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Structuring Merchant Cash Advances: Alternative Financing for Emerging Companies, Lessons From Recent Cases

Documenting True Sale and Contingent Payments; Avoiding Loan Categorization; UCC, Licensing and Usury Considerations

Recording of a 90-minute premium CLE webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Wednesday, August 23, 2017

Recorded event now available

or call 1-800-926-7926

This CLE course will equip finance counsel to structure and document merchant cash advance transactions. The panel will discuss recent cases that distinguish merchant cash advances (MCAs) from conventional loans, and outline best practices for avoiding loan categorization, perfecting a UCC security interest, and complying with state licensing and usury statutes.


MCAs have become a working capital financing alternative for startups and emerging businesses that may not have access to traditional lending sources. MCAs can be structured as either an upfront sum of cash in exchange for a slice of a company's future credit and debit card sales, or upfront cash that is repaid by remitting fixed daily or weekly debits from the company's bank account.

The most important concern for MCA businesses is structuring the transaction as a sale rather than a loan. By structuring the transaction as a sale, the MCA business can avoid having to apply for the commercial lending licenses, and state usury laws should be inapplicable.

The payment structure is also important. Payments should be conditioned on receipt of revenue as opposed to an unconditional obligation to repay principal and interest. The trade-off for the MCA business in agreeing to this contingency is a higher return on the advance made.

Recent cases brought by “borrowers” who allege violation of usury statutes are instructive on the issue of when an MCA might be categorized as a loan rather than a sale of accounts.

Courts have looked closely at how payment terms are structured as well as whether the transaction is documented as a true sale. There are also UCC and bankruptcy considerations that hinge on those and other issues.

Listen as our authoritative panel discusses best practices for structuring and documenting MCAs. The panel will also discuss recent cases and provide practice tips to avoid treatment of an MCA transaction as a loan subjecting the provider to licensing requirements, usury laws and other regulatory constraints.



  1. Merchant cash advances distinguished from conventional loans
    1. Sale of assets (accounts), not a loan secured by assets
    2. Payments contingent on receipts as opposed to a payment of agreed interest rate
    3. Not subject to usury statutes
    4. Not subject to licensing requirements placed on financial institutions
  2. Structuring and documenting MCAs
  3. UCC and bankruptcy treatment of MCAs
  4. Recent case law and lessons learned


The panel will review these and other key issues:

  • Why is a “true sale” important in structuring an MCA?
  • How do payment structures differ between an MCA and a traditional loan?
  • What does recent case law suggest about structuring MCAs?
  • How are MCAs treated in bankruptcy?


Brennan, Catherine
Catherine M. Brennan

Hudson Cook

Ms. Brennan assists national and state banks, investment banks, commercial finance companies, savings associations,...  |  Read More

Savic, Stefan
Stefan Savic


Mr. Savic represents clients in all stages of litigation and alternative dispute resolution proceedings. His litigation...  |  Read More

Dabertin, Mark
Mark T. Dabertin

Special Counsel
Pepper Hamilton

Mr. Dabertin has over 25 years of broad-based experience in financial services law and consumer and regulatory...  |  Read More

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