If you are behind on a merchant cash advance in 2026, it can feel as if the funder holds every card. Business owners have more power in an MCA agreement than you think. An MCA provider gives a struggling business cash. It buys a slice of the company’s receivables in the future. The funder does it this way because if you run out of money and file for bankruptcy, ownership means the money is the funder’s, not your company’s, and the bankruptcy trustee can’t take it away. That is the theory, anyway. A bankruptcy trustee or the company in bankruptcy could argue that the transaction was merely a secured loan. Much of your leverage sits in that argument. So the separation between MCA and loan matters a lot.
The Difference Between a Loan and an MCA
Here is why: a true sale of receivables isn’t part of a company’s property, and so the bankruptcy court’s “automatic stay” doesn’t stop collections of those receivables. For a secured loan, the funder only has a security interest, and so the automatic stay does apply. They might have to fight for their money against other creditors. And what’s that interest rate again? Might be usurious. Usury is normally not an issue in a true sale, which is one more reason funders label their contracts the way they do.
Many MCAs have a little bit of both. Some agreements look like a sale on the surface and say so, but underneath they have things more like a loan, like sweeping, general personal guarantees, power of attorney, or a right to tap any of the business bank accounts. The difference between a loan and an MCA is a fine line. And courts will dig past the titles. They care about the behavior. Like almost anything, the courts look at all the facts, and no one fact will determine the outcome. The fact that the agreement says it’s a “sale” doesn’t necessarily prove that it is. It’s hard to imagine a situation where every fact would clearly point to the same side.
Two Cases
Notably, the courts came out on opposite sides of a similar issue in two cases. This highlights the importance of the specific language of the contract and the conduct of the funder throughout the term of the deal. In the first, In re Shoot the Moon (Bankr. D. Mont. 2021), a restaurant group had signed eighteen separate merchant agreements with a funder called CapCall, which was repaid through ACH debits from the company’s bank accounts. The merchant agreements gave CapCall “a security interest in all payment intangibles, general intangibles and all proceeds” and also covered inventory, equipment, and service marks. Because the agreement was so broad, it looked more like a loan than a sale of receivables. CapCall’s UCC filings listed Shoot the Moon as a ‘debtor’, and CapCall’s other communications referred to ‘loans’, ‘terms’, and ‘balances’. This ‘course of dealing’ was evidence that CapCall was a lender and Shoot the Moon was its borrower. CapCall also held a broad personal guarantee, a power of attorney and the right to debit any of the company’s deposit accounts. On top of that, the funder kept rolling the money from one sale into the next and knew the merchant was commingling its funds. According to the court, this would only make sense in a loan, not a purchase of accounts receivable, because in a purchase the funder would have to buy and sell the receivables again and again. The court decided these were all secured loans and that they violated the state usury law.
The second case, In re R&J Pizza (Bankr. E.D.N.Y. 2020), went the other way. There, the purchase agreements gave no lien, used the terms ‘sale’ and ‘purchaser’ throughout, left the funder without recourse if the funder didn’t collect, charged no interest regardless of how long the funder took to collect, and the personal guarantee only addressed lies and other affirmative acts. The pizzeria also had to run its card sales through one designated processor and kept no right to collect or commingle that money. The court found the agreements were true sales.
These decisions are a few years old, but they show the kinds of things a court weighs. You need to read your advance contract very carefully to see whether the MCA contract has characteristics of a loan or a sale. Does your contract allow the funder to take everything, not just your receivables? Did the funder list you as a ‘debtor,’ or did it check the ‘seller’ box? Does the personal guarantee apply to just lying, or does it also cover when you’re just broke? Can the funder go after just your business checking account or any of your accounts? Does the funder have a power of attorney? Does it send emails and make calls saying ‘loan’, ‘balance’ and ‘terms’, or does it roll one advance into the next? The more of these answers look like Shoot the Moon, the weaker the funder’s claim to be a simple buyer of receivables.
Pressure in a Negotiation
That is where the leverage comes from. Your funder knows where the rocks are in their contract and where their processes fall down. So they have an incentive to work out an agreement instead of wasting time arguing in court that the deal was a loan and not a sale. However, you can’t automatically assume that the court will find in your favor, because there are a lot of different factors that the court will weigh, and those courts have ruled different ways with fact patterns that are very similar to each other. There’s really no way to know what a court will decide, because it depends on the contract, and it also depends on what the funder actually did during the course of the transaction. In both cases the question came up in bankruptcy, so it is best treated as pressure in a negotiation rather than a promise of a win. A debt settlement company (not a law firm) can help sort out all the paperwork and payments before you start negotiating.
