Countering the Usury Defense to Merchant Cash Advance Agreements – Part I

RECONCILIATION

A merchant cash advance is, in its simplest form, a buy-sell transaction where the advancer is the purchaser and the merchant is the seller. The purchaser offers a business (“merchant”) cash on hand in exchange for an interest in a certain amount of the merchant’s future receivables.

For example, a purchaser pays a merchant $100,000 to purchase $150,000 of the merchant’s future receivables (the “purchased amount”). The purchaser debits the merchant’s account in a specified amount, representing a percentage of the merchant’s anticipated receivables. The merchant’s account is debited directly, either daily, weekly, monthly, or on another schedule, until the purchased amount is received by the purchaser.

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