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 CLE webinar with Q&A

Conducted on Wednesday, August 23, 2017
Recorded event now available

This CLE webinar 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?


Catherine M. Brennan, Partner
Hudson Cook, Hanover, Md.

Ms. Brennan assists national and state banks, investment banks, commercial finance companies, savings associations, mortgage bankers and other licensed lenders in the development and maintenance of nationwide consumer mortgage and motor vehicle finance programs. She engages in consumer credit due diligence on behalf of investors of mortgage loan companies, mortgage loan servicers, Internet lenders, consumer finance companies, title loan companies and payday lenders.

Stefan Savic, Partner
Shipkevich, New York

Mr. Savic represents clients in all stages of litigation and alternative dispute resolution proceedings. His litigation practice focuses on commercial litigation in federal and state courts in various subject matters ranging from civil RICO claims to misappropriation of trade secrets, unfair competition, and breaches of fiduciary duties. He also assists businesses in avoiding costly litigation by assuring that clients have safeguards in place at all stages of business management. He works with clients on formation, employment, shareholders, and licensing agreements.

Mark T. Dabertin, Special Counsel
Pepper Hamilton, Berwyn, Pa.

Mr. Dabertin has over 25 years of broad-based experience in financial services law and consumer and regulatory compliance. His career includes extensive experience in consumer lending, safety and soundness, and anti-money laundering. His work in consumer and regulatory compliance at large financial institutions has been marked by innovations that resulted in fundamental structural changes to existing firm-wide compliance activities, including with respect to regulatory change management, risk assessments, and vendor management. Bank examinations that he either managed or co-managed while working in consumer and regulatory compliance positions included exams focused on fair lending, data privacy, and add on products. For most of these examinations, he authored the bank’s written responses to any legal or regulatory issues cited in supervisory letters. 


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Banking & Finance Law Advisory Board

Irving C. Apar


Thompson Hine

Mark N. Berman

Adjunct Professor

Northeastern University

Willa Cohen Bruckner


Alston & Bird

Lawrence Kaplan

Of Counsel

Paul Hastings

Kevin Petrasic


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Laura D. Richman


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Robert M. Stern


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