mortgages or payday loans are. No province currently requires an MCA-specific licence.

The federal criminal interest rate, and the 2025 change

Section 347 of the Criminal Code makes it an offence to enter into an agreement to receive interest at a criminal rate. For decades that threshold was an effective annual rate of 60%. Following amendments in Bill C-47 and the Criminal Interest Rate Regulations published in June 2024, the rules changed on 1 January 2025:

Type of credit	Cap from 1 January 2025
General threshold	35% APR
Commercial loans from $10,000 to $500,000	48% APR
Commercial loans above $500,000	No criminal rate cap
Commercial loans under $10,000	35% APR
Payday loans (in provinces with a payday regime)	$14 per $100 borrowed

“Interest” in the Criminal Code is defined widely and includes fees and charges, not just the headline rate, and APR is the measure now used. The open question for MCAs is whether a particular agreement is “credit advanced” at all. The industry position is that a true purchase of receivables is not a loan. Canadian courts have historically looked at substance over form: if an agreement is a loan in all but name, with fixed repayments and full recourse regardless of sales, a court can treat it as one. An MCA that genuinely flexes with revenue is on much firmer ground than one that does not.

What this means for you as a borrower: an MCA from a reputable funder, with a factor rate in the normal range and a term of several months or more, will sit comfortably within the rules. Very short terms with high factor rates, or agreements with fixed daily debits that ignore sales, are where annualised cost climbs and where you should ask hard questions.

Provincial rules in Ontario

Ontario has no statute specific to merchant cash advances. The Consumer Protection Act applies to consumer transactions, not commercial ones, so an MCA to a registered business is outside it. The Payday Loans Act does not apply either. What does apply is ordinary contract law and the Personal Property Security Act (PPSA): most MCA agreements include a security interest in receivables or a general security agreement, and that registration is public. If you already have a bank facility, check whether your bank’s covenants prohibit further secured financing before you take an advance.

Personal guarantees are common. A guarantee of performance (that you will not divert sales to another account, for example) is normal. A guarantee of repayment regardless of business performance turns the product into something closer to a loan and deserves scrutiny.

Legal does not mean safe: what to check before signing

1. Total repayment in dollars. The factor rate times the advance, plus every fee, in one number.
2. Remittance mechanics. A percentage of sales, or a fixed daily amount? If fixed, is there a reconciliation clause that adjusts it when sales fall? Without one, you have a loan with an MCA label.
3. Reconciliation rights. Can you request a review of the daily amount if revenue drops? How quickly?
4. Confession of judgment or similar clauses. Rare in Canada but worth searching the document for. Walk away if you find one.
5. Security and guarantees. What is secured, what is registered under the PPSA, and what you personally guarantee.
6. Early payoff terms. Any discount for early repayment, or none.
7. Who you are dealing with. A direct funder or a broker placing you with someone else. Our guide to the best merchant cash advance companies in Canada covers how to tell them apart.

How Magical Business approaches this

Magical Business is a subsidiary of Magical Credit Inc., a Canadian lender operating since 2014, and we fund Ontario businesses directly. Every offer shows the factor rate, the holdback and the total repayment in writing before you accept. Remittances are a percentage of sales, so they fall when your sales fall. We do not charge application fees, and checking eligibility is a soft credit pull with no impact on your score. If an advance is not the right product for your situation, we will say so and point you elsewhere; our guide to business financing options in Canada is a good place to start.

See who qualifies or check your eligibility in two minutes.

Frequently asked questions

Are merchant cash advances regulated in Canada?

Not as a specific product. They are commercial contracts subject to general contract law, the federal criminal interest rate provisions, and provincial personal property security legislation. No province currently licenses MCA providers separately.

Does the 35% criminal interest rate apply to merchant cash advances?

It applies to credit advanced. Whether an MCA is credit depends on its structure. Commercial loans of $10,000 to $500,000 are permitted up to 48% APR, and loans above $500,000 are outside the cap. A true purchase of receivables that flexes with sales is generally treated as distinct from a loan, but a court can look through the label to the substance.

Can an MCA provider take my personal assets?

Only if you have signed a personal guarantee of repayment and the agreement is enforced. Read the guarantee clause carefully and ask what it covers.

Is a merchant cash advance a payday loan?

No. Payday loans are small, short-term consumer loans regulated under provincial payday lending acts. An MCA is a commercial transaction with a business.

What should I do if I think an MCA agreement is unfair?

Speak to a commercial lawyer before you stop remitting. In Ontario, the Small Business Enterprise Centres and the Canadian Federation of Independent Business can point you to affordable legal help.

Related reading: What a merchant cash advance costs · Merchant cash advance in Canada · Revenue-based financing · MCA vs business loan

Sources

Government of Canada, Criminal Interest Rate Regulations, published June 2024 and in force 1 January 2025. Summary by Borden Ladner Gervais LLP: Canada’s new criminal interest rate to take effect Jan 1, 2025. Criminal Code of Canada, section 347.