Is Your MCA Actually a Loan? 5 Features That Deserve Legal Review

The contract's title cannot settle the legal character of the transaction. An agreement described as a purchase of receivables may still require examination of whether repayment is absolute and what risk the funder actually assumed.

The distinction matters because different legal rules can follow from a loan classification. It does not permit an owner to declare the obligation invalid without reviewing the agreement and governing law.

1. Examine Whether Repayment Is Absolute

In LG Funding v. United Senior Properties, a New York appellate court discussed whether an MCA arrangement required absolute repayment. Its analysis considered reconciliation, finite term, and bankruptcy recourse.

Before drawing a conclusion, counsel should read the entire agreement and examine its performance. The issue concerns substance rather than whether the opening paragraph uses the word purchase.

Simply identifying a fixed collection amount does not complete the inquiry. Other provisions and the actual allocation of risk may matter.

We would ensure the owner understands the jurisdictional limit of the authority. A New York decision should not be presented as an identical rule governing every transaction nationwide.

The relevant question is what the parties actually undertook.

2. Review the Reconciliation Mechanism

A genuine adjustment process can matter to the analysis. Read how the business requests reconciliation, what records are required, and whether the terms permit collections to reflect actual receipts.

Gather requests, revenue statements, and responses. The presence of a clause does not establish how it operated when the business sought an adjustment.

Counsel can review and analyze whether the documents support the position advanced. An owner who submitted incomplete records may face a different factual issue from one whose completed request was rejected without the promised process.

Resist the urge to substitute a general account of unfairness for the chronology. Dates and attachments can explain the transaction more usefully than a conclusion written afterward.

3. Read the Term and Bankruptcy Provisions Together

A finite repayment term and recourse following bankruptcy are among the features discussed in the New York analysis. Their significance requires reading the specific language alongside the rest of the agreement.

Ask what happens if the business's receipts decline, cease, or become subject to a bankruptcy process. Which obligations remain, and which events permit recovery against a guarantor?

It is extremely important to distinguish a guaranty triggered by specified conduct from an assumption that every business failure creates identical liability. Counsel needs the actual undertaking.

A funder may describe the arrangement as risk sharing in order to support its legal position. The contract should show where that risk went.

There is a peculiar confidence in a transaction whose label does all the explanatory work. The operative provisions deserve the attention the heading receives.

An attorney should ensure any opinion accounts for amendments and renewal terms. A later agreement may alter the feature on which the owner initially relied.

Include any sales explanation that described how collections would change during a revenue decline. The representation does not replace the contract, but it can help counsel identify the factual questions requiring review. Keep the original message rather than a later paraphrase.

If records remain unavailable, identify the gap. A preliminary assessment should state what additional material could change the conclusion.

4. Separate Classification From the Available Remedy

A conclusion that a transaction is a loan does not answer every question about the applicable law, defense, or remedy. Borrower type and other statutory conditions may matter.

Bring formal notices to counsel. A disputed classification does not suspend response requirements by itself.

Keep the filing date visible.

5. Use the Analysis in a Broader Resolution Review

Delancey Street offers a free confidential initial review for owners evaluating MCA debt pressure. Its settlement role can support a discussion of negotiation while independently licensed counsel addresses legal characterization and defenses. The company is not a law firm; confirm eligibility and availability.

A legal issue may affect negotiation without guaranteeing a creditor's concession. The financial proposal should still reflect cash the business can provide after necessary expenses.

Protect and preserve the contract record and any accepted resolution. It is extremely useful to distinguish what counsel concluded from what the creditor actually agreed to change.

The legal label matters because it can alter the rules applied to the obligation. The owner needs an assessment that moves beyond the label, identifies the governing facts, and explains what those facts permit the business to do next.