Presented by Strafford Publications, Inc.
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.
CLE credit available.