Abstract
Over the last several years, Merchant Cash Advances (“MCAs”) have risen in prominence as a form of short-term financing for distressed small businesses. MCA transactions are distinct from most small-business lending because they are not structured as loans at all. Rather, in exchange for a lump sum of cash, the merchant purports to sell to the funder an unidentified percentage of its future receipts or receivables. This structure allows funders to sidestep the application of lending regulations and usury protections, but it strains the foundations of commercial law and generates a host of interpretive challenges.
Bankruptcy, district, and circuit courts across the nation are grappling with the true nature of MCA transactions to determine what rights in the underlying receivables are transferred and when that transfer occurs. These issues rise in prominence if a merchant seeks bankruptcy protection, as the extent of the estate’s interest in property—and by extension the application of any number of bankruptcy provisions—hangs in the balance.
This essay provides a comprehensive analysis of MCA agreements and other forms of revenue-based financing. Drawing from a robust literature involving recharacterization of financial transactions, this essay advances an analytical framework for evaluating the nature of MCA transactions. It explores how recharacterization affects both bankruptcy and non-bankruptcy entitlements and offers commentary on related issues faced by courts.
Recommended Citation
Kara Bruce,
Desperation Finance: Merchant Cash Advances in Bankruptcy and Beyond,
42
Emory Bankr. Dev. J.
1
(2026).
Available at:
https://scholarlycommons.law.emory.edu/ebdj/vol42/iss1/1