Is Your Commercial Loan Usurious in New York?

It depends on the loan's size, the borrower and the true rate. The civil limit is 16% a year, but most loans of $250,000 or more are outside it and a corporation generally cannot raise it, while a rate above 25% a year is criminal usury, which a corporation can raise (General Obligations Law 5-501, 5-521; Penal Law 190.40). Loans of $2.5 million or more are outside every New York usury law, and a loan found usurious is void, not just reduced (Adar Bays v GeneSYS ID, 2021).

This page explains New York law. Usury questions often arise in short-term, high-cost business financing, where the stated rate looks modest but fees, discounts or other features push the real cost far higher. KOR Law LLP's debtor and creditor practice represents borrowers and guarantors raising usury, and lenders defending their loans against it. Usury often surfaces after a default, once the lender demands payment; what typically happens at that stage is laid out in what happens after a lender declares a commercial loan in default in New York.

What are the limits, by loan size and borrower?

The Court of Appeals summarized the structure in Adar Bays v GeneSYS ID (2021): New York usury law is made up of General Obligations Law 5-501, 5-511 and 5-521, Banking Law 14-a(1), and Penal Law 190.40. Put together:

New York usury limits by loan amount and borrower
Loan	Civil limit (16% a year)	Criminal limit (25% a year)	Rule
Under $250,000, borrower an individual	Applies	Applies	GOL 5-501(1), (2); Banking Law 14-a(1); Penal Law 190.40
Under $250,000, borrower a corporation	Corporation cannot raise it	Corporation can raise it as a defense	GOL 5-521(1), (3)
$250,000 to under $2.5 million (not secured primarily by a one or two family home)	Does not apply	Applies	GOL 5-501(6)(a)
$250,000 to under $2.5 million, secured primarily by a one or two family home	Applies	Applies	GOL 5-501(6)(a)
$2.5 million or more	Does not apply	Does not apply	GOL 5-501(6)(b)

Two counting rules matter. A loan of $250,000 or more advanced in installments under a written agreement is treated as a single loan for the total the lender agreed to advance (GOL 5-501(6)(a)). And loans or forbearances to one borrower aggregating $2.5 million or more under a written agreement are treated as a single loan for the threshold in 5-501(6)(b).

What counts as "interest"?

Not just the stated rate. The amount charged as interest "shall include any and all amounts paid or payable, directly or indirectly, by any person, to or for the account of the lender in consideration for making the loan or forbearance," as the Superintendent of Financial Services defines them (GOL 5-501(2); Banking Law 14-a(2)). In Adar Bays, the Court of Appeals held that the value of a floating-price option letting the lender convert the debt into stock at a fixed discount must be counted as interest when deciding whether a loan exceeds the criminal usury rate. The Court also recognized long-standing principles that an agreement to pay more or less than legal interest depending on a reasonable contingency is not usurious on its face, and that usurious intent and whether a transaction is a "cover for usury" are typically questions of fact.

Usury applies to a "loan or forbearance." A transaction that is genuinely something else, such as a purchase, may fall outside it, and the Court in Adar Bays noted that context helps distinguish an intent to borrow from other kinds of transactions. That is often the first battleground in a dispute over high-cost financing.

What happens if a loan is usurious?

Void. Contracts and securities reserving more than the 5-501 rate are void (GOL 5-511(1)), and a court that finds usury must declare the instrument void, enjoin its enforcement and order it surrendered and cancelled (GOL 5-511(2)).
Criminal-rate loans to corporations too. The Court of Appeals answered in Adar Bays that a loan found to charge interest above the 25% criminal rate is void from the start under GOL 5-511, including when the borrower is a corporation raising the criminal usury defense.
Recovery of excess. A person who paid more than the 5-501 rate may sue to recover the excess over the lawful rate (GOL 5-513).
Banks and thrifts. For savings banks and savings and loan associations, the consequence is forfeiture of interest rather than voiding the debt (GOL 5-511(1)).
Criminal exposure for the lender. Knowingly charging more than 25% a year is criminal usury in the second degree, a class E felony (Penal Law 190.40); the first-degree offense, a class C felony, adds aggravating circumstances such as a prior conviction or a usurious lending business (Penal Law 190.42).

Usury is a defense the borrower must establish. A concurring judge in Adar Bays stressed the borrower's heavy burden of proving usury by clear and convincing evidence, and the majority said its decision did nothing to alter the borrower's burden.

How do you evaluate a usury defense, step by step?

