In 2026, merchant cash advance debt relief is not limited to borrowers who have already defaulted. If you have not defaulted, you can still explore options. Plenty of owners believe otherwise. They ignore the merchant cash advance agreement and the UCC filing, don’t know which camp their contract falls into, “purchase” or “loan”, and wait until the first missed payment to make a phone call. But there is huge financial, legal and reputational risk in pausing payments unilaterally. The key is understanding your deal as a true sale of future receivables or as a disguised loan. This article will explain why, in a legal sense, it matters whether the advance was documented as a true sale of a percentage of receivables, or as a secured loan. It will summarize two decisions where the courts came to very different results, and it will provide a checklist of factors you can use to see where your contract lands on the spectrum. The goal is to help you ask the right questions before you make your next move.
MCA funders advance cash to a struggling business in exchange for a percentage of its future receivables collections. MCAs are typically structured as “purchases” of future receivables - so-called true sales. That way the funder owns the asset should the merchant go bankrupt. However, debtors and/or trustees are likely to argue that the contract is merely a disguised loan, and the funder is a secured creditor.
The distinction becomes critical the moment a bankruptcy petition is filed. If the transaction is a true sale, then the receivables are not property of the bankruptcy estate. Even after the petition date, the funder can continue to collect the receivables without interruption of the automatic stay. If the transaction is a loan, then the funder holds only a security interest in the receivable, and therefore can be constrained by the automatic stay, be subject to liens of competing secured creditors, and be evaluated under state usury law. Notice which way that cuts. A loan label is the one that helps the merchant: the funder has to respect the stay, may stand in line with other secured creditors, and its pricing can be tested against usury law. The sale label is the one the funder wants. Courts will look at your deal holistically, using a number of factors. There is no single, dispositive factor.
In Re Shoot the Moon
In In re Shoot the Moon, LLC (Bankr. D. Mont. 2021), CapCall had executed 18 agreements with a restaurant company and collected through ACH debits. The court concluded that the agreements were secured loans and violated state usury law. While the contract included an explicit “not a loan” provision, the court declined to give it any weight due to the self-serving nature of the language. The agreements granted CapCall a security interest in all of the merchant’s payment receivables, general intangibles and proceeds, as well as inventory, equipment, service marks and the like. The UCC filed by CapCall identified the merchant as the “debtor” not the “seller.” The merchant entered into a broad personal guarantee and broad power of attorney. The agreements also gave CapCall the right to debit any deposit account. Discussions between the two sides often involved words like “loan,” “terms,” and “balances.” CapCall made “stacked” and “rolled” advances of funds, and the merchant commingled the funds with CapCall’s knowledge. The court saw that rolling as a loan habit, since in a real sale the funder would have to keep rebuying and reselling the same future receivables.
Not everything cut against CapCall. Specifically, the court noted that the agreements did not provide for any repurchase provisions and that the merchant could not change the price terms. That would seem to cut in favor of the sale argument. But it said that it did not outweigh the other factors, and that it would be rare for every factor in this kind of deal to point the same way.
R&J Pizza
In In re R&J Pizza Corp. (Bankr. E.D.N.Y. 2020), Merchant Cash & Capital won the battle. The contracts indicated that the funds would be advanced as “purchases” of receivables, using the language of seller and purchaser. To facilitate receipt of funds, the parties executed a processing agreement with Newtek Merchant Solutions that provided card receipts flow directly to the funder. The agreements did not grant a security interest, the funder had no recourse if the receivables were not collected, and the agreements did not give the funder the right to charge interest, however long it took to collect. The guarantee in the agreements was limited to misrepresentations and similar acts. After filing for bankruptcy, the pizzeria switched its card processor without the MCA’s consent and failed to route funds. The court held the funder owned the receivables.
So what does any of this mean for an owner who has not defaulted yet? First, it means you do not have to wait. The time to pull out every agreement and UCC filing is now, while you are current.
Second, the factors that made the transaction in Shoot the Moon look like a secured loan - a security interest in a broad range of other collateral, a UCC that described you as the “debtor,” the broad personal guarantee, the broad power of attorney, the right to debit any deposit account, conversations that used the words “loan,” “terms,” and “balances,” “stacked” and “rolled” advances, and commingling - are the things you want to be looking at.
Third, the factors that made the transaction in R&J Pizza look like a true sale - the sale language in the documents, no recourse, no interest no matter how long it took to collect the receivables, a guarantee for only misrepresentation, etc. - are also the things you want to be looking at.
Fourth, that the same set of factors led to opposite conclusions demonstrates that no one can give a guarantee. We are not a law firm, we are a settlement firm. An attorney would need to evaluate your agreements and give you a legal opinion.
Fifth, it means you don’t switch card processors or direct the receivables on your own, which is what R&J Pizza did after it filed. The court sided with the funder.
Finally, it means that knowing where your contract leans tells you how strong your bargaining position is even before you miss a payment.
A business can explore debt relief options even if it has not fallen behind on a Merchant Cash Advance. Businesses should carefully review their MCA agreements and UCC filings while they are current on payments, and get a legal opinion from an attorney. It is impossible to predict what a court will decide. If you are still current on a merchant cash advance, but feel as though you have zero bargaining power in negotiations with the funder, it is time to start asking questions. Don’t make the mistake of pausing your payments and putting your business at risk before you understand your rights.
