Recourse: Meaning in a Merchant Cash Advance
Recourse is the right to recover a loss from someone. In financing, a recourse arrangement lets the funder come back to you if the money isn't collected, while a non-recourse arrangement leaves the funder to absorb the loss.
What does recourse mean?
In a true merchant cash advance, the funder has limited recourse. If your sales fall short because business slows, the funder takes that risk. But if you break the contract, for example by diverting sales or closing on purpose, the funder has recourse against the business and, through the guarantee, against you.
Why does recourse matter to your business?
How much recourse a funder has is central to whether an advance is a real purchase of receivables. A contract that lets the funder recover the full amount no matter what happens looks more like a loan. Knowing where the line sits in your contract helps you understand your risk.
How does recourse work in factoring?
In recourse factoring, you buy back invoices your customers don't pay. In non-recourse factoring, the factor absorbs certain losses.
Why does recourse matter in court?
When courts decide whether an MCA is really a loan, one of the key questions is whether the funder had recourse if the business simply didn't generate the expected sales. A contract with little or no recourse in that situation looks more like a true purchase. That's why reconciliation and the absence of a fixed term matter so much.
Where will you see it?
In the risk of loss, default and guarantee sections of the merchant agreement. The term also shows up in invoice factoring contracts.
Is this legal advice?
This is general information, not legal advice.
Which terms are related to recourse?
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.