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Is a merchant cash advance actually a loan in disguise?
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Sometimes — and it's one of the most contested questions in merchant cash advance litigation. Courts (especially in New York) analyze whether a merchant cash advance is a true purchase of receivables or a disguised, usurious loan by looking at factors such as: whether there's a genuine reconciliation provision tying payments to actual revenue, whether the agreement has a finite term or open-ended repayment, and whether the funder has recourse if the business simply fails through no fault of its own. The more an agreement guarantees repayment regardless of the merchant's actual sales, the more it resembles a loan.
Why the answer matters so much
If a merchant cash advance is found to be a disguised loan, it may be subject to usury limits that can render it void or unenforceable — which is why this analysis matters and why an attorney should review the specific contract. The same facts can come out differently from state to state.