Structuring Merchant Cash Advances: Alternative Financing for Emerging Companies, Lessons From Recent Cases
Strafford Live CLE Webinars – Merchant Cash Advances
Merchant cash advances (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.
Catherine M. Brennan, Partner at Hudson Cook; Stefan Savic, Partner at Shipkevich and Mark T. Dabertin, Special Counsel at Pepper Hamilton, will equip finance counsel to structure and document MCA transactions. The panel will discuss recent cases that distinguish merchant cash advances from conventional loans. The panel will outline best practices for avoiding loan categorization, lender licensing requirements and the need to comply with usury statutes.
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?
or call 1-800-926-7926 ext. 10 (ask for Structuring Merchant Cash Advances on 8/23/17 and mention code: 3L1TJ1-71NDZY)