Choice of Law Clause: Meaning in a Merchant Cash Advance
A choice of law clause names which state's law governs the contract. In many merchant cash advance agreements, it's the funder's home state, no matter where your business operates.
What does choice of law clause mean?
Every state has its own contract rules, and they differ in ways that matter: how courts treat a purchase of receivables, whether certain clauses are enforceable and what remedies are available. A choice of law clause settles which set of rules applies. It's often paired with a venue clause saying where disputes are heard.
Why does choice of law clause matter to your business?
The governing law can affect how a dispute turns out, including whether a court treats your advance as a true sale or as a loan. You don't need to become an expert in another state's law, but you should know which state it is. If two offers are otherwise close, the one governed by a state whose rules are clearer to you or your attorney is worth considering.
Is it the only law that applies?
Some protections, like certain state disclosure requirements, apply based on where your business is located, regardless of the chosen law. A choice of law clause doesn't necessarily override those.
How do you read it with the venue clause?
Choice of law and venue often point to the same state, but not always. Read both together. A contract governed by one state's law and heard in another state's courts is unusual, and worth asking about before you sign.
Where will you see it?
Near the end of the merchant agreement, usually in a section called governing law.
Is this legal advice?
This is general information, not legal advice. For specifics, ask an attorney.
Which terms are related to choice of law clause?
The full list is in the glossary. Owners ask about this in What's the difference between an MCA approval and an offer?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.