A court or regulator determining that a transaction structured as an advance was, in substance, a loan.
The consequence is that usury caps, licensing requirements and lending law apply retroactively. Features that attract the argument include fixed payments that do not flex with receipts, reconciliation that is unobtainable in practice, a finite term in substance, and collection conduct that reads as debt collection.
Reconciliation
The contractual process by which a merchant can have their remittance adjusted when actual receipts fall short of what was projected.
Holdback
The percentage of daily card sales or bank deposits a funder takes until the advance is repaid.
Confession of judgment
A contractual clause in which a merchant agrees in advance to entry of judgment against them on default, without a hearing.
Usury
A legal cap on the interest rate that may be charged on a loan.
Personal guarantee
A commitment by the business owner to be personally liable if the business does not meet its obligations.
CFPB
The federal agency with rulemaking and enforcement authority over consumer financial products, and over small business lending data collection under Section 1071.
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