Purchase and Sale Agreement
The Purchase and Sale Agreement (PSA) is the foundational MCA contract document — establishing the legal characterization of the transaction as a purchase of future receivables rather than a loan — with terms defining the purchase price, the receivables purchased, repayment mechanics, and reconciliation rights.
Why This Matters
PSA structure is what legally distinguishes MCA from lending. Where a loan agreement establishes debt with required repayment, the PSA establishes a purchase of specified future receivables at a discount — the funder buys $65,000 of future receivables for $50,000 today. This characterization is critical: usury laws and most state lending laws apply to debt instruments but not to receivables purchases. The PSA must demonstrate genuine purchase characteristics including reconciliation rights (merchant can request payment adjustment if revenue declines), risk transfer (funder bears risk of merchant business failure beyond personal guarantee enforcement), and absence of fixed repayment obligation independent of revenue.
Frequently Asked Questions
Frequently Asked Questions
Why is MCA structured as a Purchase and Sale Agreement instead of a loan?
PSA structure avoids state usury laws and most lending regulations that apply to loans. The legal theory: MCA isn't lending money to be repaid; it's purchasing future revenue at a discount. The structure has been challenged in court but generally upheld when contracts demonstrate genuine purchase characteristics including reconciliation rights and risk transfer.
What makes a PSA legally enforceable as a purchase rather than a loan?
Genuine reconciliation rights (merchant can adjust payments if revenue declines), genuine risk transfer (funder bears business failure risk beyond personal guarantee), absence of fixed repayment date (repayment varies with revenue), and absence of acceleration on missed payment alone (acceleration tied to default events not just delayed payment).