Is a Merchant Cash Advance a Loan? 4 Differences in Structure, Cost, and Risk

The label on the agreement never decided what the transaction was, and the price printed beside the label decides even less.

New York courts judge these contracts by substance rather than form, weighing whether repayment adjusts with receipts, whether the term runs to a fixed end, and whether the funder keeps recourse when the merchant fails. The opinion in LG Funding, LLC v United Senior Properties of Olathe, LLC, 181 AD3d 664, states the factors plainly, and the text of that appellate decision remains the instrument counsel reaches for before characterizing any file.

Four differences separate the advance from the loan, and each one lives in the documents rather than the marketing.

1. Repayment That Adjusts, or Repayment That Persists

A loan is repayable absolutely. The advance, in its purchase form, is repayable from receipts that may or may not arrive, and the reconciliation clause is the mechanism that gives the contingency meaning.

The transaction must be considered in its totality and judged by its real character, rather than by the name the parties have given it.

Where the adjustment sits in the sole discretion of the funder, courts have treated the contingency as decoration. The LG agreement permitted adjustment only at the discretion of the funder, and the court held that term plus absolute repayment provisions stated a triable defense, while a later appellate majority found two reconciliation provisions not illusory precisely because no sole discretion language appeared.

The contract called it a purchase.

But the daily amount never moved while receipts fell, and the payment history tells counsel more than the caption ever will. Any call with the funder about an adjustment, even briefly, should be documented before it is placed, since the record of requests made and ignored becomes the evidence used against the funder later.

2. A Price Expressed as a Spread, Not a Rate

The LG figures show the economics without adornment: $100,990 advanced against $129,267.20 to be repaid, a spread the opinions compute without ever using the industry label for it, and counsel should follow that restraint and price the file from its own figures.

Contrast the product PayPal actually sells under the loan name. The PayPal Working Capital terms describe a loan with a single fixed fee repaid as a percentage of PayPal sales, with minimum repayment every 90 days and WebBank identified as lender, which is a different animal wearing a clearer tag.

California now forces the comparison into the open. Disclosure regulations effective December 9, 2022 cover advances alongside loans, and the California disclosure release lists the required metrics as funding provided, finance cost, annual percentage rate, and payment information, so the funder who obscures the spread on page one must still state it where the state demands.

Whether every advance carries the same spread is a question the captured cases cannot answer, and the sample of opinions is not scientific, though the pattern across them holds.

3. A Term That Ends, or an Obligation That Accelerates

Loans mature. Advances conclude when the purchased amount is collected, and the distinction sharpens at default, where the LG agreement made the full uncollected balance plus fees and reasonable attorneys fees immediately due on events including bankruptcy.

The Bridge majority held the agreement before it a purchase as a matter of law, for 25 percent of future revenues, yet reversed summary judgment for failure of proof on damages, a result that should temper every confident characterization in either direction.

Most funders draft acceleration to survive the characterization fight. They prefer the label litigation to proceed without disturbing the debit schedule.

Counsel ensures the term, the default triggers, and the acceleration clause are read together before any advice issues, and ensures no statement about maturity is made without the payment history beside it.

4. Paper That Follows the Signature Beyond the Business

The LG signatories executed a personal guaranty of performance of the representations and covenants of the company, and the Bridge guarantor undertook the performance of the entity defendants, with the breach of guaranty claim dependent on the success of the underlying contract claim.

Enforcement paper extends further. The LG agreement required delivery of a confession of judgment on bankruptcy, and federal enforcers later alleged that certain providers weaponized confessions in order to pursue personal assets and obtain uncontested judgments, charges resolved in a January 2022 settlement that barred the respondents from the industry.

The FTC account of that settlement describes deceptive seizures from small businesses, and the order behind it restrains the settling parties from debiting without express informed consent. The conduct was egregious. It was also confined to its parties.

There is a particular silence in a conference room when the guaranty page turns and the owner first understands the signature. I have yet to meet the borrower who read that page twice before signing, though the funders draft it as if everyone does.

Delancey Street offers a confidential review of MCA characterization and business debt concerns. The company provides settlement services and coordinates legal matters with independently licensed counsel, and it is not a law firm. We review the agreement, identify the deficiencies, and construct a response that addresses both the contractual claims and the practical realities of the receipts.

Simply bring the contract, the statements, and the guaranty pages, and protect and preserve each notice the funder sends afterward. Steps taken, or not taken, in the first month decide the posture of the case, and resist the urge to sign a renewal that relabels the old balance without repricing it. The label never decided anything. The documents already did.