True Sale: Meaning in a Merchant Cash Advance
A true sale is a transaction where the seller genuinely transfers ownership of an asset, along with its risk, to the buyer. A merchant cash advance is structured as a true sale of future receivables rather than a loan secured by them.
What does true sale mean?
When you sell something outright, it's no longer yours, and whatever happens to its value happens to the buyer. In a true sale MCA, the funder buys a share of your future sales. If those sales come in more slowly because business slows, the funder waits longer. If they never arrive because the business fails despite honest effort, the funder generally absorbs that loss.
Why does true sale matter to your business?
True sale status is what separates an MCA from a loan legally. It shapes the protections that come with your advance, like the right to reconciliation, and it affects which state laws apply. A contract that calls itself a sale but acts like a loan loses some of that footing if challenged.
What are the signs of a true sale?
A working reconciliation clause, no fixed repayment date and a funder that bears real risk if sales fall short.
What are signs something else is going on?
A fixed term, payments that never change with sales and full recourse no matter what happens.
Why do funders care too?
Funders build their business on the true sale structure, so well drafted contracts include real reconciliation rights. That's good for you, too.
Where will you see it?
In the opening language of most merchant agreements, which describe the transaction as a purchase and sale of future receivables, and in legal discussions about MCAs.
Is this legal advice?
This is general information, not legal advice.
Which terms are related to true sale?
The full list is in the glossary. Owners ask about this in What should I do if I get a demand letter from an MCA funder?.
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.