Fix the amount. Use the total the lender agreed to advance, applying the single-loan rules for installments and aggregated loans (GOL 5-501(6)).
Identify the borrower. An individual can raise civil usury; a corporation can raise only criminal usury (GOL 5-521(1), (3)). Whether an LLC or other entity counts as a "corporation" under that section's definition is a question to examine on the documents.
Check the collateral. A loan of $250,000 or more secured primarily by a one or two family home stays under the civil limit (GOL 5-501(6)(a)).
Add up everything the lender receives. Stated interest plus fees and other amounts paid for making the loan, and the value of features like conversion options (GOL 5-501(2); Adar Bays).
Annualize. Compare the effective annual rate with 16% and 25%, keeping in mind that contingent payments are judged by their reasonableness (Adar Bays).
Raise it properly. Plead usury as a defense in the answer or opposing papers, with the evidence, and consider any related claim for recovery of excess payments (GOL 5-513).

What changes the answer?

Loan size. Under $250,000, $250,000 to $2.5 million, or $2.5 million and up (GOL 5-501(6)).
Who borrowed. Individuals and corporations are treated differently (GOL 5-521).
A home as collateral. One or two family residence loans stay under the civil limit even above $250,000 (GOL 5-501(6)(a)). A narrow rule also lets certain corporations formed or acquired shortly before borrowing against a one or two family home raise usury (GOL 5-521(2)).
What the lender received. Fees and contingent features can count as interest (GOL 5-501(2); Adar Bays).
The nature of the deal. Usury requires a loan or forbearance; whether a transaction is one is often a question of fact (Adar Bays).
The lender's identity. Some federally insured or guaranteed loans are outside state rate limits (GOL 5-501(5)), and savings institutions face forfeiture of interest rather than a void debt (GOL 5-511(1)).

For example: a $150,000 bridge loan to a company and its owner

For example, imagine a $150,000, six-month bridge loan to a small corporation, personally guaranteed by its owner, at a stated rate of 12% a year plus a $15,000 "origination fee" withheld from the funds. (This is a made-up illustration, not a real client or result.) Counting the fee as interest paid for making the loan (GOL 5-501(2)), the lender receives about $24,000 for six months on $150,000, roughly 32% a year.

Because the borrower is a corporation and the loan is under $250,000, the corporation cannot raise civil usury, but at an effective rate above 25% it can raise criminal usury (GOL 5-521(3)), and under Adar Bays a criminally usurious loan is void. The lender would argue the fee was for separate services, and the borrower would have to prove usury by the evidence. The guarantor's position, and whether the guaranty itself waived defenses, would be analyzed separately; see what defenses a personal guarantor has when a New York lender sues.

Common mistakes

Looking only at the stated rate. Fees and other amounts paid for making the loan count (GOL 5-501(2)).
Assuming a corporation can raise civil usury. It cannot, below the criminal rate (GOL 5-521(1)).
Forgetting the thresholds. At $2.5 million or more, there is no usury defense at all (GOL 5-501(6)(b)).
Waiting to raise it. Raise it in the first response; a CPLR 3213 motion can move fast, as explained in what a CPLR 3213 motion is.
Signing away the facts. Forbearance agreements and reaffirmations that recite the debt as valid make later arguments harder; see what you give up when you sign a forbearance agreement.
Treating every high-cost deal as a loan. The first question is often whether the transaction is a loan or forbearance at all (Adar Bays).

What to do this week

Collect the note or financing agreement, the closing statement and every fee invoice.
Write down the amount the lender agreed to advance and the amount actually funded.
List every payment to the lender or its affiliates, with dates.
Note who the borrower is (individual, corporation or another entity) and what secures the loan.
Calculate a rough effective annual rate, then have a lawyer check the method; the rest of what to bring is in what to bring to a first meeting about a loan dispute.
If a confession of judgment was part of the deal, read whether a confession of judgment is enforceable in New York and act quickly.

Frequently asked questions

Is the civil usury rate 16% for every loan?

No. It applies to loans under $250,000, and to larger loans only if secured primarily by a one or two family home, and never to loans of $2.5 million or more (GOL 5-501(1), (6); Banking Law 14-a(1)).

Can a guarantor raise usury?

If the underlying loan is void as usurious, that affects what is owed. A guarantor's ability to raise it can also depend on the guaranty's waiver language and on who the borrower was, so read both documents together.

Does a default interest rate count?

The statute counts amounts paid or payable in consideration for making the loan (GOL 5-501(2)). How a post-default rate is treated can depend on the terms and the facts, and the analysis is worth doing before conceding the amount in any forbearance.

What does a "void" loan mean in practice?

The court declares the instrument void, enjoins prosecution on it, and orders it surrendered and cancelled (GOL 5-511(2)). Under Adar Bays, a criminally usurious loan is void from the start.

Can I recover usurious interest I already paid?

A person who paid more than the 5-501 rate may sue to recover the excess above the lawful rate (GOL 5-513).

Does usury matter after a foreclosure or deficiency judgment?

The defense must be raised in the case on the loan. Once a judgment is entered, the routes for relief narrow; see whether you can undo a default judgment in New York.

This page explains New York law in general terms. It is not legal advice and does not create an attorney-client relationship. Every case turns on its own facts and documents, and no particular outcome can be promised.

Is your commercial loan usurious under New York law?