Gregory J. Nowak, a partner with Pepper Hamilton and a practice leader for hedge funds in the firm’s Funds Services Practice Group, was quoted in the April 29, 2019 deBanked article, "Does Your Merchant Cash Advance Company Pass The Scrutiny Test?" The article appeared in deBanked's March/April 2019 magazine issue.
Most funders know that they are supposed to draw a bright line between merchant cash advance and lending, but it’s critical they put this knowledge into practice. Funders have to ensure the distinction is evident in their business lexicon, says Gregory J. Nowak, a partner in the Philadelphia office of law firm Pepper Hamilton LLP who focuses on securities law.
"Most judges want to see consistency of treatment and that includes your vocabulary," Nowak says. "The word 'loan' should be banned from their email and Word files."
Some companies have ample balance sheets and don’t need money from third parties to fund their operations. But funders that decide for business purposes to solicit money from investors, have to be careful not to run afoul of SEC rules, says Nowak, the attorney with Pepper Hamilton.
He recommends funders treat these fundraising efforts as if they are issuing securities and follow the rules accordingly. Otherwise they risk being the subject of an enforcement action where the SEC alleges they are raising money using unregulated securities. "You need to be very careful here because these rules are unforgiving. You can’t ignore them," Nowak says.